BDI.L Regulatory News (BDI)

For immediate release 21 October 2010

Bond International Software Plc

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

Acquisition of VCG and Conditional Placing of 3,505,083 new Ordinary Shares and 4,720,558 new Non-Voting Convertible Shares at 75 pence per Ordinary Share to raise approximately £6.17 million (before expenses)

The Board of Bond is pleased to announce today that the Company has agreed to acquire VCG, LLC ("VCG") and certain promissory notes issued by VCG (the "Acquisition").

Additionally, the Company has conditionally raised approximately £6.17 million (before expenses) by way of the issue of 3,505,083 new Ordinary Shares and 4,720,558 new Non-Voting Convertible Shares (together the "Placing Shares") to Constellation Software Inc. ("Constellation") at a placing price of 75 pence per share to fund the consideration for the Acquisition.

Following its acquisition of the Placing Shares Constellation and its related parties will hold 24 per cent. of the Company's ordinary share capital.

Completion of the Acquisition, and the issuance of the Placing Shares to Constellation (the "Placing"), is conditional, inter alia, upon resolutions being passed at the General Meeting of the Company to be held on 12 November 2010. The Placing Shares are expected to be admitted to trading on 15 November 2010.

Information on VCG

VCG is a front office and back-office software provider to the staffing industry. VCG's business software solutions for the staffing industry address a number of vertical segments including, amongst others, light industrial, commercial, executive search and direct hire. VCG's products and services address the needs of customers in front office staffing sales, recruiting and placement activity as well as back office functionality with everything from temporary and contract payroll to client billing. Their technology is utilised by over 250 clients and 9,600 staffing professionals across the United States. VCG currently offers two main product lines - Pointwing and Staffsuite - and continues to support three legacy products - C-PAS, WebPAS and Tempware-V.

VCG generates revenues from software licence sales, maintenance, related consultancy services and software-as-a-service.

In the year ended 31 December 2009 VCG had revenues of US$6,785,000 of which $5,674,000 was revenue of a recurring nature under annual maintenance agreements or through providing software-as-a-service. In the same period the company made an EBITDA of US$2,046,000 and a profit before tax of US$374,000.

At 31 December 2009 VCG's business had net assets of US$1,047,000 including debt under loan notes of US$6,368,000, some of which are convertible into equity. Bond will purchase certain of these loan notes for cash as part of the Acquisition.

The net assets of VCG will be incorporated into Bond's group accounts at their fair value at the date of completion of the Acquisition.

Background to and reasons for the Placing

The net proceeds of the Placing will be used to pay the cash consideration due to the existing equity holders of VCG and the holders of certain existing loan notes issued by VCG, pay the costs of the transaction and to fund the repayment by VCG of certain promissory notes that are not purchased by Bond under the Note Purchase Agreement.

Details of the Acquisition

Pursuant to the Merger Agreement and the Note Purchase Agreement it has been agreed that:

·; VCG will merge with and into an indirect, wholly owned subsidiary company of Bond ("Bond US"), with Bond US being the surviving entity under the name "VCG, LLC" and succeeding to and assuming all of the rights and obligations of VCG, in exchange for the payment to the existing equity holders of VCG, of an aggregate consideration of approximately US$1,089,901, plus or minus an adjustment to reflect any excess or deficiency in the expected working capital of VCG's business (capped at US$500,000). As a result of such merger, VCG, LLC will be an indirect, wholly-owned subsidiary of Bond;

·; Bond will purchase certain promissory notes issued by VCG (together with the associated security rights) from the existing note holders for an aggregate consideration of approximately US$7,260,817, which represents the aggregate amount of principal and interest then outstanding under such notes. As a result of such note purchase (and following the redemption described in the following sentence), Bond will be the holder of all of VCG's then outstanding indebtedness for borrowed money; and

·; simultaneously with completion of the Acquisition, Bond will contribute approximately US$649,282 to VCG for the purposes of enabling VCG to redeem certain promissory notes that are not purchased by Bond under the Note Purchase Agreement and to repay certain indebtedness and expenses of VCG required to be repaid at or prior to completion pursuant to the Merger Agreement.

The amounts payable that are included in the transaction descriptions above are estimated based on a target closing date of 12 November 2010. The actual amounts payable in such transactions will not be finalised until the closing date is fixed for such transactions, provided that in all events the aggregate consideration payable by Bond and its affiliates pursuant to such transactions shall be US$9,000,000 (plus or minus the amount of the capped working capital adjustment described above).

Under the terms of the Merger Agreement, US$500,000 of the consideration payable by Bond shall be held in an escrow account for 18 months and applied towards satisfaction of any liabilities arising under the Merger Agreement, including any adjustment to reflect a deficiency in the working capital of VCG's business upon completion and any liability under the indemnities set out in the Merger Agreement.

The Merger Agreement is subject to the approval of (i) the holders of at least a majority of the votes held by all equity holders of VCG and (ii) the holders of 66.67 per cent. of the outstanding preferred equity units of VCG. Members representing in the aggregate approximately 80 per cent. of both the outstanding votes held by all equity holders and the outstanding preferred equity units have undertaken to vote in favour of approving the Merger Agreement. It is anticipated that such approval will be obtained shortly after the date of this announcement and, in any event, prior to the General Meeting.

Current Trading and Prospects of Bond

As detailed in the unaudited interim results for the six months ended 30 June 2010 released on 23 September 2010, the first half of 2010 has been difficult for the Company with the Bond group seeing revenues down by 11 per cent. at £15,144,000 compared with £17,057,000 in 2009. This resulted in an operating profit before joint ventures and amortisation of intangible assets of £1,062,000 (2009: £2,383,000) and a loss before tax of £680,000 (2009: profit £799,000).

As also highlighted in the trading update on 3 September 2010, the second half of the year has started off on a more positive note. Whilst the staffing division has experienced difficult trading conditions the other divisions have proved more resilient to the effects of the recession primarily as a result of their high levels of recurring income. Consequently, as the market for staffing software returns the Board believes the Group's revenues and profitability should improve.

The Group is seeing some signs that the market for staffing software is recovering. The rate at which customers are reducing or cancelling maintenance has fallen to virtually nothing and, as their businesses start to grow again some of its customers have started to purchase additional user licences or upgrades. Furthermore whilst prospect lists have remained strong throughout the recession the most common decision the group has faced from customers has been to postpone the proposed investment in its software. The Group is now starting to see some more positive decision making and whilst none of this evidence of recovery in the staffing market is conclusive and neither does it indicate the speed of recovery, the Board firmly believes that the worst is over and that business will start to improve in the last quarter.

Related Party Transaction

Constellation is a substantial shareholder of the Company and by virtue of this deemed to be a related party for the purposes of the AIM Rules for Companies.

Constellation is the sole subscriber of New Ordinary Shares and Non-Voting Convertible Shares in the Placing. Immediately following completion of the Placing, Constellation (together with its group companies and concert parties) will hold 24 per cent. of the issued Ordinary Shares and 100 per cent. of the issued Non-Voting Convertible Shares. Pursuant to the terms of the Non-Voting Convertible Shares, the holder of such shares is not entitled to convert them to Ordinary Shares if as a result of such conversion the aggregate holding of Ordinary Shares of such holder and their group companies and concert parties would exceed 24 per cent. of the voting rights of the Company (or 29.9 per cent. from 20 October 2015).In addition, Constellation has entered into the Standstill Agreement, summarised below.

Pursuant to the terms of the Subscription Agreement relating to the Placing, Constellation will be entitled to appoint a director to the board of the Company (and remove such person) for so long as it (together with its group companies and concert parties) has an interest in 20 per cent. or more of the issued Ordinary Share capital of the Company, such director to be approved by the Company, such consent not to be unreasonably withheld.

Upon completion of the Placing, Constellation's nominated director, Mark Leonard, will enter into an engagement letter which will provide that Mr. Leonard is not entitled to a fee from Bond in connection with such engagement and that he shall cease to be a director, inter alia, if removed pursuant to the terms of the Subscription Agreement, as summarised in the Circular.

Standstill Agreement

In addition, pursuant to the terms of the Standstill Agreement, Constellation has undertaken to the Company that for a period of five years from the date of the Standstill Agreement it will not, and it will procure that members of its group, its concert parties and Mark Leonard will not, without the prior written consent of the Company acquire any interest in Ordinary Shares if as a result it or such other parties, either alone or in aggregate, would have an interest in 24 per cent. or more of the voting rights of the Company. The Standstill Agreement will terminate if completion of the Acquisition has not occurred on or before 30 November 2010.

Constellation is also a current holder of certain of the promissory notes issued by VCG, and will receive approximately US$4,776,937 cash consideration under the Note Purchase Agreement. 

The Acquisition (insofar as it relates to Constellation) and the Placing are related party transactions for the purposes of the AIM Rules.

Having consulted with Cenkos Securities, the Board considers that the terms of the Acquisition and the Placing are fair and reasonable insofar as the Shareholders as a whole are concerned. In providing advice to the Board, Cenkos Securities has taken into account the Board's commercial assessments in relation to the Acquisition and the Placing.

Constellation has irrevocably undertaken to vote in favour, or procure the vote in favour of the resolutions to be proposed at the General Meeting in respect of the Ordinary Shares held by it and its group members and concert parties which in aggregate represent 15.95 per cent. of the issued ordinary share capital of the Company.

Definitions

Unless otherwise stated in this announcement, the same definitions apply throughout this announcement as are applied in the Circular. 

The Circular containing details of the Acquisition and the Placing, together with a notice convening the General Meeting of Bond shareholders to be held on 12 November 2010, is being posted to shareholders today and will be available on the Company's website: bondinternationalsoftware.com. A copy of Bond's proposed new articles of association, which incorporate the terms of the Non-Voting Convertible Shares and which it is proposed will be adopted at the General Meeting, are also available on the Company's website.

Commenting on today's news, Chief Executive, Stephen Russell said' "I am delighted to announce the acquisition of VCG which reinforces our position as the global leader in the supply of software to the worldwide staffing industry. VCG's impressive client list and product portfolio will strengthen the Group and their high level of recurring revenues closely fits Bond's business model.

I am also pleased to note that the Group is starting to see signs of an improving market for staffing software and the Board firmly believes the worst effects of the recession on the staffing industry are over and prospects for business are improving".

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