Earthport Regulatory News (EPO)

6 Jul 2005 16:06

Earthport PLC06 July 2005 Stock Exchange Announcement For immediate Release 6th July 2005 earthport plc ("earthport" or "the Company") Notice of Extraordinary General Meeting and Shareholder Circular Further to the announcement of the 5th July 2005, earthport are today posting acircular ("Circular") to shareholders, option, warrant and loan note holderscontaining details of a proposed share capital reorganisation, refinancingproposals and board changes ("Proposals"). In addition, the Circular contains a notice of an Extraordinary General Meeting,to be held at 1st Floor, 21 New Street, London EC2M 4TP at 10 a.m. on the 29thJuly 2005 at which resolutions to approve the Proposals which will put toshareholders. A full copy of the Circular is set out below. THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are inany doubt about the contents of this document and/or the action you should take,you should immediately consult your stockbroker, bank manager, solicitor,accountant, or other independent financial adviser duly authorised under theFinancial Services and Markets Act 2000 if you are in the United Kingdom or,from another appropriately authorised independent financial adviser. If you have sold or otherwise transferred all of your Ordinary Shares, pleaseimmediately forward this document, together with the accompanying Form of Proxyto the purchaser or transferee, or to the stockbroker, bank or other agentthrough whom the sale or transfer was affected, for delivery to the purchaser ortransferee. If you have sold only part of your holding of Ordinary Shares,please contact your stockbroker, bank or other agent through whom the sale ortransfer was affected immediately. The Directors, whose names appear on page 3 of this document, acceptresponsibility, collectively and individually, for the information contained inthis document. To the best of the knowledge and belief of the Directors (whohave taken all reasonable care to ensure that such is the case), the informationcontained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information. earthport plc (Incorporated and registered in England and Wales under the Companies Act 1985 with registered no 3428888) Notice of Extraordinary General Meeting Your attention is drawn to the letter from the Executive Chairman of earthportplc which is set out on pages 6 to16 of this document and which contains arecommendation by the Directors to vote in favour of the resolutions to beproposed at the Extraordinary General Meeting referred to below. CONTENTS Page Directors and Advisers 3 Definitions 4 Letter from the Executive Chairman of earthport plc 6 Notice of Extraordinary General Meeting 17 DIRECTORS AND ADVISERS Directors Michael Harrison (Executive Chairman) Neil Clayton (Chief Financial Officer) Colin Medway (Non-executive Director) Company Secretary Neil Clayton Registered Office 21 New Street London EC2M 4TP Nominated Adviser Nabarro Wells & Co. Limited Saddlers House Gutter Lane London EC2V 7HS Solicitors to the Company Pinsent Masons Dashwood House 69 Old Broad Street London EC2M 1NR Auditors to the Company Baker TiIly 2 Bloomsbury Street London WC1B 3ST Registrars Capita Registrars The Registry 34 Beckenham Road Beckenham Kent BR3 4TU DEFINITIONS The following definitions apply throughout this document unless the context otherwise requires: "Act" the Companies Act 1985 (as amended)"AIM" the Alternative Investment Market of the London Stock Exchange"AIM Rules" the rules governing the admission to and operation of AIM as published by the London Stock Exchange from time to time"Articles" the Articles of Association of the Company"Capital Reorganisation" the consolidation, sub-division and conversion of the share capital of the Company as described in this document"Consolidated Share" one ordinary share of 190p"Consolidation" the consolidation of the Ordinary Shares in the Company as described in this document"Convertible Loan Notes 2004" convertible loan notes of £3,279,695 in aggregate issued in respect of the satisfaction of indebtedness or investment funds raised between 1st July 2004 and 16th March 2005"Convertible Loan Notes 2005" convertible loan notes in a maximum nominal amount of £2.75 million of which £1 million are in issue and up to the balance are proposed to be issued in respect of the current round of investment funding."Deferred Shares" the non-voting deferred shares of 7.5p each"Directors" or "Board" the Directors of the Company whose names are set out on page 3 of this document, or any duly authorised committee thereof"earthport" or "Company" earthport plc"EGM" the Extraordinary General Meeting of the Company to be held on 29 July 2005 at 10am and any adjournment thereof"EGM Notice" the notice convening the EGM which is set out on pages 17 to 19 of this document"Existing Options" options granted to persons (other than employees) prior to 30 June 2004 to acquire up to a total of 115,090,000 Ordinary Shares (1,514,342 New Ordinary Shares following the Capital Reorganisation)"Form of Proxy" the form of proxy for use in connection with the EGM, which accompanies this document"Group" the Company, its subsidiaries and its subsidiary undertakings"London Stock Exchange" London Stock Exchange plc"New Ordinary Shares" ordinary shares of 10.0p each in the capital of the Company"Ordinary Shares" existing ordinary shares of 2.5p each in the capital of the Company"Other Subscription Rights" the conditional right to subscribe for up to 304,000,000 Ordinary Shares (4,000,000 New Ordinary Shares of 10p each following the Capital Reorganisation) granted or which may be granted prior to the EGM"Resolutions" the Resolutions set out in the EGM notice"Shareholders" holders of Ordinary Shares in the Company"UK" the United Kingdom of Great Britain and Northern Ireland"Warrants" warrants issued in the period 1st July 2004 to 16th March 2005 giving the holders the right to subscribe for a total of 168,375,600 Ordinary Shares (2,215,468 New Ordinary Shares of 10p each following the Capital Reorganisation). LETTER FROM THE EXECUTIVE CHAIRMAN OF earthport plc (Incorporated and registered in England and Wales under the Companies Act 1985 with registered no 3428888) Directors Registered and Head Office:-Michael Harrison (Executive Chairman) 21 New StreetNeil Clayton (Chief Financial Officer) London EC2M 4TPColin Medway (Non-executive Director) To Shareholders, and to option, warrant and loan note holders for informationpurposes only Dear Shareholder, 1 Introduction and Summary As stated in the RNS announcement of 2nd June 2005, your Board has been andcontinues to undertake a thorough review of the activities of your Company andthe appropriate measures required to achieve its full commercial potential. Oneresult of this review is that the Board is addressing the need for new equityinvestment to achieve its defined commercial objectives through to profitabilityand in that connection obtaining appropriate shareholder approvals. Part of thisprocess will be the Capital Reorganisation of the Company and passing of theResolutions as described in this document. This will bring about clarity andfacilitate the raising of essential further equity funding. The new management team has extensive experience in the development oftechnology and services businesses and is qualified to develop earthport and itspotential, with a renewed focus on managing the business and developing a numberof revenue opportunities, which the Board believe will grow the top line quicklyand profitably. The Company is positioning itself to take advantage of substantial existing andprospective market opportunities as an infrastructure provider to business andsectors requiring earthport's funds transfer offering. Refinancing Since 24th May 2005, the Company has raised £1 million through issuingConvertible Loan Notes 2005. A further £1 million is expected to be raised inthis way during July 2005. The Directors are seeking to raise between £4 millionand £5 million in additional working capital either through the issue ofadditional Convertible Loan Notes 2005 or through the issue of New OrdinaryShares to support the Company's plan to reach profitability. Capital Reorganisation The Directors propose a series of measures that will reorganise the Company'scapital structure and borrowing power to put it in a position to pursue currentbusiness and future opportunities in the most effective way, as follows:- 1. consolidating and converting the current issued share capital of638,040,880 Ordinary Shares of 2.5p into new Consolidated Shares of 190p each atthe rate of 76 (seventy six) existing Ordinary Shares of 2.5p for 1 (one) newConsolidated Share of 190p; 2. sub-dividing and converting each Consolidated Share of 190p into 24(twentyfour) Deferred Shares of 7.5p each and 1 (one) New Ordinary Share of 10p; 3. consolidating and converting the 4,069,472 existing authorised butunissued Ordinary Shares of 2.5p each into New Ordinary Shares of 10p each atthe rate of 1(one) New Ordinary Share of 10p for every 4 (four) existingauthorised but unissued Ordinary Shares of 2.5p each. Increase in the Authorised Share Capital A resolution is proposed to increase the authorised share capital of the Companyfrom £24 million to £30 million comprising 69,412,642 New Ordinary Shares of 10peach and 307,449,810 Deferred Shares of 7.5p each by the creation of 60,000,000New Ordinary Shares of 10p each. Net Asset Position and Change in Borrowing Powers As the Company currently has negative net assets which therefore represent lessthan half of the Company's called-up share capital, one of the reasons forconvening the EGM is so that Shareholders have, in accordance with Section 142of the Act, the opportunity to consider whether any, and if so what, stepsshould be taken to deal with the situation. The Directors are proposing the Capital Reorganisation as an initial step inthis connection. In the future consideration will be given to a reduction of theCompany's capital. Given the Company's negative net asset position:- (a) the Directors are seeking approval to amend the limit on the Company's borrowingpowers in the Articles (which is currently based on a multiple of adjustedcapital and reserves) to reflect the proposed new capital structure of theCompany and to permit further borrowings. The proposed new powers will enablethe Company to borrow up to £30,000,000 being 1 (one) times its increasedauthorised share capital. The Company proposes to revert to having a borrowinglimit by reference to a multiple of capital and reserves as and when thatbecomes a sensible and feasible approach in the future. The position will bereviewed prior to the Annual General Meeting in 2006. (b) the Directors are seeking ratification of prior breaches of the current limit onborrowing powers under the Articles. Ratification of the issue of Convertible Loan Notes 2004 and Convertible LoanNotes 2005. Between 1st July 2004 and 16th March 2005, the Company has raised new fundsamounting to £2,479,695 and satisfied £1 million of indebtedness of which£3,279,695 was raised by means of issuing Convertible Loan Notes 2004. Inaddition Warrants to subscribe for Ordinary Shares which expire between 31stDecember 2005 and 31st August 2006, have been issued, which if exercised willraise a further £2,675,695. Since 24th May 2005, £1 million of Convertible Loan Notes 2005 have been issuedand the Company has, conditionally granted Other Subscription Rights to allotapproximately 478,500 New Ordinary Shares of 10p each. Other SubscriptionRights, not exceeding £1.75 million may be issued (conditional on the passing ofthe Resolutions to allow the exercise of conversion rights) in respect of moniesraised and/or indebtedness satisfied prior to the date of the EGM. The Directors are seeking shareholder approval at the EGM to the grant/exerciseof conversion rights pursuant to the Convertible Loan Notes 2004, ConvertibleLoan Notes 2005, the Warrants, the Existing Options and the Other SubscriptionRights. Authority to allot shares and Convertible Securities The Directors are proposing Resolutions that would enable:- (a) all existing rights to subscribe for shares at the date of the EGM by means of exercising option, warrant or conversion rights to be met by the allotment of New Ordinary Shares of 10p each. The total number of Ordinary Shares that could be issued under existing rights, as at the date of this letter, amounts to 779,183,941 Ordinary Shares (10,252,420 New Ordinary Shares following the Capital Reorganisation) and the maximum number of additional Ordinary Shares that could be issued under further Other Subscription Rights granted between now and the EGM amounts to 267,636,432 Ordinary Shares (3,521,532 New Ordinary Shares following the Capital Reorganisation).(b) the issue of further New Ordinary Shares or additional Convertible Loan Notes or other equity securities to raise up to an additional £5 million. Following completion of the Capital Reorganisation, the Company is proposing toarrange a new equity fundraising to provide sufficient resources to allow it topursue its identified new business opportunities and its plan to supportexisting operations through to break even. It is expected that this operationwill be effected by means of a rights issue or private placement to raisebetween £4 million and £5 million. The Directors are currently pursuingdiscussions with certain major shareholders with a view to obtaining theirsupport and partial underwriting of such a fundraising. Re-Appointment of Directors Each of the current directors of the Company (Mike Harrison, Neil Clayton andColin Medway) have been appointed as directors by the Board since the lastannual general meeting. Accordingly, each of the Directors is seekingre-appointment at the EGM. The Board are seeking to appoint a further Non-Executive Director. 2 Current Trading and Prospects The Directors believe that the earthport technology and business model offers anopportunity to capitalise on the rapidly growing global demand for electronicpayments transfers. The Company's technology and existing banking network putsit in a strong position to service this demand and to enter into new markets andplatforms as they arise. The Management of the Company has been realigned andstrengthened to take advantage of the current business opportunities and todevelop a long term sustainable business and earthport aims to become a leadingcollector and distributor of funds globally. Current Trading The Company sees increasing demand for its payment services. Transaction volumesin the gaming sector continue to grow as new clients are acquired, the UniversalPayment Network is enhanced and the banking network is extended. In addition theintroduction of the batchPay product is attracting significant interest fromboth gaming and non-gaming sectors. batchPay is a funds clearing service that facilitates the processing of multiplepayout transactions which have been presented as a single batch. Using batchPaymerchants can make payouts in 94 countries for transactions of any value at afixed price per transaction, substantially discounting other methods and makingpayments directly into customers' bank accounts in a timely fashion. batchPay is suitable for any business or individual that regularly makes crossborder payments. Examples of the breadth of application are investment companiesthat pay out dividends or returns on investment to their investors or anindividual who has property overseas and needs to pay local taxes, utility billsand other outgoings. ensurePay On 30th March 2005 the Company announced its intention to seek to listensurePay, earthport's gaming focused subsidiary. As part of the thorough reviewof the business, this process has been put on hold whilst the Board evaluatesthe best positioning of earthport's gaming processing business. Part of this evaluation positions ensurePay as a provider to other paymentoperators rather than as a competitor. Baltimore Litigation While reserving its rights in certain other legal matters your Company isconcentrating on producing revenue from its core activities. Accordingly, theCompany and Baltimore have entered into a settlement agreement under the termsof which the Company has withdrawn its claim against Baltimore. Hong Kong Post Office The original contract between the Hong Kong Post Office and TAPS (formerlyPayment Authority Limited) a subsidiary of EPAL Ltd, a joint venture between NetSecure Holdings Limited ("NSH") and the Company, was terminated on 22nd May2005. The Company has received a letter from NSH threatening a material claimrelating to this termination. Any such claim is refuted by the Company and theCompany is in negotiations with NSH with regard to this matter. LondonInt Ltd ("LIL") The requirements at LIL have changed significantly following our originalcontract win. The contract has been terminated. Wanadoo The Stored Value Service has been delivered. The implementation of the pilot hasbeen delayed following changes within Wanadoo and a review of its portaloperations. We are meeting with Wanadoo in the next few weeks to discuss thismatter further. CredEcard earthport is in continuing dialogue with CredEcard to develop mutual businessopportunities. Invoyce The joint venture with The Global Invoice Corporation Limited ("Invoyce") isattracting significant interest from prospective clients. The Company isconsidering injecting further funding to realise the potential of this businessto enable it to break even in the short term. Invoyce has natural synergies withthe Company's batchPay product and will act as a further distribution channel. Prospects The Company will continue to pursue vigorously market opportunities in theglobal electronic funds transfer business, spanning the various platforms(internet, mobile, digital TV) on which its technology operates, serving Clientswith its products in particular, stored value, cleared cash and batchPayproducts and access to its global banking network covering 94 territories.Additionally, the Company has identified a new and significant opportunity inthe US broadcast market where the mobile networks are segmented and require auniversally usable micro-payment platform to maximise any commercialapplications. earthport is able to service merchants and their customers throughany digitally enabled device in real time. The market need for global funds transfer systems is growing rapidly asevidenced by the recent announcement of Google's intention to implement a newinternational payments system and the rapidly increasing growth in alternativepayments systems such as the Hundi method of moving money to the Sub Continentand Africa. 3 New Management Team Michael Harrison (60) became Non-Executive Chairman on 3rd May 2005.Subsequently upon the resignation Rob Cunningham, the former Chief ExecutiveOfficer, he became Executive Chairman. Currently Managing Director of The Steering Partnership Limited, Mike waspreviously Managing Director of Cedar Group from 1997 to 2002. He spent twoyears at Informix between 1995 and 1997. Between 1990 and 1995 Mike was Managing Director of Oracle Corporation UKLimited - the company's largest operating unit. Mike helped redesign the UK andworldwide operations and saw turnover rise from £90 million to £210 Million. Previously Mike ran the UK and Ireland operations for Data General 1986-1990 andset up the software and services division of Burroughs between 1982 and 1986 -turning a £5million loss into a £5million profit. Neil Clayton (Chief Financial Officer) (42) joined the Board on 28th February2005. Neil was previously Group Treasurer of First Technology PLC, a FTSETechMark listed company. Colin Medway FCMA ACIS (51) became a Non-Executive Director on 24th May 2005. Colin gained extensive experience as European CFO and UK and Ireland RegionalVice President with high growth US based Cambridge Technology Partners Inc. (nowowned by Novell). Colin was a member of the European management team that grewits European operation from 50 people to over 800 in 7 years with operationsacross 12 countries. 4 Capital Reorganisation General The Directors have been concerned for some time that the breath of the bid-offerspread of the Company's share price is an impediment to liquidity in the marketfor the Company's shares. The proposed Capital Reorganisation is intended toalleviate this and consequently to facilitate the raising of new equity and toenable the Company to complete its refinancing. For these reasons the Directors are proposing and recommending that Shareholdersshould support, the Resolution to approve the following re-organisation of theCompany's share capital:- (a) Consolidation The Directors propose to consolidate and convert the current issued 638,040,880Ordinary Shares of 2.5p each in the capital of the Company into new ConsolidatedShares of 190p each at the rate of 76 (seventy six) existing Ordinary Shares of2.5p for 1 (one) Consolidated Share of 190p. Also every 4 (four) authorised, but unissued Ordinary Shares of 2.5p will be consolidated and converted into 1 (one) New Ordinary Share of 10p each. (b) Subdivision The Directors are proposing the subdivision and conversion of each ConsolidatedShare of 190p into 1 (one) New Ordinary Share of 10p and 24 (twenty-four)Deferred Shares of 7.5p. The New Ordinary Shares will carry identical rights (on a share for share basis)to the Ordinary Shares they are replacing, i.e. each New Ordinary Share of 10pwill be treated exactly as each Ordinary Share of 2.5p. The New Deferred Shares carry no rights to receive any dividend or otherdistribution. The holders of Deferred Shares have no rights to receive notice,attend, speak or vote at any general meeting of the Company. On a return ofcapital, on liquidation or otherwise, the holders of the Deferred Shares shallbe entitled to receive the nominal amount paid-up on the Deferred Shares subjectto the repayment of £10 million per New Ordinary Share. Consequently a value of£nil has been ascribed to the Deferred Shares. No share certificates will be issued to Shareholders in respect of DeferredShares nor will the Deferred Shares be admitted to trading on AIM. They willrank pari passu with the existing 105,963,216 Deferred Shares of 7.5p sharesissued in April 2002. Share Certificates Following approval of the Capital Reorganisation, share certificates would notbe called in but would continue to be accepted with transfers of New OrdinaryShares. Share certificates in 10p form will be issued as and when transfers areregistered or when a Shareholder sends in their Certificate(s) to theRegistrars. For Shareholders who hold shares through the CREST system, the NewOrdinary Shares are expected to be credited to CREST accounts by 1st August2005. Fractional Entitlements Holders of fewer than 76 existing Ordinary Shares would not be entitled toreceive New Ordinary Shares under the Capital Reorganisation. Shareholders witha holding of existing Ordinary Shares which is greater than 76 but which is notexactly divisible by 76 would have their entitlement rounded down to the nearestwhole number. Fractional entitlements would be aggregated and sold in the marketfor the benefit of the Company except that any net proceeds after deduction ofthe expenses of sale in excess of £1 would be distributed to the shareholdersentitled thereto. United Kingdom Taxation These comments with respect to the Capital Reorganisation are of a generalnature; they are included for information purposes only and are not intended tobe legal or tax advice. In particular, they do not address the position ofpersons resident for tax purposes, or liable to taxation, in jurisdictions otherthan the UK or who hold their shares as trading stock. You should consult your own tax advisers with respect to thepossible UK tax consequence of the Capital Reorganisation. Tax consequences of receiving New Ordinary Shares For the purposes of UK taxation of chargeable gains, to the extent that youreceive New Ordinary Shares under the Capital Reorganisation, you should not betreated as making a disposal of any of your existing Ordinary Shares in theCompany by reason of the Capital Reorganisation. The New Ordinary Shares shouldbe treated as the same asset as, and as having been acquired at the same timeand at the same aggregate cost as, the holding of the existing Ordinary Sharesfrom which they derive. No liability to stamp duty or stamp duty reserve tax will be incurred by aholder of existing Ordinary Shares as a result of the Capital Reorganisation. Tax consequences of receiving cash in respect of fractional entitlements A consequence of the Capital Reorganisation is that shareholders with afractional entitlement to a New Ordinary Share in the Company will have theirfractional entitlements aggregated and sold in the market. If you receive cashas a result of this sale, you will be treated as having disposed of yourexisting Ordinary Shares in the Company. As a result you may, depending on yourindividual circumstances, realize a chargeable gain or an allowable loss for taxpurposes. If and to the extent that you receive cash and New Ordinary Shares under theCapital Reorganisation as a result of this sale, you may, under current InlandRevenue practice, treat the cash received as a deduction from any base cost youmay have in your existing Ordinary Shares (and, accordingly, the New OrdinaryShares held after the Capital Reorganisation) rather than as consideration for adisposal of the existing Ordinary Shares representing such fractionalentitlement. 5 Increase in the Authorised Share Capital The Company proposes to increase its authorised share capital from the existing£24,000,000 (twenty four million pounds) to £30,000,000 by the creation of60,000,000 New Ordinary shares of 10p each to rank pari passu in all respectswith the New Ordinary Shares after the Capital Reorganisation. 6 Change in Borrowing Powers As explained in the Introduction and Summary the Company is seeking approval to: (a) amend the limit on the borrowing powers of the Company under the Articles. The proposed new powers will enable it to borrow up to £30,000,000 being 1 (one) times its increased authorised share capital. This change is only intended as a temporary measure and the Company proposes to revert to having a borrowing limit by reference to a multiple of capital and reserves as and when that becomes a sensible and feasible approach in the future. The position will be reviewed prior to the 2006 Annual General Meeting of the Company;(b) to ratify prior breaches of the limit on the Company's borrowing powers under the Articles. 7 Conversion rights under the Convertible Loan Notes 2004, Convertible LoanNotes 2005, Warrants and Other Subscription Rights Between 1st July 2004 and 16th March 2005, the Company has raised new fundsamounting to £2,479,695 and settled £1 million of indebtedness, of which£3,279,695 was raised by means of issuing Convertible Loan Notes 2004. From 24thMay 2005, £1 million of Convertible Loan Notes 2005 have been issued and theCompany has conditionally agreed to allot approximately 478,500 New OrdinaryShares under the Other Subscription Rights. In addition Warrants to subscribefor Ordinary Shares which expire between 31st December 2005 and 31st August2006, have been issued, which if exercised will raise a further £2,675,695. Because the middle market price of the Company's Ordinary Shares in the periodfrom st July 2004 to date, has been less than the nominal value of those shares,the terms of certain of the Convertible Loan Notes 2004, the Convertible LoanNotes 2005, the Warrants and the Other Subscription Rights would involve theissue of Ordinary Shares at less than 2.5p being the current nominal value ofthose shares. Under the Act a company can not issue shares at less than theirnominal value. The Capital Reorganisation and passing of the Resolutions willenable the issue of New Ordinary Shares to satisfy these obligations at valuesin excess of the nominal value of the New Ordinary Shares. The conversion terms of the Convertible Loan Notes 2004, Convertible Loan Notes2005, Warrants and Other Subscription Rights following the CapitalReorganisation will give the right to subscribe for 1 New Ordinary Share uponthe conversion at prices, ranging between 41.80p and 190p of the nominal valueand interest. 8 Subsisting rights to subscribe for Ordinary Shares At the Annual General meeting held on 30thDecember 2002, the authorised sharecapital was increased to £24 million and authority granted to issue up to£10,920,508.54 in nominal value of Ordinary Shares (or rights to subscribe forOrdinary Shares) including £7,500,000 in nominal value on a non pre-emptivebasis. No further authorities under sections 80 or 89 of the Act have beensought at subsequent general meetings. Up to 893,797,289 Ordinary Shares orrights to subscribe for Ordinary Shares (11,760,491 New Ordinary Shares orrights to subscribe for New Ordinary Shares) have been issued or granted inexcess of these authorities of which rights to subscribe for 181,818,182Ordinary Shares (2,392,346 New Ordinary Shares) have been granted conditional onshareholder approval. Resolution 8, seeks ratification of these breaches. Following the Capital Reorganisation the aggregate number of issued New OrdinaryShares will be 8,395,275 New Ordinary Shares. Also following the Capital Reorganisation the maximum number of New OrdinaryShares that may be issued under existing rights to subscribe for Ordinary Sharesin the Company is 10,252,420 New Ordinary Shares (with a further 3,521,532 NewOrdinary Shares in respect of Other Subscription Rights that may be grantedprior to the EGM conditional on the passing of the Resolutions to allow theexercise of conversion rights), the details of which are set out in the tablebelow: New Ordinary 10p Exercise prices Expiry Dates Shares Employee Options 238,651 £3.80p to £133 Sept 2005 to Sept 2010 OtherOptions 1,514,342 95p to 380p July 2005 to Dec 2007 Convertible Loan Notes 20043,413,146 41.8p to 190p August 2005 to Dec 2005 Conditional Convertible Loan2,392,345 41.8p May 2006 Notes 2005 Warrants 2,215,468 95p to 213p Dec 2005 toAugust 2006 Other Subscription Rights 478,468 41.8p N/A 10,252,420 Other Subscription Rights (unissued) 3,521,532 N/A N/A 13,773,952 The share price performance since 1st July 2004 has meant that, rights tosubscribe for Ordinary Shares granted since that time have been at pricesranging between 41.8p and 213p per New Ordinary Share. This has resulted in asignificant dilution for the Shareholders. Further dilution is likely to occurwith the current proposed refinancing. Your Board considers that the issue priceof such convertible rights (Convertible Loan Notes 2004, Convertible Loan Notes2005, Warrants and Other Subscription Rights) is justified in view of theCompany's share price performance during the relevant period. 9 Extraordinary General Meeting The Board is required, under the AIM rules and the Act, to seek the approval ofShareholders to the Capital Reorganisation. Set out on pages 17 to 19 of this document is a notice convening an EGM to beheld at the Company's Office at 21 New Street London EC2M 4TP at 10.00am on 29thJuly 2005. Given the Company's negative net asset position, the Company's net assets areless than half of the Company's called-up share capital and the Company isrequired under Section 142 of the Act to convene the EGM to give Shareholdersthe opportunity to consider whether any, and if so what, steps should be takento deal with that situation. In addition at the EGM, Resolutions will be proposed to (a) effect the CapitalReorganisation, (b) increase the authorised share capital of the Company, (c)increase the powers of the Directors to allot, grant options over, offer orotherwise deal with or dispose of relevant Securities under Section 80 of theAct, (d) authorise the directors to allot equity securities for cash outsideShareholders' statutory pre-emption rights pursuant to the Convertible LoanNotes 2004, the Convertible Loan Notes 2005, the Warrants, the Existing Options,the Other Subscription Rights and generally up to an aggregate nominal amount of£1,353,530, (e) amend the limit on borrowing powers in the Company's Articles ofAssociation, (f) ratify any past breach of the limit on borrowing powers in theCompany's Articles of Association and the past breaches of section 80 and/orsection 89 of the Act referred to in Section 8 above; and (g) to re-appoint eachof the Directors. Your attention is drawn to resolutions 3 and 4 in the Notice of EGM. Resolution3 will, if passed authorise the Directors to allot, grant options over, offer orotherwise deal with or dispose of any relevant securities under section 80 ofthe Act up to an aggregate nominal amount of £2,549,702, if the resolution toincrease the share capital is passed. Resolution 4 will, if passed, permit theDirectors to allot equity securities for cash outside Shareholders' statutorypre-emption rights up to a maximum aggregate nominal amount of £2,549,702. Theseauthorities are intended to allow the Directors to issue shares in the Companyand rights to subscribe for shares to satisfy existing commitments and to raiseworking capital for the Company, without having to incur the time and cost ofconvening a further extraordinary general meeting. 10 Action to be taken A Form of Proxy for use at the EGM accompanies this document. The Form of Proxyshould be completed in accordance with the instructions thereon and returned tothe Company's registrars, Capita Registrars, The Registry, 34 Beckenham Road,Beckenham, Kent BR3 4TU, as soon as possible, but in any event so as to bereceived by no later than 10.00 am on 27th July 2005. The completion and returnof a Form of Proxy will not preclude Shareholders from attending the EGM andvoting in person should they so wish. 11 Recommendation For the reasons and in the context explained above, the Directors, who have beenso advised by Nabarro Wells & Co. Ltd, the Company's nominated advisor, considerthat the proposed Resolutions are in the best interests of the Company and itsShareholders as a whole and accordingly unanimously recommend Shareholders tovote in favour of the Resolutions to be proposed at the EGM. In the event that the Resolutions 1 to 4 inclusive and 6 are not passed yourBoard would have to give immediate and urgent consideration to the optionsavailable to the Company as the Company would be unable to raise additionalfinance. Yours sincerely Michael Harrison Chairman th July 2005 NOTICE OF EXTRAORDINARY GENERAL MEETING earthport plc (incorporated and registered in England and Wales under the Companies Act 1985 with registered no. 3428888) NOTICE IS HEREBY GIVEN THAT an Extraordinary General Meeting of earthport plc(the "Company") will be held in the Boardroom of earthport plc at 21 New Street,London EC2M 4TP at 10.00am on 29th July 2005 (A) to consider, in accordance withSection 142 of the Companies Act 1985, as the net assets of the Company arenegative and therefore less than half of its called-up share capital, whetherany and if so what steps should be taken to deal with the situation and (B) to consider and, if thought fit, to pass the following resolutions whichwill be proposed in thecase of resolutions 1, 2, 3, 8, 9 and 10 as ordinaryresolutions of the Company and, in the case of resolutions 4, 5, 6 and 7 asspecial resolutions of the Company. ORDINARY RESOLUTIONS 1. THAT the share capital of the Company be reorganised:- 2. by first consolidating and converting all of the ordinary shares of 2.5pin the capital of the Company in issue at the date of the passing of thisresolution into ordinary shares of 190p at the rate of one ordinary share of190p each for every 76 ordinary shares of 2.5p each, having the rights set outin the Company's Articles of Association as amended by resolution 6 below; 1. by secondly sub-dividing and converting each of the ordinary shares of190p each in the capital of the Company in issue resulting from theconsolidation referred to in resolution 2. 1.1 into one new ordinary share of 10p each ("New Ordinary Shares") and24 deferred shares of 7.5p each, respectively having the rights set out in theCompany's Articles of Association as amended by resolution 6 below;; 3. by thirdly consolidating and converting all of the 4,069,472 ordinaryshares of 2.5p each in the capital of the Company authorised but unissued at thedate of the passing of this resolution into New Ordinary Shares of 10p each inthe capital of the Company at the rate of 1 New Ordinary Share of 10p each forevery 4 authorised but unissued ordinary shares of 2.5p each. 4. THAT subject to the passing of resolution 1, the share capital of theCompany be hereby increased from £24,000,000 to £30,000,000 by the creation of60,000,000 additional New Ordinary Shares of 10p each ranking pari passu in allrespects with the then existing New Ordinary Shares. 5. THAT, subject to the passing of resolution 2, the directors be generallyand unconditionally authorised pursuant to section 80 of the Companies Act 1985(the "Act") to exercise all the powers of the Company to allot relevantsecurities (within the meaning of that section) up to an aggregate nominalamount of £2,549,702 for a period expiring (unless previously renewed, varied orrevoked by the Company in general meeting) five years after the date of thepassing of this resolution but the Company may make an offer or agreement whichwould or might require relevant securities to be allotted after expiry of thisauthority and the directors may allot relevant securities in pursuance of thatoffer or agreement. SPECIAL RESOLUTIONS 1. THAT, subject to the passing of Resolution 3, the directors be empoweredpursuant to section 95 of the Companies Act 1985 (the "Act") to allot equitysecurities for cash (within the meaning of section 94(2) of the Act) pursuant tothe authority conferred by resolution 3 as if section 89(1) of the Act did notapply to the allotment. This power:- 2. expires 5 years after the date of the passing of this resolution but theCompany may make an offer or agreement which would or might require equitysecurities to be allotted after expiry of this authority and the directors mayallot equity securities in pursuance of that offer or agreement; and 1. is limited to:- 1. allotment(s) of equity securities pursuant to the Convertible Loan Notes2004, Convertible Loan Notes 2005, the Warrants, the Existing Options and theOther Subscription Rights (as respectively defined in the letter (the "ExecutiveChairman's Letter") from the Executive Chairman to Shareholders dated 5 July2005);and 2. allotment(s) of equity securities to raise up to £5,000,000. Provided always that the maximum aggregate nominal amount of equity securitiesthat may be allotted is £2,549,702. 1. THAT any breach by the Company or its subsidiaries (or any directors ofthe Company or its subsidiaries) or its directors prior to the passing ofresolution 6 of the borrowing limit contained in Article 106 of the Company'sArticles of Association be and it is hereby ratified for all purposes. 1. THAT the Articles of Association of the Company be hereby altered asfollows:- 1. Article 106.2 shall be amended by deleting the words "an amount equal tothree times the Adjusted Capital and Reserves" and replacing them with"£30,000,000"; 2. Deleting Article 106.4 and replacing it with "A certificate or report bythe auditors as to the amount of Monies Borrowed or to the effect that the limitimposed by the Article has not been or will not be exceeded at any particulartime or times shall be conclusive evidence of such amount or fact for thepurposes of this Article."; 3. Deleting the definition of "Adjusted Capital and Reserves" in Article106.6. 2. THAT any breach referred to in Section 8 of the Executive Chairman'sLetter by the Company and/or its directors prior to the passing of thisresolution of Section 80 and/or Section 89 of the Companies Act 1985 be and itis hereby ratified for all purposes. ORDINARY RESOLUTIONS 1. To re-appoint Mr M Harrison (who has been appointed by the Board as adirector since the date of the last annual general meeting) as a director of theCompany. 2. To re-appoint Mr N Clayton (who has been appointed by the Board as adirector since the date of the last annual general meeting) as a director of theCompany. 3. To re-appoint Mr C Medway (who has been appointed by the Board as adirector since the date of the last annual general meeting) as a director of the Company. Registered Office: By order of the Board 21 New Street London EC2M 4TP NeilClayton Company Secretary Dated 5th July 2005 NOTES:- 1. A member entitled to receive notice, attend and vote at the extraordinarygeneral meeting is entitled to appoint a proxy or proxies to attend and voteinstead of him. Such proxy need not be a member of the Company. Completion of aform of proxy does not preclude your attending at the meeting and voting inperson if you so wish. To be valid, the instrument appointment a proxy,together, if appropriate, with a power of attorney or other authority (if any)under which it is signed, or a notarially certified copy of such authority, mustbe deposited at the offices of the Company's registrars, Capita Registrars, TheRegistry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, not less than 48 hoursbefore the time fixed for the holding of the meeting. A form of proxyaccompanies this notice. 2. Pursuant to Regulation 41 of the Uncertificated Securities Regulations2001, the time by which a person must be entered on the register of members ofthe Company in order to have the right to attend and vote at the extraordinarygeneral meeting (and for the purposes of the determination by the Company of thenumbers of votes they may cast) is 10 am on 27th July 2005 or 48 hours beforethe time of adjournment of the meeting. Changes to entries on the register ofmembers of the Company after that time (other than in any case where there areunpaid monies owed to the Company in respect of shares) will be disregarded indetermining the rights of any person to attend or vote at the meeting. 3, In the case of joint holders, the signature of only one of the joint holdersis required on the form of proxy, but the vote of the first named on theregister of members will be accepted to the exclusion of the other jointholders. THIS PAGE IS LEFT INTENTIONALLY BLANK THIS PAGE IS LEFT INTENTIONALLY BLANK THIS PAGE IS LEFT INTENTIONALLY BLANK EARTHPORT PLC FORM OF PROXY (for use by ordinary shareholders for the Extraordinary General Meeting to beheld on 29th July 2005 I/We (block capitals) ...................................................................................... of ................................................................................................................................................................................................................................................................................... being (a) holder(s) of ordinary shares in the Company, hereby appoint the Chairman of the meeting or (Note 1).............................................................................................................................................................................................. as my/our proxy to vote for me/us and on my/our behalf at the ExtraordinaryGeneral Meeting of the Company to be held on 29th July 2005 and at anyadjournment thereof. I/We direct my/our proxy to vote as indicated by an X inthe appropriate column. (Note 2) Ordinary Resolutions For Against Abstain 1. To reorganise the Company's share capital by: 1.1 consolidating andconverting every 76 of the issued ordinary shares of 2.5p each into one 190pordinary share; 1.2 sub-dividing each such 190p ordinary share into one newordinary share of 10p each and 24 deferred shares of 7.5p each; 1.3consolidating the authorised but unissued ordinary shares of 2.5p each intonew ordinary shares of 10p each. 2. To increase the share capital of the Company from £24,000,000 to£30,000,000 by the creation of 60,000,000 additional new ordinary shares of10p. 3. To authorise the directors generally and unconditionally pursuant tosection 80 of the Companies Act 1985 (the "Act") to allot relevant securitiesup to an aggregate nominal amount of £2,549,702. Special Resolutions For Against Abstain 4. To authorise the directors pursuant to section 95 of the Act to allotequity securities for cash up to an aggregate nominal amount of £2,549,702 inorder to:- (a) satisfy rights existing on the date of the EGM to acquire equity securities in the Company; and (b) facilitate raising up to £5,000,000. 5. To ratify breaches of the limit on the Company's borrowing powerscontained in the Articles of Association. 6. To amend the limit on borrowing powers contained in the Articles ofAssociation of the Company to allow borrowings of up to £30 million. 7. To ratify any breach referred to in section 8 of the Executive Chairman'sLetter of 5th July 2005 by the Company and/or its directors prior to thepassing of this resolution of Section 80 and/or Section 89 of the CompaniesAct 1985. Ordinary Resolutions For Against Abstain 8. To re-appoint Mr M Harrison as a director of the Company. 9. To re-appoint Mr N Clayton as a director of the Company. 10. To re-appoint Mr C Medway as a director of the Company. Signature(s) or Common Seal ..................................................(Note 3) Name............................................................................ Dated.......................................................................2005 Notes: 1. If you wish to appoint a proxy other than the Chairman of the meeting,cross out the words "the Chairman of the meeting" and write the full name andaddress of your proxy on the dotted line. The change should be initialled. Aproxy need not be a member of the Company. 2. In the absence of instructions, the person appointed proxy may vote orabstain from voting as he/she thinks fit on the specified resolutions and, unless otherwise instructed, may also vote or abstain from voting as he/she thinks fit on any other matter (including amendments to resolutions) which may properly come before the meeting. 3. This form must be signed and dated by the shareholder or his/her attorneyduly authorised in writing. In the case of a corporation this form must be givenunder its common seal or signed on its behalf by a duly authorised officer or an attorney. In the case of joint holders the signature of any one holderwill be sufficient but the names of all the joint holders should bestated. The vote of the senior who tenders a vote whether in person or by proxywill be accepted to the exclusion of the votes of the other joint holders. Forthis purpose seniority is determined by the order in which the names stand inthe register of members in respect of the joint holding. 4. To be effective at the meeting this form must be lodged at the offices of the Company's Registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not later than 48 hours before the time of the meeting together, if appropriate, with the power of attorney or other authority under which it is signed or a duly certified copy of that power or authority. Perivan Financial Print 205655 Third fold and tuck in Please Affix Postage Stamp Capita Registrars (Proxies) PO Box 25 Beckenham Kent BR3 4BR Second fold First fold End For further information please contact: Neil Clayton, CFO - earthport PLC +44 (0) 20 7907 1100 David Nabarro/Nigel Atkinson, - Nabarro Wells +44 (0) 20 7710 7400 This information is provided by RNS The company news service from the London Stock Exchange