24 Aug 2010 07:00
24 August 2010
REDSTONE PLC
("Redstone", "the Company" or "the Group")
Fundraising of £8.5 Million
Redstone plc (AIM: RED.L), the integrated ICT and Communications Solutions provider, today announces a fundraising of £8.5m and gives notice of a General Meeting to be held on 8 September 2010.
Summary
§ New funding for the Company of approximately £8.5 million through:
o a conditional placing of 1,304,800,000 new Ordinary Shares at a price of 0.5 pence per share to raise approximately £6.5 million;
o a subscription for 100,000,000 new Ordinary Shares at a price of 0.5 pence per share to raise £0.5 million; and
o the injection of a further £1.5 million under the 2009 Convertible Loan Note and the conversion of the entire outstanding principal sum of £4.5 million into new Ordinary Shares at the Placing Price.
§ The purpose of the fundraising is to strengthen the Company's balance sheet, provide working capital and to fund the future development of its business.
§ The fundraising has been arranged in conjunction with a restructuring of the Company's debt obligations including extended banking facilities and a settlement of the liability of £2.9 million outstanding in relation to the Eckoh Loan for a total sum equal to £1.5 million.
§ General meeting, to be held on 8 September 2010, convened for the purpose of considering the Resolutions which will give the Directors the necessary authorities to allot the New Ordinary Shares and the Subscription Shares.
§ Following conclusion of the General Meeting, Stephen Yapp, Executive Chairman of the Company, will resign from the Board. Non-Executive Directors, Ian Smith and Tony Weaver will be appointed Executive Chairman and Chief Executive Officer respectively.
§ MXC Capital, representing the interests of Ian Smith and Tony Weaver, Non-Executive Directors of the Company, has agreed to invest a sum of £1 million in the Company which will be effected by the purchase of 100,000,000 Eckoh Settlement Shares pursuant to the Eckoh Settlement and by subscription for the Subscription Shares under the Subscription Agreement.
Ian Smith, Non-Executive Director of Redstone plc commented, "We have been delighted by the level of support shown by investors for Redstone, reinforcing the belief Tony and I have in this business and the investment we are making into its future. This fundraising and refinancing will significantly strengthen the Company's balance sheet, giving us a solid foundation to implement our revised strategy. We are confident that we now have the platform in place to capitalise on opportunities in the UK ICT sector and deliver tangible value to shareholders."
A circular setting out details of the fundraising and giving notice of a General Meeting on 8 September 2010 to approve the fundraising and associated provisions will be sent to Shareholders today and will be available on the Company's website www.redstone.co.uk.
ENQUIRIES:
| Redstone plc | Tel. +44 (0)845 203 3903 |
| Stephen Yapp, Executive Chairman |
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| FinnCap | Tel. +44 (0)20 7600 1658 |
| Marc Young, Charlotte Stranner |
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| Threadneedle Communications | Tel. +44 (0)20 7653 9850 |
| Caroline Evans-Jones, Josh Royston, Fiona Conroy |
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The following has been extracted from the circular which will be sent to shareholders today:
LETTER FROM THE DEPUTY CHAIRMAN OF REDSTONE PLCRedstone plc
(Incorporated and registered in England and Wales under the Companies Act 1985 with registered number 3336134)
Directors: Registered Office:
Stephen Yapp (Chairman) Building B - Office 10
Peter John Hallett (Chief Financial Officer) Kirtlington Business Centre
David Graham Payne (Non-executive Director) Slade Farm
Timothy Sherwood (Non-executive Director) Kirtlington
Andrew Ian Smith (Non-executive Director) Kidlington
Anthony Charles Weaver (Non-executive Director) Oxfordshire
OX5 3JA
To Shareholders
24 August 2010
Dear Shareholder,
Placing of 1,304,800,000 new Ordinary Shares at a price of 0.5 pence per shareSubscription for 100,000,000 new Ordinary Shares at a price of 0.5 pence per shareand Notice of General Meeting
1. Introduction and summary
The Company today announces a conditional placing of, in aggregate, 1,304,800,000 new Ordinary Shares at a price of 0.5 pence per share to raise approximately £6.5 million (before commissions and expenses) and a conditional subscription for 100,000,000 new Ordinary Shares at a price of 0.5 pence per share to raise £0.5 million (on or before 31 December 2010) in conjunction with the injection of a further £1.5 million under the 2009 CLN together providing new funding for the Company of approximately £8.5 million in aggregate. The purpose of the Placing is to strengthen the Company's balance sheet, provide working capital and to fund the future development of its business. The Placing and the Conversion has been arranged in conjunction with a restructuring of the Company's debt obligations including extended banking facilities and a settlement with Eckoh summarised in paragraph 9 below.
The Initial Placing will significantly strengthen the Company's financial position and will provide it with a strong platform to execute its strategy. The Initial Placing, which was well supported by a number of blue chip institutional investors, is, the Directors believe, a clear signal that the Company and its strategy have merit.
As part of the negotiations relating to the Placing and the Conversion, the Company has agreed a settlement of the Eckoh Loan with Eckoh. Eckoh will be paid £0.5 million in cash by the Company and, subject to shareholder approval, shall be issued 200,000,000 Ordinary Shares in consideration for waiving all sums due under the Eckoh Loan. This arrangement is conditional on the Initial Placing.
Following conclusion of the General Meeting, Stephen Yapp, Executive Chairman of the Company, will resign from the Board. As part of Stephen's severance package, he has agreed to subscribe for the Compromise Shares at a price equivalent to the Placing Price.
The Proposals are conditional, inter alia, upon the Company obtaining approval from its Shareholders to grant the Board authority to allot the New Ordinary Shares and the Subscription Shares and to disapply statutory pre-emption rights which would otherwise apply to the allotment of the New Ordinary Shares and the Subscription Shares. Accordingly, the General Meeting is being convened for the purpose of considering the Resolutions which will give the Directors the necessary authorities to allot the New Ordinary Shares and the Subscription Shares.
2. Background to and reasons for the Placing
The Company raised up to £6 million of committed funding in September 2009 by creating the 2009 CLN. As at the date of this announcement, the Company has issued £4.5 million of Loan Notes pursuant to the 2009 CLN and these proceeds have been utilised for general working capital purposes. However, the nature of the 2009 CLN, combined with the existing debt facilities provided to the Company, resulted in a high level of gearing in the Company. As a consequence, the Company was unable to capitalise upon certain business opportunities that it was well placed to deliver from an operational perspective.
Therefore, the Directors decided that it was in the best interests of the Company to seek to recapitalise the business by means of an equity fundraising to reduce the Company's gearing and to renegotiate its banking facilities. This initiative has been combined with the strengthening of the Board by the appointment of Ian Smith and Tony Weaver as Non-Executive Directors of the Company.
The Company has conditionally raised approximately £7.0 million (before expenses) pursuant to the Placing in conjunction with certain other agreements to restructure its financial commitments as follows:
·; agreement in principle to extend and improve banking facilities (summarised in paragraph 10 below);
·; conversion of the Loan Notes by converting the outstanding £4.5 million principal sum into OrdinaryShares at a price equivalent to the Placing Price (with no associated conversion premium); and
·; settlement of the entire outstanding loan from Eckoh by the issue of the Eckoh Settlement Shares and the payment of £0.5 million in cash to Eckoh.
The Board is aware that the potentially dilutive nature of the Placing may not be attractive to Shareholders. However, having explored the alternatives, the Board believes that the Placing, which will provide the Group with the financing it requires to secure its future, is the appropriate course of action.
Without further equity funding, following the Drawdown, the level of gearing in the Company would, in the Directors' opinion, be unsustainable. If the Resolutions are not passed, the Company would be unlikely to be able to continue to trade and in such circumstances, it is unlikely that the Ordinary Shares would have any value.
3. Current trading and prospects
Against an uncertain political and economic environment, coupled with the weak financial position of the Company, the Company has continued to trade in line with management's expectations. The Company was loss making in the financial period to 31 March 2010. The Group has failed to secure certain new business that was well within its technical and operational abilities which the Directors believe was due to the weakness of the Company's balance sheet, however many existing customers have continued to support the Group while it has sought to strengthen its financial position. During this time, the Group has continued to build upon its position to deliver new products and services to the market, keeping the group in the top quartile in its chosen markets. There has been a great deal of uncertainty surrounding the Birmingham Building Schools for the Future contract recently and although the position remains unclear, 5 schools of a contracted total of 39 have reached financial closure and a further 8 schools are expected to reach financial closure within 2 months of the date of this announcement. The Group expects to release its financial results for the period ended 31 March 2010 before the end of September 2010.
The Placing will significantly strengthen the Company's balance sheet and will provide the Group with the financial stability to compete on a more effective basis in line with its revised strategy set out below in paragraph 4. The last few months have been challenging and the Directors would like to thank the Company's employees for their continued hard work and professionalism and customers for their ongoing support.
4. Future business strategy of the Company and current intentions
The Directors believe that, following Admission, Redstone will be well placed to build upon its position within the ICT sector. As part of the Company's ongoing strategy, the Directors plan to conduct an operational review of the Company's businesses. The Directors believe that there is significant value within the Group that can be unlocked by the potential disposal of certain non-core assets. In addition, the Directors have identified significant potential cost saving initiatives that, allied to focussing on higher margin revenue streams, should allow the Company to target normalised EBITDA margins of approximately 10 per cent. excluding any exceptional costs incurred in delivering the revised business strategy.
In the opinion of the Directors, the ICT sector offers attractive opportunities to further consolidate and the Directors believe Redstone will provide an attractive base for such corporate activity. Consequently, Redstone proposes to grow both organically and through acquisitions in those parts of its market that the Directors believe are attractive. This will help to assist the Company in achieving the goal of delivering normalised EBITDA margins of approximately 10 per cent. excluding any exceptional costs incurred in delivering the revised business strategy.
5. The Placing
The Company has conditionally raised approximately £7.0 million (before expenses) through the proposed issue of the Placing Shares at the Placing Price, which represents a discount of approximately 73.3 per cent. to the closing middle market price of 1.875 pence per Existing Share on 23 August 2010, being the last practicable date prior to the publication of this announcement. The Placing Shares will represent 53 per cent. of the Company's issued ordinary share capital following completion of the Proposals and the Conversion.
The Placing Agreement
Pursuant to the terms of the Placing Agreement, finnCap has conditionally agreed to use its reasonable endeavours, as agent for the Company, to place the Initial Placing Shares with certain institutional and other investors at the Placing Price. The Placing Agreement is conditional upon, inter alia, the Resolutions being duly passed at the GM and Admission becoming effective on or before 8.00 a.m. on 9 September 2010 (or such later time and/or date as the Company and finnCap may agree, but in any event by no later than 8.00 a.m. on 30 September 2010).
The Placing Agreement contains warranties from the Company in favour of finnCap in relation to, inter alia, the accuracy of the information in this announcement, the fact that the Group has and will have sufficient working capital for its present requirements, that is for at least 12 months following Admission, and other matters relating to the Group and its business. In addition, the Company has agreed to indemnify finnCap in relation to certain liabilities it may incur in respect of the Initial Placing. finnCap has the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event of a material breach of the warranties.
Under the Placing Agreement and subject to it becoming unconditional in all respects and not being terminated in accordance with its terms, the Company has agreed to pay finnCap, together with any applicable value added tax, a commission of 5 per cent. and a corporate finance advisory fee.
The Subscription Agreement
Pursuant to the Subscription Agreement, MXC Capital Limited has conditionally agreed to subscribe for, and Ian Smith and Tony Weaver have agreed to procure that MXC Capital Limited shall subscribe for the Subscription Shares at a price equivalent to the Placing Price at any time after Admission and on or before 31 December 2010. The Subscription Shares shall be issued and allotted to MXC Capital Limited upon receipt by the Company of full and cleared funds.
Participation of Directors
MXC Capital, representing the interests of Ian Smith and Tony Weaver, has agreed to invest a sum of £1 million in the Company which will be effected by the purchase of 100,000,000 Eckoh Settlement Shares pursuant to the Eckoh Settlement and by subscription for the Subscription Shares under the Subscription Agreement. Following the Loan Note Transfers and subsequent Conversion, MXC Capital will be interested in 200,000,000 Ordinary Shares. Therefore upon Admission and following the purchase of 100,000,000 Eckoh Settlement Shares, MXC Capital will be interested in 300,000,000 Ordinary Shares representing approximately 11.7 per cent. of the Enlarged Issued Share Capital. Upon admission to trading on AIM of the Subscription Shares, MXC Capital will, assuming the Company does not issue any further Ordinary Shares after Admission, be interested in 400,000,000 Ordinary Shares representing approximately 15.0 per cent. of the Enlarged Issued Share Capital together with the Subscription Shares.
David Payne has agreed as part of the Initial Placing to subscribe for 4,000,000 Initial Placing Shares. Upon Admission and following Conversion, David Payne will be interested in 8,050,000 Ordinary Shares representing approximately 0.3 per cent. of the Enlarged Issued Share Capital.
MXC Capital, Peter Hallett and David Payne have agreed not to dispose of the Conversion Shares held by each of them respectively for a maximum of 24 months after the Admission Date (the "Lock-in Period"). Additionally, they have each agreed, following the expiry of the Lock-in Period, not to dispose of any of their interests in the Ordinary Shares held by them other than through finnCap and in consultation with finnCap subject to being offered terms as to price and rates of commission at least as favourable as those being offered by any other broker at that time.
Settlement and dealings
Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that such Admission will occur on 9 September 2010.
The New Ordinary Shares will, when issued, rank pani passu in all respects with the Existing Shares including the right to receive dividends and other distributions declared following Admission.
Application will be made to the London Stock Exchange for the Subscription Shares to be admitted to trading on AIM. It is expected that such Admission will occur on or before 31 December 2010.
The Subscription Shares will, when isssued, rank pani passu in all respects with the Existing Shares including the right to receive dividends and other distributions declared following such shares being admitted to trading on AIM.
6. Use of Proceeds
The Directors intend that the proceeds of the Placing will be used to strengthen the Company's balance sheet, provide capital to execute the Company's strategy and to repay the cash element of the Eckoh Settlement.
7. Loan Note Transfers
The Company has been informed that SVG Investment Managers Limited (in its capacity as general partner of Strategic Recovery Fund II) and SVG Capital plc (in its capacity as co-investor of Strategic Recovery Fund II) have agreed to sell the Loan Notes held in their name to certain other parties, including Gartmore, MXC Capital Limited, Peter Hallett and David Payne.
The Loan Note Transfers are conditional on the Resolutions being passed by Shareholders at the General Meeting.
8. Conversion of the Loan Notes
The Noteholders have served notice on the Company to convert the entire outstanding principal sum under the 2009 CLN into Ordinary Shares at a price equivalent to the Placing Price. The Conversion is conditional on completion of the Loan Note Transfers. In consideration of the Company issuing the Conversion Shares, the Noteholders have agreed to waive the Repayment Premium.
After Conversion, the Conversion Shares will represent approximately 35.1 per cent. of the Enlarged Issued Share Capital.
9. Eckoh Settlement
In full and final settlement of the liability of £2.9 million outstanding in relation to the Eckoh Loan, the Company has agreed to pay to Eckoh a settlement fee of £500,000 in cash and issue it with the Eckoh Settlement Shares, which have an aggregate value of £1 million at the Placing Price. As part of this arrangement, the Company has agreed to procure purchasers for 100,000,000 of the New Ordinary Shares issued pursuant to the Eckoh Settlement (as described in paragraph 5) and Eckoh has agreed not to dispose of the remaining Eckoh Settlement Shares for a period of 12 months from Admission. The Company has agreed to waive any right to receive payment for such Eckoh Settlement Shares.
10. Revised Banking Facilities
10.1 The Group has agreed in principle to amend, subject to the satisfaction of various conditions precedent, the terms of its existing senior debt facilities with Barclays Bank PLC to effect the following key changes:
·; an extension of the final repayment date by two years and three months to 31 December 2013;
·; an amendment to its existing hedging arrangements;
·; a variation of the repayment profile;
·; restructuring of the various fees payable in respect of the facilities;
·; variation to the restrictions on acquisitions by the Group;
·; an increase in the limit permitted for third party asset finance facilities and other financial indebtedness;
·; a variation to the financial covenants including a holiday from financial covenant testing for a limited period and a one-off right to elect not to test the financial covenants during a limited period;
·; a consent to the settlement with Eckoh plc (more particularly described in paragraph 9 above);
·; an amendment to the excess cash flow sweep provisions which will now commence two years later than originally provided for, with effect from 31 March 2012.
The proposed amendments to the senior facilities are conditional upon (among other things) the Eckoh Settlement and release of all security granted by the Company to Eckoh, the Conversion and the release and discharge of the 2009 CLN (in the terms set out in paragraph 8 of this announcement), including the release of all security granted therefor, the issue of warrants in the Company to Barclays Bank PLC (see paragraph 10.2 below) and the Company having received no less than £5 million (before expenses) as a result of the Placing.
10.2 Issue of Warrant Shares
Further to the amendments set out in paragraph 10.1, Barclays Bank PLC has agreed to treat the sum of £600,000 in respect of fees owed to it by the Company in relation to the existing facilities (as amended) with the Company as satisfied by the issuance of fully paid warrants over 28,000,000 Ordinary Shares equivalent to £140,000 at the Placing Price. Each warrant will entitle the holder to receive, upon exercise, one Ordinary Share at an exercise price equal to the Placing Price. The warrants may be exercised at any time from the date of Admission. The warrants will be freely transferable (in any multiple).
11. Proposed Board Changes
Following the conclusion of the General Meeting, Stephen Yapp, Executive Chairman of the Company, has agreed to resign from the Board. Contemporaneously, Ian Smith and Tony Weaver, both Non-Executive Directors of the Company, will be appointed as Executive Chairman and Chief Executive Officer respectively. The Board wishes to thank Stephen for his contribution over the past year; he joined the Company in order to help to stabilise and safeguard the business and he leaves having negotiated what is hoped to be a successful refinancing and equity fundraising putting the business in what the Directors believe to be a strong position for strategic growth.
As part of Stephen's severance package, he has agreed to apply £50,000 in subscription for 10,000,000 new Ordinary Shares at a price equivalent to the Placing Price.
12. Capital structure following the Placing
Following Admission, the Company will have 2,560,572,810 Ordinary Shares in issue. The Company will also have authority to allot options up to 10 per cent. of the Enlarged Issued Share Capital, together with the Subscription Shares, further details of which can be found in paragraph 13 below.
Following Admission, the interests of the Directors and of Gartmore in the Enlarged Issued Share Capital of the Company will be as follows:
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| Number of Ordinary Shares | % of Enlarged Issued Share Capital |
| Stephen Yapp | 10,000,000 | 0.39 |
| Peter Hallett | 20,000,000 | 0.78 |
| David Payne | 8,050,000 | 0.31 |
| Timothy Sherwood | 3,505 | 0.00 |
| Ian Smith and Tony Weaver* | 300,000,000 | 11.71 |
| Gartmore | 676,960,098 | 26.43 |
* These shares are held by MXC Capital, representing the interests of Ian Smith and Tony Weaver. The number of Ordinary Shares shown includes the 100,000,000 Eckoh Settlement Shares proposed to be purchased by MXC Capital Limited.
Upon admission to trading on AIM of the Subscription Shares, and assuming the Company does not issue any further Ordinary Shares, the interests of the Directors and Gartmore in the Enlarged Issued Share Capital of the Company, together with the Subscription Shares, will be as follows:
% of Enlarged Issued
Share Capital
Number of together with Ordinary Shares Subscription Shares
| Stephen Yapp | 10,000,000 | 0.38 |
| Peter Hallett | 20,000,000 | 0.75 |
| David Payne | 8,050,000 | 0.30 |
| Timothy Sherwood | 3,505 | 0.00 |
| Ian Smith and Tony Weaver* | 400,000,000 | 15.03 |
| Gartmore | 676,960,098 | 25.44 |
* These shares are held by MXC Capital, representing the interests of Ian Smith and Tony Weaver. The number of Ordinary Shares shown includes the 100,000,000 Eckoh Settlement Shares proposed to be purchased by MXC Capital Limited.
13. Incentivisation of Senior Management
The Board has agreed that following the Initial Placing, an appropriate incentive strategy for senior management will be put in place. For the avoidance of doubt, the Redstone Management Incentive Plan approved by Shareholders at the extraordinary general meeting on 30 December 2009 (the "2009 EGM") has not been implemented and will not form part of the remuneration of the Board going forward. Instead, it is intended that senior management will be incentivised by participation in the Redstone Unapproved 2008 Incentive Option Scheme and, to the extent they are eligible, the Redstone Approved 2008 Incentive Option Scheme.
Following the 2009 EGM, given the dilutive effect of the 2009 CLN, the Schemes were amended to permit the grant of options over a maximum of 25 per cent. of the issued share capital of the Company prior to any conversion of the 2009 CLN. It is intended that this limit will now be amended to restrict the grant of options to a further 10 per cent. of the ordinary share capital of the Enlarged Issued Share Capital of the Company together with the Subscription Shares.
The exercise of options to be granted to Ian Smith and Tony Weaver following the Initial Placing will be dependent on the fulfilment of performance conditions. It is intended that the rules of the Schemes will be amended to reflect the proposed new share capital dilution limit set out above and to enable Peter Hallett to be eligible to participate in the Schemes again.
14. Related Party Transaction
The participation in the Placing of David Payne, as a Non-Executive Director of the Company, and MXC Capital, representing the interests of Ian Smith and Tony Weaver, also being Non-Executive Directors of the Company represents a related party transaction under the AIM Rules. Furthermore, the Conversion by related parties including MXC Capital, David Payne, Peter Hallett and Gartmore, being a substantial shareholder for the purposes of the AIM Rules, represents a related party transaction under the AIM Rules (together the "Transactions").
The Independent Directors, having consulted with the Company's nominated adviser, finnCap, believe that the terms of the Transactions are fair and reasonable so far as the Shareholders are concerned and in the best interests of the Company and Shareholders as a whole.
15. Irrevocable undertakings
The Company has received irrevocable undertakings to vote in favour of the Resolutions from Shareholders who in aggregate have a beneficial interest in respect of 59,016,891 Ordinary Shares representing approximately 40.5 per cent. of the existing issued share capital of the Company. In addition the Company has received commitments to vote in favour of the Resolutions representing 9,400,864 Ordinary Shares representing approximately 6.5 per cent. of the existing issued share capital of the Company.
16. General Meeting
Set out at the end of the circular is a notice convening the GM to be held on 8 September 2010 at the offices of Osborne Clarke at One London Wall, London EC2Y 5EB at 11.00 a.m., at which the Resolutions will be proposed for the purposes of implementing the Proposals.
Resolution 1, which will be proposed as an ordinary resolution and which is subject to the Placing Agreement becoming unconditional and not being terminated in accordance with its terms, is to authorise the Directors to allot the New Ordinary Shares, the Warrant Shares and the Subscription Shares in connection with the Proposals and otherwise to allot relevant securities up to £853,524.27 in nominal value (representing one third of the Enlarged Issued Share Capital) provided that such authority shall (subject to limited exceptions), expire on the conclusion of the next annual general meeting of the Company.
Resolution 2, which will be proposed as an ordinary resolution and which is subject to the passing of Resolutions 1 and 3 and the Placing Agreement becoming unconditional and not being terminated in accordance with its terms, is to authorise the Directors to amend the rules of the Schemes as described at paragraph 13 above, in particular to reflect the proposed new share capital dilution limit and to enable Peter Hallett to be eligible to participate in the Schemes.
Resolution 3, which will be proposed as a special resolution and which is subject to the passing of Resolution 1 and the Placing Agreement becoming unconditional and the Placing Agreement not being terminated in accordance with its terms, disapplies Shareholders' statutory pre-emption rights in relation to the issue of the New Ordinary Shares, the Warrant Shares and the Subscription Shares and grants further authority to allot equity securities for cash on a non-pre-emptive basis up to an aggregate nominal amount of £384,085.92 (representing fifteen per cent. of the Enlarged Issued Share Capital) provided that such authority shall (subject to limited exceptions) expire on the conclusion of the next annual general meeting of the Company.
Resolution 4, which will be proposed as a special resolution gives the Company the general authority to repurchase up to 384,085,921 of its own shares in the market (representing fifteen per cent. of the Enlarged Issued Share Capital) at or between the maximum and minimum prices specified in the resolution giving the authority.
17. Action to be taken
A Form of Proxy for use at the GM accompanies the circular. The Form of Proxy should be completed and signed in accordance with the instructions thereon and returned to the Company's registrars, Capita Registrars Limited, PXS, The Registry, Beckenham, Kent BR3 4TU, as soon as possible, but in any event so as to be received by no later than 48 hours before the GM is scheduled to begin. The completion and return of a Form of Proxy will not preclude Shareholders from attending the GM and voting in person should they so wish.
18. Recommendation
If the Resolutions are not passed, the Company would be unlikely to be able to continue to trade and in such circumstances, it is unlikely that the Ordinary Shares would have any value.
The Independent Directors consider the Proposals to be in the best interests of the Company and its Shareholders as a whole and accordingly unanimously recommend Shareholders to vote in favour of the Resolutions to be proposed at the GM as they, the other Directors and their respective immediate families and connected persons (within the meaning of section 252 of the Act) intend to do so in respect of their beneficial holdings amounting, in aggregate, to 53,505 Existing Shares, representing approximately 0.04 per cent. of the existing issued share capital of the Company.
Yours sincerely
Timothy Sherwood
(Deputy Chairman)
DEFINITIONS
The following definitions apply throughout this announcement unless the context otherwise requires:
| “2009 CLN” | the loan note instrument constituting £8,000,000 secured convertible loan notes and dated 17 September 2009 |
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| “Act” | the Companies Act 2006 (as amended) |
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| “Admission” | the admission of the Initial Placing Shares, the Conversion Shares, the Eckoh Settlement Shares and the Compromise Shares to trading on AIM becoming effective in accordance with Rule 6 of the AIM Rules |
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| “AIM” | the market of that name operated by the London Stock Exchange |
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| “AIM Rules” | the AIM rules for companies published by the London Stock Exchange from time to time |
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| “certificated form” or “in certificated form” | an Ordinary Share recorded on a company’s share register as being held in certificated form (namely, not in CREST) |
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| “Company” or “Redstone” | Redstone plc |
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| “Compromise Shares” | the 10,000,000 Ordinary Shares to be issued to Stephen Yapp as part of his severance package |
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| “Conversion” | the conversion of the entire outstanding principal sum under the 2009 CLN into new Ordinary Shares at a price equivalent to the Placing Price |
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| “Conversion Shares” | the 900,000,000 new Ordinary Shares to be issued pursuant to the Conversion |
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| “CREST” | the relevant system (as defined in the Uncertificated Securities Regulations 2001, as amended) in respect of which Euroclear UK & Ireland Limited is the operator |
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| “Dealing Day” | a day on which the London Stock Exchange is open for business in London |
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| “Directors” or “Board” | the directors of the Company, or any duly authorised committee thereof |
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| “Drawdown” | the drawdown of the second tranche pursuant to the 2009 CLN as further described in this announcement |
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| “Eckoh” | Eckoh plc a company registered under 03435822 |
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| “Eckoh Loan” | the loan made pursuant to the loan agreement between the Company, Redstone Telecom Holdings Limited and Eckoh dated 17 September 2009 |
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| “Eckoh Settlement” | the arrangements more particularly described in paragraph 9 of this announcement |
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| “Eckoh Settlement Shares” | the 200,000,000 New Ordinary Shares to be issued to Eckoh pursuant to the Eckoh Settlement |
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| “Enlarged Issued Share Capital” | 2,560,572,810 Ordinary Shares in issue following the admission to trading on AIM of the Initial Placing Shares, the Conversion Shares, the Eckoh Settlement Shares and the Compromise Shares |
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| “Existing Shares” | the Ordinary Shares in issue at the date of this announcement, all of which are admitted to trading on AIM |
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| “finnCap” | finnCap Ltd, the Company’s nominated adviser and broker |
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| “Form of Proxy” | the form of proxy for use in connection with the GM which accompanies the circular |
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| “Gartmore” | Gartmore Investment Limited |
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| “GM” or “General Meeting” | the general meeting of the Company to be held at the offices of Osborne Clarke, One London Wall, London EC2Y 5EB at 11.00 a.m. on 8 September 2010 |
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| “GM Notice” or “Notice of General Meeting” | the notice convening the GM, which is set out on pages 16 to 18 of the circular |
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| “Group” | the Company, its subsidiaries and its subsidiary undertakings |
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| “Independent Directors” | Tim Sherwood and Stephen Yapp |
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| “Initial Placing” | the conditional placing of the Initial Placing Shares at the Placing Price by finnCap, as agent on behalf of the Company, pursuant to the Placing Agreement |
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| “Initial Placing Shares” | the 1,304,800,000 new Ordinary Shares to be issued pursuant to the Initial Placing |
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| “London Stock Exchange” | London Stock Exchange plc |
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| “Loan Notes” | the loan notes issued pursuant to the 2009 CLN |
| “Loan Note Transfers” | the transfers of the Loan Notes more particularly described in paragraph 7 of this announcement |
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| “MXC Capital” | MXC Capital Limited and Ian Smith’s self-invested personal pension |
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| “MXC Capital Limited” | MXC Capital Limited, a company registered under number 07039551, which is controlled by Ian Smith and Tony Weaver |
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| “New Ordinary Shares” | together, the Eckoh Shares, the Initial Placing Shares, the Compromise Shares and the Conversion Shares |
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| “Noteholders” | the holders of the Loan Notes |
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| “Ordinary Shares” | ordinary shares of 0.1 pence each in the capital of the Company |
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| “Placees” | persons who agree conditionally to subscribe for Placing Shares under the Initial Placing |
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| “Placing” | the Initial Placing and the Subscription |
| “Placing Agreement” | the conditional agreement dated 24 August 2010 and made between finnCap, the Company and the Directors in relation to the Initial Placing |
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| “Placing Price” | 0.5 pence per Placing Share |
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| “Placing Proceeds” | the gross aggregate value at the Placing Price of the Initial Placing Shares and the Subscription Shares |
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| “Placing Shares” | the Initial Placing Shares and the Subscription Shares |
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| “Proposals” | the Eckoh Settlement, the Placing, the issue and allotment of the Compromise Shares and the amendments to the Schemes |
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| “Regulatory Information Service” | a service approved by the London Stock Exchange for the distribution to the public of AIM announcements and included within the list maintained on the London Stock Exchange’s website www.londonstockexchange.com |
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| “Repayment Premium” | a sum equal to such amount as totals two times the issued and paid up and outstanding principal amount under the 2009 CLN |
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| “Resolutions” | the resolutions set out in the GM Notice |
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| “Schemes” | the Redstone Approved 2008 Incentive Option Scheme and the Redstone Unapproved 2008 Incentive Option Scheme |
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| “Shareholders” | holders of Ordinary Shares |
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| “Subscription” | the conditional subscription for the Subscription Shares by MXC Capital Limited, pursuant to the Subscription Agreement, |
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| “Subscription Agreement” | the conditional agreement dated 24 August 2010 and made between the Company, Ian Smith, Tony Weaver and MXC Capital Limited |
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| “Subscription Shares” | the 100,000,000 new Ordinary Shares to be issued pursuant to the Subscription Agreement |
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| “UK” | the United Kingdom of Great Britain and Northern Ireland |
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| “US” or “United States” | the United States of America, each State thereof, its territories and possessions (including the District of Columbia) and all other areas subject to its jurisdiction |
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| “uncertificated” or “in uncertificated form” | an Ordinary Share recorded on a company’s share register as being held in uncertificated form in CREST and title to which, by virtue of the Uncertificated Securities Regulations 2001, as amended, may be transferred by means of CREST |
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| “Warrant Shares” | the fully paid warrants over 28,000,000 Ordinary Shares to be issued to Barclays Bank PLC in lieu of fees outstanding but not falling due and payable to Barclays Bank PLC |
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