Circ re. Proposals

 

TIDMINFS 
 
RNS Number : 3346G 
Infoserve Group PLC 
29 January 2010 
 

                              Infoserve Group Plc 
 
 
  Proposed conversion of debt into equity, new loan facilities and approval of 
                                  Rule 9 waiver 
 
 
                            Notice of General Meeting 
 
 
Infoserve Group Plc ("Infoserve" or the "Company") is pleased to announce that 
it has entered into conditional agreements with David Hood, the Company's senior 
non-executive director and major shareholder, relating to the conversion of 
GBP2m of existing loans from David Hood into new Ordinary Shares and the 
provision by David Hood of a further loan facility of up to GBP800,000. 
 
 
The issue of the new Ordinary Shares to David Hood would increase his 
shareholding in the Company from 46.86% to 82.84%. The Panel has agreed to grant 
a waiver of the obligation that would otherwise arise for David Hood to make an 
offer to acquire all of the Ordinary Shares not already owned by him, subject to 
the approval of Independent Shareholders. 
 
 
The Proposals are conditional upon the passing of a resolution to be proposed at 
a General Meeting to be held on 18 February 2010 and on the admission of the 
Debt Conversion Shares to trading on AIM. It is expected that such admission 
will become effective and dealings will commence in the Debt Conversion Shares 
on 19 February 2010. 
 
 
A circular containing further details on the Proposals is expected to be posted 
to shareholders today and will be available on the Company's website at 
www.infoservegroup.com. 
 
 
 
 
Steve Barnes, CEO of Infoserve, commented: "Once again, David Hood has shown his 
commitment to Infoserve and his new support for us gives us the opportunity to 
develop in key growth areas for the future. 
 
 
A recent comScore report showed that the UK online search market grew by 35% in 
2009, and so local search, which accounts for 60% of all online search activity, 
will continue to offer increasing opportunities for both business advertisers 
and companies like ours that enable those advertisers to be found when consumers 
are searching." 
 
 
 
 
+--------------------------------------+---------------------------------+ 
| For further information, please      | www.infoservegroup.com          | 
| contact:                             | Tel: [phone]              | 
| Infoserve Group Plc                  |                                 | 
| Steve Barnes, Chief Executive        |                                 | 
| [e-mail]           |                                 | 
|                                      |                                 | 
+--------------------------------------+---------------------------------+ 
| Jonathan Simpson, Finance Director   | Tel: [phone]              | 
| [e-mail]       |                                 | 
|                                      |                                 | 
+--------------------------------------+---------------------------------+ 
| Nominated Adviser                    | Tel: [phone]              | 
| WH Ireland Limited                   |                                 | 
| Robin Gwyn                           |                                 | 
+--------------------------------------+---------------------------------+ 
 
 
  Introduction 
 
 
The Company announces that it has entered into conditional agreements with David 
Hood, the Company's senior non-executive director and major shareholder, 
relating to the Debt Conversion and the provision by David Hood of a further 
loan facility of up to GBP800,000 to the Group. 
 
 
The issue of the Debt Conversion Shares will result in David Hood increasing his 
shareholding in the Company from 46.86 per cent. to 82.84 per cent. of the 
enlarged issued share capital which, as Infoserve is a company which is subject 
to the Code, would ordinarily result in David Hood having to make an offer 
pursuant to Rule 9 of the Code to acquire all of the Ordinary Shares not already 
owned by him. However, as described in further detail below, the Panel has 
granted a waiver of this obligation, subject to the approval of Independent 
Shareholders. 
 
 
Information on the Company 
 
 
Infoserve is an e-marketing company specialising in local search. The Company 
helps businesses, particularly small and medium-sized enterprises, to increase 
their profile through on-line marketing. It does this through its own network of 
over 100 single industry vertical directories and its City Visitor on-line 
directory and by selling local advertising on Yahoo!Local and on Google. 
 
 
Background to and reasons for the Proposals 
 
 
On the admission of its Ordinary Shares to trading on AIM in June 2006, the 
Company raised approximately GBP1.6 million (after expenses) by way of a placing 
of Ordinary Shares. In June 2007, Infoserve raised a further GBP1.88 million 
(after expenses) by way of a placing to finance the recruitment and training of 
additional sales staff to manage a new contract with Yahoo! 
 
 
Notwithstanding this additional funding, and despite an improvement in trading 
results following a strategic cost review in October 2007 which resulted in a 
substantial amount of overhead expenditure being taken out of the business, the 
Group has continued to experience significant annual cash outflows, principally 
attributable to trading losses and the cost of expanding the sales team and 
developing new products. The Group has introduced a number of measures to 
preserve cash, including pay cuts, restrictions on capital expenditure and the 
further reduction of overheads, as well as agreeing deferred payment schedules 
with certain creditors. 
 
 
In the announcement of the Company's results for the year ended 31 March 2009, 
released on 13 July 2009, the Board commented that, despite an improved trading 
performance, the Group remained under-capitalised and was unlikely to be able to 
continue to grow at its current rate without additional funding. The Board also 
announced that it was considering a number of potential financial options, 
including the possibility of raising new capital from existing shareholders, and 
had also commenced discussions with David Hood about the raising of further 
funds. It was further stated that any additional funding would potentially 
involve the conversion of existing debt into equity. The Group has since 
announced that it had been unable to raise further funds from existing 
shareholders (other than David Hood) and that it was accordingly continuing its 
discussions with David Hood. 
 
 
The Proposals represent the terms on which David Hood is prepared to provide 
further funding to the Group. In the opinion of the Independent Directors, these 
Proposals represent the only source of finance available to the Company on 
acceptable terms. 
 
 
Should Shareholders not approve the Resolution to be proposed at the General 
Meeting, the Independent Directors believe that the additional funding measures 
which David Hood has agreed to make available to the Group may not be made 
available and that, as a result, the Company would not have sufficient working 
capital for its present requirements and may be unable to continue to trade as a 
going concern. In this event, the Directors may have to consider placing the 
Company into administration. 
Details of the Debt Conversion and the New David Hood Loan 
 
 
On 28 January 2010 David Hood entered into an agreement with the Company and the 
Subsidiary pursuant to which, conditionally upon the passing of the Resolution 
and the admission of the Debt Conversion Shares to trading on AIM, the 
Subsidiary has agreed to repay GBP2 million of the Existing David Hood Loans and 
David Hood has directed the Company to apply the amount so repaid in the 
subscription of the Debt Conversion Shares at a subscription price of 5p per 
Ordinary Share.  Immediately following the Debt Conversion, and assuming that 
the date of completion of the Debt Conversion is 19 February 2010, the amount 
outstanding under the Existing David Hood Loans would be GBP1,548,553, including 
all accrued interest. 
 
 
If the Debt Conversion takes place, the Company will issue 40,000,000 new 
Ordinary Shares to David Hood. Immediately following completion of the Debt 
Conversion and the issue of the Debt Conversion Shares, the aggregate number of 
Ordinary Shares in issue (being the Debt Conversion Shares and the Existing 
Ordinary Shares) would be 59,073,441 Ordinary Shares (ignoring for this purpose 
the Share Options which have been granted but have not been exercised as at the 
date of this document). On this basis, David Hood would hold 82.84 per cent. of 
the Ordinary Share Capital of the Company in issue immediately following the 
issue of the Debt Conversion Shares. 
 
 
Under the terms of the Debt Conversion Agreement, David Hood has agreed not to 
transfer, sell, charge or otherwise dispose of the Debt Conversion Shares for a 
period of 12 months from the date of the agreement without the Company's prior 
written consent. The restriction on David Hood is subject to certain exceptions, 
for example, the acceptance of an offer for the Company made by any person other 
than David Hood or a person acting in concert with David Hood. 
 
 
On 28 January 2010 David Hood also entered into the New Loan Agreement relating 
to the provision of the New David Hood Loan, being an initial facility of 
GBP550,000, together with a further facility of GBP250,000 which is to be made 
available in the event that the Company's existing overdraft facility of 
GBP250,000 is withdrawn.  The New Loan Agreement and the availability of the New 
David Hood Loan are conditional upon the Debt Conversion Agreement becoming 
unconditional and completion of the Debt Conversion taking place. The New David 
Hood Loan is repayable in equal monthly instalments of GBP12,500 commencing on 
31 January 2012. Interest shall accrue at a rate of 10 per cent. per annum. 
David Hood has indicated that he would wish that the Company provide some form 
of security in respect of the New David Hood Loan. The Company intends to 
discuss any such proposal with David Hood following completion of the Debt 
Conversion taking place. 
 
 
David Hood has also agreed to the deferral and waiver of certain sums owing to 
him or companies connected with him, further details of which are set out in the 
Circular. 
 
 
Application will be made for the Debt Conversion Shares to be admitted to 
trading on AIM. It is expected that such admission will take place and dealings 
will commence on 19 February 2010. 
 
 
Related Party Transactions 
 
 
In view of the size of his shareholding, David Hood is deemed to be a 
substantial shareholder and, accordingly, the Debt Conversion and the New David 
Hood Loan are deemed to be related party transactions for the purposes of the 
AIM Rules. The Independent Directors consider, having consulted with WH Ireland, 
the Company's nominated adviser, that the terms of the Debt Conversion and the 
New David Hood Loan are fair and reasonable insofar as the Independent 
Shareholders are concerned. 
 
 
Relationship Agreement 
 
 
David Hood has entered into a relationship agreement with the Company and WH 
Ireland (conditional upon the Debt Conversion taking place), further details of 
which are set out in the Circular. 
 
 
The City Code on Takeovers & Mergers 
 
 
The issue by the Company of the Debt Conversion Shares gives rise to certain 
considerations under the Code. Brief details of the Panel, the Code and the 
protections they afford to Shareholders are described below. 
 
 
The Code is issued and administered by the Panel. The Code applies to all 
takeover and merger transactions, however effected, where the offeror company 
is, inter alia, a listed or unlisted public company with its place of central 
management in the United Kingdom. The Company is such a company and Shareholders 
are entitled to the protections afforded by the Code. 
 
 
Under Rule 9 of the Code, any person who acquires an interest (as defined in the 
Code) in shares which, taken together with shares in which he is already 
interested and in which persons acting in concert with him are interested, carry 
30 per cent. or more of the voting rights of a company which is subject to the 
Code, is normally required to make a general offer to all the remaining 
shareholders to acquire their shares. 
 
 
Similarly, when any person, together with persons acting in concert with him, is 
interested in shares which, in aggregate, carry not less than 30 per cent. of 
the voting rights of a company but does not hold shares carrying more than 50 
per cent. of such voting rights, a general offer will normally be required if 
any further interests in shares are acquired by any such person, or any person 
acting in concert with him which increases the percentage of shares carrying 
voting rights in which he is interested. 
 
 
An offer under Rule 9 must be made in cash and at the highest price paid by the 
person required to make the offer, or any person acting in concert with him, for 
any interest in shares of the company during the 12 months prior to the 
announcement of the offer. 
 
 
Upon the issue of the Debt Conversion Shares, David Hood will be interested in 
48,937,707 Ordinary Shares representing approximately 82.84 per cent. of the 
Company's enlarged issued voting share capital. 
 
 
The Panel has agreed to waive the obligation to make a general offer that would 
otherwise arise as a result of the issue of the Debt Conversion Shares, subject 
to the approval of the waiver by Independent Shareholders. Accordingly, the 
Resolution is being proposed at the General Meeting and will be taken on a poll 
of Independent Shareholders. David Hood is disenfranchised from voting on the 
Resolution and has undertaken not to vote on the Resolution. 
 
 
Following the issue of the Debt Conversion Shares, David Hood will hold more 
than 50 per cent. of the Company's issued voting share capital and, accordingly, 
may further increase his interest in shares without incurring any obligation 
under Rule 9 to make a general offer. 
 
 
Information on David Hood 
 
 
Technology entrepreneur David Hood is Senior Non-Executive Director of the 
Company. David founded Pace Micro Technology plc and plotted the company's 
growth through the 1980s and 1990s until its float in 1996. David also owns and 
operates Multiflight Limited, an aircraft charter, training and engineering 
company based at Leeds Bradford International Airport. 
 
 
Intention of the potential controlling shareholder 
 
 
It is the intention of David Hood that, following implementation of the 
Proposals, the business of the Company be continued in substantially the same 
manner as at present, with no major changes. He has also confirmed that he has 
no intention to make any material amendment to the existing employment of the 
Group's employees or directors, to any conditions of employment, including 
pension rights or to the location of the Company's place of business. David Hood 
has also confirmed that there is no current intention to re-deploy the Company's 
fixed assets. 
 
 
General Meeting 
 
 
At the General Meeting to be held at The Café Bar, Multiflight Training Centre, 
South Side Aviation, Leeds Bradford International Airport, Leeds, LS19 7UG at 
9.00 a.m. on 18 February 2010, the Resolution will be proposed to approve the 
waiver granted by the Panel referred to above of the obligation which would 
otherwise arise for David Hood to make a general offer to Shareholders under 
Rule 9 of the Code as a result of the issue of the Debt Conversion Shares. 
 
 
The Resolution will be proposed as an ordinary resolution of the Company, 
requiring a majority of the votes cast on such resolution to be in favour. In 
accordance with the requirements of the Code, the Resolution will be taken on a 
poll of Independent Shareholders. 
 
 
Effect of Resolution not being approved 
 
 
Should Shareholders not approve the Resolution to be proposed at the General 
Meeting, the Independent Directors believe that the additional funding measures 
which David Hood has agreed to make available to the Group may not be made 
available and that, as a result, the Company would not have sufficient working 
capital for its present requirements and may be unable to continue to trade as a 
going concern. In this event, the Directors may have to consider placing the 
Company into administration. 
 
 
Recommendation 
The Independent Directors, who have been so advised by WH Ireland, consider that 
the Proposals and the waiver of the obligation on David Hood to make an offer to 
acquire the shares in the Company not already owned by David Hood which would 
otherwise arise under Rule 9 of the Code upon the issue of the Debt Conversion 
Shares are fair and reasonable and in the best interests of the Company and the 
Independent Shareholders as a whole. In providing advice to the Independent 
Directors, WH Ireland has taken into account the Independent Directors' 
commercial assessments. 
Accordingly, the Independent Directors recommend that Shareholders vote in 
favour of the Resolution to be proposed at the General Meeting as those 
Independent Directors who are Shareholders have irrevocably undertaken to do in 
respect of their own beneficial holdings, amounting to, in aggregate, 3,611,368 
Ordinary Shares representing approximately 18.93 per cent. of the Company's 
current issued voting share capital. 
 
 
Expected timetable of principal events 
 
 
+-------------------------------------------------------+----------------------+ 
| Last time and date for receipt of Forms of Proxy      |      9.00 a.m. on 16 | 
|                                                       |        February 2010 | 
+-------------------------------------------------------+----------------------+ 
|                                                       |                      | 
+-------------------------------------------------------+----------------------+ 
| General Meeting                                       |      9.00 a.m. on 18 | 
|                                                       |        February 2010 | 
+-------------------------------------------------------+----------------------+ 
|                                                       |                      | 
+-------------------------------------------------------+----------------------+ 
| Expected date of admission of the Debt Conversion     |     19 February 2010 | 
| shares to trading on AIM                              |                      | 
+-------------------------------------------------------+----------------------+ 
 
 
 
 
                                  DEFINITIONS 
 
 
The following definitions apply throughout this announcement, unless the context 
requires otherwise: 
 
 
+------------------------+-----------------------------------------------------+ 
| "2004 Loan"            | the loan facility made available to the Group by    | 
|                        | David Hood pursuant to the Existing Loan Agreement; | 
+------------------------+-----------------------------------------------------+ 
| "2006 Act"             | the Companies Act 2006;                             | 
+------------------------+-----------------------------------------------------+ 
| "2008 Loan"            | the further loan facility made available to the     | 
|                        | Group by David Hood on 20 October 2008 pursuant to  | 
|                        | the Existing Loan Agreement (as amended);           | 
+------------------------+-----------------------------------------------------+ 
| "Act"                  | the Companies Act 1985 (as amended);                | 
+------------------------+-----------------------------------------------------+ 
| "AIM"                  | a market operated by the London Stock Exchange;     | 
+------------------------+-----------------------------------------------------+ 
| "AIM Rules"            | the AIM Rules for Companies governing the admission | 
|                        | to and operation of AIM published by the London     | 
|                        | Stock Exchange from time to time;                   | 
+------------------------+-----------------------------------------------------+ 
| "Board" or "Directors" | the directors of the Company as at the date of this | 
|                        | announcement;                                       | 
+------------------------+-----------------------------------------------------+ 
| "Circular"             | the circular to shareholders to be dated 29 January | 
|                        | 2010;                                               | 
+------------------------+-----------------------------------------------------+ 
| "Code"                 | the City Code on Takeovers and Mergers;             | 
+------------------------+-----------------------------------------------------+ 
| "Company" or           | Infoserve Group plc;                                | 
| "Infoserve"            |                                                     | 
+------------------------+-----------------------------------------------------+ 
| "Debt Conversion"      | the proposed repayment of GBP2,000,000 of the       | 
|                        | Existing David Hood Loans and the application of    | 
|                        | this amount in the subscription of the Debt         | 
|                        | Conversion Shares;                                  | 
+------------------------+-----------------------------------------------------+ 
| "Debt Conversion       | the conditional agreement entered into on 28        | 
| Agreement"             | January 2010 between David Hood, the Company and    | 
|                        | the Subsidiary relating to the Debt Conversion;     | 
+------------------------+-----------------------------------------------------+ 
| "Debt Conversion       | 40,000,000 Ordinary Shares proposed to be issued    | 
| Shares"                | pursuant to the Debt Conversion;                    | 
+------------------------+-----------------------------------------------------+ 
| "Existing David Hood   | the 2004 Loan and the 2008 Loan;                    | 
| Loans"                 |                                                     | 
+------------------------+-----------------------------------------------------+ 
| "Existing Loan         | the agreement entered into on 19 November 2004      | 
| Agreement"             | between David Hood, the Subsidiary and the Company  | 
|                        | (as subsequently amended on 25 April 2006, 2 June   | 
|                        | 2006 and 20 October 2008) relating to the provision | 
|                        | of the Existing David Hood Loans;                   | 
+------------------------+-----------------------------------------------------+ 
| "Existing Ordinary     | 19,073,441 Ordinary Shares in issue at the date of  | 
| Shares"                | this announcement;                                  | 
+------------------------+-----------------------------------------------------+ 
| "Form of Proxy"        | the form of proxy for use by Shareholders in        | 
|                        | connection with the GM, which is enclosed with the  | 
|                        | Circular;                                           | 
+------------------------+-----------------------------------------------------+ 
| "General Meeting" or   | the general meeting of the Company to be held at    | 
| "GM"                   | The Café Bar, Multiflight Training Centre, South    | 
|                        | Side Aviation, Leeds Bradford International         | 
|                        | Airport, Leeds, LS19 7UG at 9.00 a.m. on            | 
|                        | 18 February 2010 (or any adjournment thereof),      | 
|                        | notice of which is set out in the Circular;         | 
+------------------------+-----------------------------------------------------+ 
| "Group"                | the Company, its subsidiaries and subsidiary        | 
|                        | undertakings;                                       | 
+------------------------+-----------------------------------------------------+ 
| "Independent           | the Directors other than David Hood;                | 
| Directors"             |                                                     | 
+------------------------+-----------------------------------------------------+ 
| "Independent           | the Shareholders other than David Hood;             | 
| Shareholders"          |                                                     | 
+------------------------+-----------------------------------------------------+ 
| "LSE"                  | London Stock Exchange plc;                          | 
+------------------------+-----------------------------------------------------+ 
| "New David Hood Loan"  | the loan facility of up to GBP800,000 proposed to   | 
|                        | be provided to the Group by David Hood              | 
|                        | conditionally upon the Debt Conversion Agreement    | 
|                        | becoming unconditional and the completion of the    | 
|                        | Debt Conversion taking place;                       | 
+------------------------+-----------------------------------------------------+ 
| "New Loan Agreement"   | the conditional agreement entered into on 28        | 
|                        | January 2010 between David Hood, the Subsidiary and | 
|                        | the Company relating to the provision of the New    | 
|                        | David Hood Loan;                                    | 
+------------------------+-----------------------------------------------------+ 
| "Ordinary Shares"      | ordinary shares of 5 pence each in the capital of   | 
|                        | the Company;                                        | 
+------------------------+-----------------------------------------------------+ 
| "Panel"                | the Panel on Takeovers and Mergers;                 | 
+------------------------+-----------------------------------------------------+ 
| "Proposals"            | the proposals set out in this document, comprising  | 
|                        | the Debt Conversion and the New David Hood Loan;    | 
+------------------------+-----------------------------------------------------+ 
| "Resolution"           | the resolution to be put to Shareholders at the     | 
|                        | General Meeting as set out in the notice of General | 
|                        | Meeting which is set out in the Circular;           | 
+------------------------+-----------------------------------------------------+ 
| "Share Options"        | the EMI Options and the Unapproved Share Options;   | 
+------------------------+-----------------------------------------------------+ 
| "Shareholders"         | holders of Ordinary Shares;                         | 
+------------------------+-----------------------------------------------------+ 
| "Subsidiary"           | Infoserve Limited, a wholly owned subsidiary of the | 
|                        | Company which is incorporated and registered in     | 
|                        | England and Wales with number 3867903;              | 
+------------------------+-----------------------------------------------------+ 
| "WH Ireland"           | WH Ireland Limited.                                 | 
+------------------------+-----------------------------------------------------+ 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
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