DCD.L Regulatory News (DCD)

DCD Media plc

("DCD" or "the Company")

Proposed conversion of Loan NotesProposed waiver of Rule 9 of the Takeover Code

Summary

·; Proposal for Timeweave and Henderson to convert Loan Notes into shares that, if approved by shareholders, will result in Timeweave holding 49.99 per cent of the Company's enlarged share capital and will allow Timeweave to increase its shareholding to over 50 per cent should it wish to do so.

·; Proposal for shareholders to approve the Takeover Panel's waiver of the obligation that Timeweave would otherwise incur as a consequence of such conversion to make a general offer for the Company under Rule 9 of the Takeover Code.

·; Proposal for a new share incentive scheme to be put in place for DCD Group employees and directors.

·; Conversion of the loan notes will strengthen the Company's balance sheet, and remove the uncertainty with respect to DCD's ability to fund the redemption of the loan notes.

·; It is intended that David Craven and Richard McGuire, both current directors of Timeweave, will be appointed as non-executive directors of the DCD as soon as possible.

A circular setting out details of the proposed loan note conversion and proposed Rule 9 waiver and giving notice of a General Meeting to approve the proposals will be sent to shareholders as soon as possible and will be available on the Company's website www.dcdmedia.co.uk.

For further information please contact:

Sammy Nourmand, Chief Executive

DCD Media plc

Tel. 020 8 563 6976

Stuart Andrews/Charlotte Stranner/Rose Herbert

finnCap

Tel: 020 7220 0500

finnCap Ltd, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting only for DCD and no one else in connection with the proposals and will not be responsible to anyone other than DCD for providing the protections afforded to clients of finnCap Ltd or for providing advice in relation to the proposals, the contents of this announcement or any other matters referred to in this announcement.

Forward-looking statements

This announcement includes certain "forward-looking" statements with respect to the financial condition, results of operations and business of DCD and certain plans and objectives of the board of directors of DCD with respect thereto. The forward-looking statements contained herein may include statements about the expected effects on DCD of the proposals, the expected timing and scope of the proposals, anticipated earnings enhancements and other strategic options, as well as other statements in this announcement other than historical facts. Forward-looking statements include, without limitation, statements typically containing words such as "intends", "expects", "anticipates", "targets", "estimates" and words of similar import. These statements are based on assumptions and assessments made by the board of directors of DCD in the light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe appropriate. They have not been reviewed by the auditors of DCD. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from those expressed or implied by such forward-looking statements.

All subsequent oral or written forward-looking statements attributable to DCD or any of their respective members, directors, officers or employees or any persons acting on their behalf are expressly qualified in their entirety by the cautionary statement above. All forward-looking statements included in this announcement are based on information available to DCD on the date of this Announcement and are made only as of the date of this announcement. Undue reliance should not be placed on such forward-looking statements.

Subject to compliance with the Code and the AIM Rules, DCD does not intend, or undertake any obligation, to update any information contained in this Announcement.

DCD Media plc

("DCD" or "the Company")

Proposed conversion of Loan NotesProposed waiver of Rule 9 of the Takeover Code

Introduction

The board of directors of DCD today announces the following proposals:

·; Timeweave and Henderson's conversion of Loan Notes into shares that, if approved by shareholders, will result in Timeweave holding 49.99 per cent of the Company's enlarged share capital and will allow Timeweave to increase its shareholding to over 50 per cent should it wish to do so.

·; Shareholders are being asked to approve the Takeover Panel's waiver of the obligation that Timeweave would otherwise incur as a consequence of such conversion to make a general offer for the Company under Rule 9 of the Takeover Code.

·; A new share incentive scheme is intended to be put in place for DCD Group employees and directors.

Background to the proposals

The Loan Notes were originally issued between 2005 and 2011 to support and fund the Company's acquisition strategy and to provide working capital to the DCD Group. As set out in previous shareholder communications, the trading environment experienced by the Company in recent times has been tough and in September 2011 the Company raised a further £1.76 million to meet its short term working capital needs through the issue of 77,500,000 shares at a subscription price of 1p per share and the balance through the issue of additional Loan Notes.

In February 2012 Timeweave acquired the majority of the outstanding Loan Notes and subsequently converted £595,750 in principal of its Loan Notes into 59,575,000 shares (representing 29.99 per cent. of the Company's issued share capital). The remaining Loan Notes have a total principal outstanding of approximately £3.2 million, of which approximately £2.4 million is owed to Timeweave. The principal has a maturity date of 1 October 2012 although is subordinate to the Company's existing facility with Coutts which is due for repayment on 27 November 2012. As such, amounts due to holders of Loan Notes will fall due on 28 November 2012.

The Group's existing financial resources will not be sufficient to repay the outstanding balance to the holders of the Loan Notes on 28 November 2012. As set out in the Company's final results, the board has been in discussions with Timeweave and various other parties with a view to avoiding any default under the Loan Notes. Having considered other sources of finance available to the Company and the certainty and cost associated with each of them, the board has concluded that the Conversion Proposal described under "Proposed conversion of Loan Notes" below is in the best interests of Independent Shareholders and the Company as a whole. Implementation of the Conversion Proposal will allow DCD to focus all of its resources on implementation of its strategy, remove the uncertainty over repayment of a significant liability and give DCD the opportunity to secure further financial support from its major shareholder.

If the Conversion Proposal is not implemented, the Company will have to seek alternative financing to repay the amount of £4,088,363 that would otherwise fall due on 28 November 2012 in order to redeem all outstanding Loan Notes and accrued interest. The board believes that it is unlikely that such finance would be available on terms that are satisfactory so far as shareholders are concerned, and that it is unlikely to be possible to raise equity at the equivalent price to that offered by Timeweave under the Conversion Proposal. The directors have also been mindful of the views of Timeweave as DCD's major shareholder and whose approval would be required for any equity issue by the Company. The directors are also mindful that, in the event that sufficient financing is not available, the Company will be exposed to the risk of some form of insolvency proceedings.

Information on Timeweave

Timeweave plc is an AIM quoted company with a cash fund and a stated strategy to invest when opportunities arise. Its existing group of businesses principally comprises a 50% holding in Amalgamated Racing Limited ("AMRAC"), sports hedging business SportingWins Limited, its investment in the Company and cash deposits.

AMRAC is an equally owned joint venture company between Racecourse Media Services Limited (which is in turn owned by a number of the UK's foremost racecourses and Racecourse Investments Limited) and Timeweave which holds exclusive licences with 34 racecourses to broadcast pictures, audio and data from these courses to licensed betting premises in the United Kingdom and the Republic of Ireland on its dedicated television channel, TurfTV.

As at 31st December 2011, Timeweave's balance sheet showed £25.06m in cash, excluding its share of AMRAC cash and £33.4m including its share of AMRAC cash. (31st December 2010: £31.9m including £9.9m being its share of AMRAC cash and cash equivalents).

As at 26 April 2012 Timeweave had cash resources of £26.9 million. The Timeweave board does not expect the Conversion Proposal to have a significant impact on Timeweave's financial position.

Trading Prospects

AMRAC is Timeweave's core business and the company reported a strong performance last year, with subscriptions to the TurfTV service from UK bookmakers holding up well in the face of difficult market conditions.

Timeweave has made significant progress this year. In the context of its strategic aim to deliver long-term growth, AMRAC has continued to perform well, SportingWins has signed several contracts with further contracts in the pipeline, and an investment programme, establishing foundations for the future of Timeweave is underway.

Against a backdrop of economic turmoil, its core business has increased its profitability and Timeweave looks to invest strongly wherever opportunities arise as it seeks to build a sustainable business.

Timeweave's plans for DCD

DCD is a media production, distribution and rights management business. Its vertically-integrated structure takes advantage of the synergies within its operating divisions to drive post-production value from current and future intellectual property rights through its distribution and rights arms.

DCD has shifted the weight of the business towards content production rather than distribution and rights, to maximize revenues from the opening up of the market for independent producers. The broader base of production and distribution both spreads risks and creates business opportunities.

Timeweave plans to assist DCD to financially stabilise its business by relieving it of its significant debt burden and then develop its business model further and return the Company to growth. DCD's core production element is highly scalable and, with investment, could be both enhanced in its current markets and diversified into new areas of production.

This, along with the potential acquisition of content catalogues and investment in multi-media platforms, would drive enhancement to the distribution and rights businesses.

Repayment of bank debt

The Company has existing external loan facilities with Coutts; a term loan with fixed repayments scheduled to be made by 27 November 2012 and an overdraft facility. Timeweave confirms that, within five business days of it being requested to do so by DCD (if such request is made prior to 1 January 2013) and subject to the Conversion Proposal having occurred, Timeweave will subscribe for ordinary shares in the Company up to an aggregate principal amount of £250,000. These shares will be issued at 1p each with payment to be made by Timeweave at the time of issue. It is intended and agreed by Timeweave and DCD that the Company will have the flexibility to ask all or any of its shareholders to subscribe for additional shares up to a maximum aggregate capital value of £500,000. Such subscription may be offered on any basis, provided that Timeweave is afforded the option (as a minimum) to maintain its overall percentage shareholding by subscribing for ordinary shares on a pro rata basis

Management and employees

Timeweave intends to undertake a detailed business and operational review in conjunction with the senior management of the DCD Group, following implementation of the Conversion Proposals.

Whilst any such review may result in changes to the organisational structure, it is not otherwise expected to have a material effect on the other employees of the DCD Group. Upon the Conversion Proposals being approved the existing employment rights of all employees of the DCD Group will be unaffected. Moreover, Timeweave has no plans to make any material changes to the conditions of employment of the DCD Group's employees.

Additionally, Timeweave has no intention to:

l pursue or change the location of the DCD Group's places of business;

l redeploy its fixed assets (save to the extent management acquires or disposes of subsidiary companies in the ordinary course of business);

l otherwise alter or diminish the trading position of the DCD Group; or

l alter the existing trading facilities for the relevant securities of DCD.

DCD's current trading and prospects

As set out in previous statements, following a downturn in UK commissioning, the board was aware that 2012 would be a difficult trading year and began to take the necessary steps to restructure and reorganise its operations following the recent fundraising. The board believes that the DCD Group had previously suffered from persevering with loss making subsidiaries and divisions that had no obvious synergies with other group activities. Consequently, the board has attempted to create a more cohesive group with solid foundations and has therefore strengthened its television content production by taking a majority stake in Rize Television Ltd. It has also acquired Sequence Post Production, a complementary image editing business.

These changes have allowed the streamlining of many costs and the creation of four distinct divisions with a symbiotic relationship that are accretive to each other. The four divisions are UK Production,US Production, Rights (which will see distribution, merchandising, publishing, talent representation and music merged into one entity) and Post Production. Each division will be managed by an experienced professional with a detailed knowledge of their field responsible for ensuring turnover and profit targets are met. The directors believe these changes will provide the DCD Group with strong foundations for the future.

Current Trading

As set out in the recent results, the Group has had a slow start to 2012, however several big returning shows have been recommissioned and their income will be realised in the second half of the year. There is also a strong development pipeline and the directors expect this to further contribute to an improved second half of the year. The Group has also been focused on a rationalisation and restructure of the number of divisions and subsidiaries. Cash reserves remain tight, but the Group continues to generate cash from its activities and whilst the board is cautiously optimistic that it will be able to cover the operational costs the Company is still required to meet its debt repayment obligations to Coutts.

Proposed conversion of Loan Notes

Timeweave

The Company has entered into an agreement with Timeweave ("the Timeweave Conversion Agreement") which is conditional on the passing of Resolution 1 and Resolution 3 to be proposed at the General Meeting. Under the Timeweave Conversion Agreement:

(a) Timeweave is to exercise all conversion rights attached to £1,723,393 of its Loan Notes and £365,136 accrued interest by 31 July this year (the "July 2012 conversion");

(b) the conversion rate for £379,250 principal and £52,128 accrued interest of these Loan Notes is one share for every 1p of Loan Notes (and one share for every 1p of accrued, unpaid interest) and, for the remaining principal amount of these Loan Notes and accrued, unpaid interest, is one share for every 2p owed;

(c) Timeweave may exercise all the conversion rights attached to its remaining £699,244 capital and £162,200 accrued interest ("the Subscription Notes") at a conversion rate of one share for every 2p of its Loan Notes at any time after the General Meeting;

(d) Timeweave will not be entitled to receive any monies from the Company in respect of the Subscription Notes, whether as repayment of principal, payment of interest or otherwise; and

(e) Timeweave will not be permitted to transfer any Timeweave Subscription Notes without the Company's consent.

The table below shows Timeweave's shareholding as it is now and as it would be following the July 2012 conversion and following full conversion of the Timeweave Subscription Notes (but, for illustrative purposes only, as if none of Henderson's Loan Notes had been converted into shares) .

Henderson

The Company has entered into an agreement with Henderson under which Henderson has agreed, subject to satisfaction of the conditions in the Timeweave Conversion Agreement, to exercise all conversion rights attached to its £930,874 of Loan Notes and accrued interest by 31 July 2012 at a conversion rate of one share for every 2p of Loan Notes (and one share for every 2p of accrued, unpaid interest) resulting in the issue of 46,543,700 shares.

The table below shows Timeweave's shareholding as it is now and as it would be following the July 2012 conversion and following full conversion of both the Timeweave Subscription Notes and all of Henderson's Loan Notes.

Following completion of the Conversion Proposal it is expected that DCD will have 371,209,333 shares in issue and following conversion of the Subscription Notes it is expected that DCD will have 414,281,533 shares in issue.

Dispensation from Rule 9 of the Takeover Code

Rule 9

The Takeover Code governs, inter alia, transactions which may result in the change of control of a public company to which the Takeover Code applies.

Under Rule 9, any person who acquires an interest (as defined in the Takeover 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 Takeover 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 such 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 interest in shares are acquired by any such person.

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 in the company during the 12 months prior to the announcement of the offer.

Dispensation

On implementation of the Conversion Proposals, Timeweave's interests in the shares could reach a potential maximum of 55.19 per cent of the issued share capital of the Company. An increase in Timeweave's shareholding to over 30 per cent of the issued shares through the conversion of Loan Notes on the terms referred to above would usually trigger an obligation for Timeweave to make a general takeover offer for the Company to all the other shareholders in accordance with Rule 9 of the Takeover Code at a cash price of 2p per share.

However, the Takeover Panel has granted a conditional waiver that will release Timeweave from such an obligation and will allow Timeweave to increase its shareholding through 30 per cent to over 50 per cent. This Rule 9 Waiver is conditional on (i) neither Timeweave nor any of its concert parties acquiring any interest in any other shares prior to the General Meeting and (ii) the passing of Resolution 1 at the General Meeting to approve the waiver. Voting on Resolution 1 at the General Meeting will be put to a poll, as required by the Takeover Code. Timeweave has undertaken not to vote on this Resolution.

Once Timeweave's shareholding has been increased to over 50 per cent as permitted by the Rule 9 Waiver, Timeweave can acquire any number of additional shares without incurring an obligation to make a general offer to the remaining shareholders for their shares. This is because, under Rule 9, where any person who (together with persons acting in concert with him) already holds over 50 per cent. of the voting rights of a company acquires an interest in shares which carry additional voting rights, then that person will not generally be required to make a general offer to the remaining shareholders to acquire their shares.

New share incentive scheme

Timeweave and the board recognise that the ongoing incentivisation of key members of the DCD management team will be critical to DCD's success. Consequently, conditional upon the implementation of the Conversion Proposals, Timeweave and the board have agreed that:

l DCD will establish a new share incentive scheme (the "New Share Incentive Scheme") under which awards may be granted to employees and directors over a maximum of 45.6 million shares. It is intended that the New Share Incentive Scheme will be unanimously approved by the DCD board no later than 28 September 2012.

l Entitlements to a maximum of 13.3 million shares under the New Share Incentive Scheme will be exercisable at 1p per share, subject to the average closing middle market quotation for a share for any three month period exceeding 2p. These will include awards for current directors that will be subject to performance criteria to be determined by the board's remuneration committee, as follows:

l The remaining awards will have an exercise price of 2p with performance criteria to be determined by the board.

As the proposal to grant options to the directors under the proposed New Share Incentive Scheme has been agreed with Timeweave in the context of the Conversion Proposal, the proposed grant requires the approval of DCD shareholders for the purposes of Rule 16.2 of the Takeover Code. Accordingly, the notice of General Meeting will include, as Resolution 2, a resolution for the approval of the proposed grant of options to the directors under the proposed New Share Incentive Scheme. In the opinion of finnCap the proposal to grant options to each of the directors under the New Share Incentive Scheme is fair and reasonable so far as Independent Shareholders are concerned. Each DCD director has undertaken not to vote on Resolution 2. Since the implementation of these proposals is subject to the approval of the Conversion Proposal, the Takeover Panel has also deemed each DCD director to be a non-independent party for the purposes of approving the waiver of Rule 9 of the Takeover Code. Consequently each director has undertaken not to vote on Resolution 1 at the General Meeting

Related party transaction

Timeweave and Henderson hold more than 10 per cent. of the issued share capital of DCD and are therefore treated as being substantial shareholders of DCD for the purposes of the AIM Rules. As a result, implementation of the Conversion Proposal will constitute a related party transaction for the purposes of the AIM Rules. The DCD directors, having consulted with finnCap, the Company's nominated adviser, consider that the terms of the Conversion Proposal are fair and reasonable in so far as the Company's shareholders are concerned.

General Meeting

The Notice of General Meeting will contain the following resolutions:

1. an ordinary resolution to approve the Rule 9 Waiver, as described in the section above headed "Dispensation from Rule 9 of the Takeover Code";

2. an ordinary resolution to approve the proposals for granting share incentive awards to directors and DCD Group employees, as described in the section above headed "New share incentive scheme"; and

3. a special resolution (i) to empower your directors to allot all the new shares issuable on the exercise of conversion rights already attached to the Loan Notes or pursuant to awards under the New Share Incentive Scheme and (ii) to remove any restriction on the number of shares which the Company may allot (subject to complying with the Companies Act 2006) as a result of section 28 of that Act concerning "provisions of memorandum treated as provisions of articles".

If Resolution 1 or Resolution 3 is not passed, the Conversion Proposal will not be implemented. The consequences of this are set out above.

Timeweave has undertaken not to vote on Resolution 1. Each director has undertaken not to vote on Resolution 1 or Resolution 2

Recommendations

As set out above, the directors are all interested in the Conversion Proposal by virtue of the arrangements described above relating to the New Share Incentive Scheme and are therefore not in a position to make any recommendation on Resolution 1. Consequently, finnCap has considered the Conversion Proposal and, taking into account the facts set out in this announcement, believes that the Conversion Proposal is fair and reasonable and in the best interests of the Company and Independent Shareholders as a whole. Accordingly finnCap will recommend that Independent Shareholders vote in favour of Resolution 1 to be proposed at the General Meeting.

The directors are also all interested in Resolution 2 and are therefore making no recommendation to shareholders in relation to it. Shareholders should note that in the opinion of finnCap the proposal to grant options to each of the directors under the New Share Incentive Scheme is fair and reasonable so far as Independent Shareholders are concerned.

The directors will unanimously recommend that you vote in favour of Resolutions 3 to be proposed at the General Meeting as they intend to do in respect of their beneficial holdings amounting to, in aggregate, 30,728,871 shares, representing 15.47 per cent. of the Company's issued share capital.

Proposed Appointment of Non-Executive Directors

It is intended that David Craven and Richard McGuire, both current directors of Timeweave, will be appointed as non-executive directors of DCD as soon as possible.

Further information pursuant to Schedule Two (g) of the AIM rules on David Charles McNae Craven, aged 46, and Richard Anthony McGuire, aged 45, is set out below:

Mr Craven currently holds the following directorships/partnerships:

Amalgamated Racing Limited

Datawest Computer Services Limited

Microskill (Services) Limited

Sportingwins Lmited

Telectronics Systems Limited

Timeweave Bookmaking and Finance (Holdings) Limited

Timeweave Gaming Limited

Timeweave plc

Timeweave Retail Lmited

Timeweave Washosp Limited

During the past 5 years, Mr. Craven has also held directorships or partnerships at the following companies: Alfabet Gaming Limited, which was dissolved on 3 July 2008 and Woad Barn Limited which was dissolved on 22 May 2008. He was also a director of IQI Ltd. when it was dissolved on 10 November 1998.

Mr. McGuire currently holds the following directorships/partnerships:

Roscoe Capital Limited

Sportingwins Limited

Timeweave plc

Timeweave Washosp Limited

During the past 5 years, Mr. McGuire has also held directorships or partnerships at the following companies: Mitchells & Butlers plc, Roscoe Capital (MK2) Limited, Tamar Capital France Limited, Pentland Capital Management LLP and Tamar Capital Partners Limited. Mr. McGuire was also a director at Bulgarian Property Developments plc, an AIM listed company which was taken private in April 2009 and has since been liquidated.

There are no other matters required to be reported pursuant to Schedule Two (g) of the AIM rules.

The following definitions apply in this announcement, unless the context requires otherwise: