CTP.L Regulatory News (CTP)

25 July 2011

Redstone plc

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

Fundraising of £2.65 million

Redstone Plc (AIM:RED), a leading provider of network based end to end managed services, technology and infrastructure solutions today announces a fundraising of GBP2.65m, at a price of 1.25p per share, and gives notice of a General Meeting to be held on 9 August 2011.

The fundraising, which was significantly oversubscribed, has been conducted to provide funds in order to develop its Metropolitan Area Network ("MAN") in Portsmouth and to provide working capital to support the Company's growth.

Ian Smith, Chairman of Redstone Commented:

"The capital raised by this Placing will be used to support the continued growth of the revitalised business. I am encouraged by the strong support shown by all of our significant institutional shareholders and welcome the new institutions that supported the Placing. Our pipeline of new business remains strong and the Board remains optimistic for the future prospects of the Group."

A circular setting out details of the fundraising and giving notice of a General Meeting on 9 August 2011 to approve the fundraising and associated provisions has been sent to Shareholders and will be available on the Company's website www.redstone.co.uk.

25 July 2011

Enquiries:

The following has been extracted from the circular which has been sent to shareholders:

Introduction and summary

The Company has announced a conditional placing of, in aggregate, 212,000,000 new Ordinary Shares at a price of 1.25 pence per share to raise £2.65 million (before commissions and expenses). The purpose of the Placing is to provide funds in order to develop Redstone's Metropolitan Area Networks and provide working capital to support the Company's growth strategy.

The Placing will strengthen the Company's financial position and will provide it with a strong platform to execute its strategy. The Placing, which was well supported by a number of blue chip institutional investors alongside Ian Smith (Chairman) and Tony Weaver (Chief Executive), is a clear signal to the Board that the Company and its strategy have merit.

The Placing is conditional, inter alia, upon the Company obtaining approval from its Shareholders to grant the Board authority to allot the Placing Shares and to disapply statutory pre-emption rights which would otherwise apply to the allotment of the Placing 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 Placing Shares.

The purpose of this document is to provide you with information about the background to and the reasons for the Placing, to explain why the Board considers the Placing to be in the best interests of the Company and its Shareholders as a whole and why the Independent Directors recommend that you vote in favour of the Resolutions to be proposed at the General Meeting, as they, the other Directors and their immediate families and connected persons (within the meaning of section 252 of the Act) intend to do in respect of their aggregate holdings of 433,281,200 Ordinary Shares representing approximately 16.3 per cent. of the Existing Shares of the Company.

Background to and reasons for the Placing

In September 2010, Redstone undertook a comprehensive refinancing exercise to address a high and unsustainable level of borrowings and consequent gearing, which was having a material and adverse impact on the Group's credit rating and trading prospects, and also to provide financing for the required restructuring. As a result, the Group raised £8.5 million by way of a placing of new Ordinary Shares in conjunction with the injection of a further £1.5 million pursuant to the 2009 convertible loan note instrument dated 17 September 2009 constituting up to £8 million of secured convertible loan notes.

The refinancing reduced and consolidated all the Group's borrowings to a single facility with Barclays Bank plc. In parallel with the injection of new equity capital, the Group also amended the terms of its existing senior debt facilities with Barclays Bank.

A detailed operational review of the Group was undertaken following the refinancing which included the appointment of Ian Smith and Tony Weaver to the executive Board which was announced on 8 September 2010. Businesses and activities which were regarded as non-core to the future strategic direction of the Group were divested and the Group's activities have been re-focussed on the provision of network based end-to-end managed services, technology and infrastructure solutions.

The management functions of all residual trading activities have been consolidated and clearly branded "Redstone", under a single executive management board, comprising the directors of the trading businesses together with Tony Weaver, Chief Executive, and Peter Hallett, Chief Financial Officer.

The Board's intention is to continue to focus on delivering those products and services for which Redstone is recognised as a proven quality provider, and to enhance and strengthen that offering with new technology products and expertise so as to evolve clearly into a leading provider of network based end-to-end managed services, technology and infrastructure solutions.

As part of this re-focussing, the Board commissioned a fair value assessment of the Group's Metropolitan Area Networks. Redstone currently owns seven fibre-optic based MANs (based in Cambridge, Derby, Newbury, Northampton, Nottingham, Portsmouth and Southampton) with a total duct length of 131 km, of which 104 km has been "fibred", being Cambridge, Portsmouth and Southampton. Of these fibred MANs, only Cambridge is currently operational and generating income from connectivity and hosted end to end managed services. The historic net book value of the MANs is currently £0.9 million, as a result of significant impairment charges and depreciation of the historic build cost of £13.0 million.

The further development and focus on the core fibre network is a key part of the new strategy, and the Board believes it is important that the fair value of these important assets is visible to Shareholders. The fair value assessment attributed a value of £5.5 million to the Cambridge MAN based on a discounted cash flow valuation model, resulting in an uplift in asset value of £4.7 million. This increase in fair value was recognised in the 31 March 2011 balance sheet.

There is 61km of further un-lit fibre in Portsmouth and Southampton and consequently potential scope to expand significantly this element of the business.

Use of Proceeds

The Company has conditionally raised £2.65 million (before expenses) pursuant to the Placing. The proceeds of the Placing are intended to be used in order to commission Portsmouth and it is estimated that it will require approximately £1.0 million to bring the Portsmouth MAN into service. The remainder of the proceeds will be used for working capital to support the Group's growth strategy.

Current trading

As stated at the time of the preliminary results for the year ended 31 March 2011, the Directors believe the current pipeline of contract and investment opportunities is strong, and that the business is performing to management expectations in the new financial year to date. The Board remains optimistic for the future prospects of the Group.

The Placing

The Company has conditionally raised £2.65 million (before expenses) through the proposed issue of the Placing Shares at the Placing Price, which represents a discount of approximately 2.0 per cent. to the closing middle market price of 1.275 pence per Ordinary Share on 22 July 2011, being the last practicable date prior to the publication of this document. The Placing Shares will represent 7.4 per cent. of the Company's Enlarged Issued Share Capital immediately following completion of the Placing.

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 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 General Meeting and Admission becoming effective on or before 8.00 a.m. on 10 August 2011 (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 31 August 2011).

The Placing Agreement contains warranties from the Company in favour of finnCap in relation to, inter alia, the accuracy of the information in this document, 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 tocertain liabilities it may incur in respect of the 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. of the Placing Proceeds (excluding the Placing Shares subscribed for by any of the Directors). The Company has also agreed to pay finnCap a corporate finance advisory fee of £25,000, together with any applicable value added tax.

Participation of Directors

MXC Capital, representing the interests of Ian Smith and Tony Weaver, has agreed to subscribe for 31,800,000 Placing Shares under the Placing. Upon Admission, MXC Capital will be interested in 433,550,000 Ordinary Shares representing approximately 15.1 per cent. of the Enlarged Issued Share Capital of the Company.

Settlement and dealings

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will occur on 10 August 2011.

The Placing Shares will, when issued, rank pari passu in all respects with the Existing Shares including the right to receive dividends and other distributions declared following Admission.

Related Party Transaction

The participation in the Placing by MXC Capital, representing the interests of Ian Smith and Tony Weaver (directors of the Company), is deemed to be a related party transaction under the AIM Rules.

The Independent Directors, being Peter Hallett, David Payne and Richard Ramsay, who have been so advised by the Company's nominated adviser, finnCap, believe that the terms of the Placing are fair and reasonable so far as the Shareholders are concerned.

General Meeting

Set out at the end of the circular is a notice convening the General Meeting to be held on 9 August 2011 at the offices of finnCap Limited, 60 New Broad Street, London EC2M 1JJ at 10a.m, at which the Resolutions will be proposed for the purposes of implementing the Placing.

Resolution 1, which will be proposed as an ordinary resolution and which is conditional upon the Placing Agreement becoming unconditional in all respects (save only for the passing of the Resolutions and Admission) and not being terminated in accordance with its terms, is to authorise the Directors to allot the Placing Shares in connection with the Placing and otherwise to allot relevant securities (other than pursuant to the Placing) up to an aggregate nominal amount of £958,524.27 (representing approximately one third of the issued share capital following Admission) provided that such authority shall expire on the date being fifteen months from the date of the passing of the resolution or, if earlier, the conclusion of the Company's annual general meeting to be held in 2012.

Resolution 2, which will be proposed as a special resolution and which is conditional upon the passing of Resolution 1 and the Placing Agreement becoming unconditional in all respects (save only for the passing of the Resolutions and Admission) and not being terminated in accordance with its terms, disapplies Shareholders' statutory pre-emption rights in relation to the issue of the Placing Shares in connection with the Placing and grants further authority to allot equity securities for cash on a non-pre-emptive basis up to an aggregate nominal amount of £287,257.28 (representing approximately ten per cent. of the issued share capital following Admission) provided that such authority shall expire on the date being fifteen months from the date of the passing of the resolution or, if earlier, the conclusion of the Company's annual general meeting to be held in 2012.

Recommendation

The Independent Directors consider the Placing 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 General Meeting as they, the other Directors and their immediate families and connected persons (within the meaning of section 252 of the Act) intend to do in respect of their beneficial holdings amounting, in aggregate, to 433,281,200 Ordinary Shares, representing approximately 16.3 per cent. of the Existing Shares of the Company.

DEFINITIONS