GHS.L Regulatory News (GHS)

SPARK Ventures plc

("SPARK" or the "Company")

Posting of Circular

SPARK announces that today it will post a circular (the "Circular") and notice of general meeting to its Shareholders containing information on:

· a proposed change to SPARK's Investing Policy;

· a new Management Agreement to be entered into between SPARK and SPARK Venture Management Limited (the "Manager");

· a proposed return of cash to Shareholders equivalent to 4.5p per Existing Ordinary Share by way of either a Tender Offer or a Special Dividend; and

· an ongoing dispute with Michael Whitaker - former director of the Company.

Return of Cash

On 7 August 2009, SPARK received the approval of Shareholders to an alteration to the Company's investing strategy so that no more investments would be made into new businesses and that existing investments would be sold, when appropriate, with a view to all existing investments being realised over the period to 31 March 2014.

SPARK is successfully implementing this strategy, returning approximately £34.9 million to shareholders to date pursuant to previously authorised return of cash schemes.

SPARK announced on 27 March 2014 its intention to provide Shareholders with a further Return of Cash of an amount equivalent to 4.5 pence per Existing Ordinary Share (in aggregate approximately £18.5 million). This represents approximately:

· 51.0 per cent. of the Company's closing middle-market share price of 8.9 pence per Existing Ordinary Share on 3 April 2014 (the dealing day immediately prior to the posting of the Circular); and

· 39.5 per cent. of the Group's net asset value as at 30 September 2014, being the date of the last published net asset value of the Group.

The implementation of the Return of Cash is conditional upon, among other things, approval by Shareholders at a General Meeting, to be held on 25 April 2014 at 10.00 a.m. at the offices of Bracher Rawlins LLP, Second Floor, 77 Kingsway, London, WC2B 6SR, and upon Admission.

It is proposed that the Return of Cash will be effected by means of the issue to Shareholders of B Shares and/or C Shares, which are intended to give Shareholders, where eligible under their prevailing tax regime (such as the UK), the flexibility to treat the Return of Cash as either capital or income for tax purposes, or a combination of the two.

The implementation of the Return of Cash involves a number of steps, which are all subject to approval of the Shareholders at the General Meeting:

· each Existing Ordinary Share in issue at the Record Time will be sub-divided into one New Ordinary Share together with either one C Share or (at the election of the Shareholders of such Existing Ordinary Shares) one B Share. The B Shares will be purchased by finnCap as principal pursuant to the Tender Offer for 4.5 pence per B Share. The C Shares will entitle their holders to receive the Special Dividend of 4.5 pence per C Share;

· Shareholders will automatically receive C Shares unless they elect for B Shares;

· Shareholders (except for Shareholders not resident in the United Kingdom or with no registered address in the United Kingdom or who are citizens resident in or nationals of other countries "Non-United Kingdom Shareholders" who will be deemed to have elected for C Shares) who elect to participate in the Tender Offer will have their B Shares purchased by finnCap as principal for 4.5 pence per B Share. finnCap has a put option to sell such B Shares off-market to the Company for cancellation pursuant to the Repurchase Agreement;

· Shareholders (including Non-United Kingdom Shareholders who will be deemed to have elected for C Shares) who elect to receive C Shares will be paid a Special Dividend of 4.5 pence per C Share held and, following such payment, each C Share shall automatically convert into a 2014 Deferred Share; and

· the New Ordinary Shares will be traded on AIM in the same way as Existing Ordinary Shares and will be equivalent in all other respects to the Existing Ordinary Shares, with the exception of the difference in nominal value and subject to the rights of the B Shares, C Shares, existing D Shares and 2014 Deferred Shares (as applicable).

If the Return of Cash is approved by Shareholders at the General Meeting, it is expected that CREST accounts will be credited, or cheques despatched, in respect of the Tender Offer for the B Shares and the Special Dividend on the C Shares, by 5 May 2014.

Further details of the steps required to implement the Return of Cash are set out in Part 2 of the Circular which will be put on the Company's website (www.sparkventures.com) from today.

The Alternatives

The Alternatives for the Return of Cash available to Shareholders are summarised below and explained in further detail in Part 4 of the Circular. Shareholders may split the aggregate amount to be returned to them between the Alternatives.

Shareholders who do not make a valid election and Non-United-Kingdom Shareholders will be deemed to have elected for the Dividend Alternative in respect of ALL of their Share Entitlement.

The general guidance on the UK tax treatment included below is only a summary, is based on current UK law and practice as at the date of this announcement and applies only to Shareholders who are resident and, if they are individuals, ordinarily resident in the UK for tax purposes and who hold their Existing Ordinary Shares beneficially as investments and not on trading account. UK tax resident Shareholders should read Part 5 of the Circular as the Alternatives will have different UK tax consequences.

Shareholders who are in any doubt as to their tax position, or are subject to tax in a jurisdiction other than the United Kingdom, should consult an appropriate professional adviser without delay.

Alternative I - Capital Alternative (B Shares)

Shareholders who elect for the Capital Alternative in respect of their Share Entitlement will receive one B Share (in addition to one New Ordinary Share) for each Existing Ordinary Share they hold at the Record Time.

It is intended that the B Shares will be purchased pursuant to the Tender Offer by finnCap as principal and the amount paid pursuant to the Tender Offer will be 4.5 pence for each B Share purchased. Proceeds will be sent to relevant Shareholders by 5 May 2014. The terms and conditions of the Tender Offer are set out in paragraph 5 of Part 2 of the Circular. finnCap has a put option to sell such B Shares off-market to the Company for cancellation pursuant to the Repurchase Agreement

The amounts received under the Capital Alternative should generally be taxed as capital for UK tax purposes. UK tax resident Shareholders should read Part 5 of the Circular for further information.

The attention of Non-United Kingdom Shareholders is drawn to paragraph 4 of Part 2 of the Circular.

Alternative 2 - Dividend Alternative (C Shares)

Shareholders who elect or are deemed to have elected for the Dividend Alternative in respect of their Share Entitlement will receive one C Share (in addition to one New Ordinary Share) for each Existing Ordinary Share they hold at the Record Time. A Special Dividend of 4.5 pence will become payable on each such C Share and will be paid to relevant Shareholders by 5 May 2014. Immediately after payment of the Special Dividend, the C Shares will automatically convert into 2014 Deferred Shares. The 2014 Deferred Shares arising on conversion of the C Shares will not be listed, will have extremely limited rights and will have negligible value. The Company will have the right to purchase all of the 2014 Deferred Shares for an aggregate sum of one penny. If the Company purchases the 2014Deferred Shares, this will be treated as a disposal of the 2014 Deferred Shares by the Shareholders. In view of the negligible amount of this consideration, Shareholders' entitlements will not be paid.

The amounts received under the Dividend Alternative should generally be taxed as income for UK tax purposes. UK tax resident Shareholders should read Part 5 of the Circular for further information.

The attention of Non-United Kingdom Shareholders is drawn to paragraph 4 of Part 2 of the Circular.

 SPARK Share Option Scheme

Participants in the SPARK Share Option Scheme are not, by virtue of the options they hold, entitled to participate in the Return of Cash. However, the scheme contains provision for adjusting the terms of options where there is a variation of capital. The Return of Cash constitutes such a variation of capital.

Under the 2005 Plan, 8,090,909 share options are in issue over ordinary shares, all with an exercise price of 2.5 pence per share (originally 11 pence but reduced following the repayment to shareholders of 2 pence per share in August 2009, 1 penny per share in September/October 2010, 1 penny per share in October 2011, 2.5 pence per share in January 2013, and 2 pence per share in September 2013) and all of which are vested. In 2009, it was agreed between the remuneration committee of the Board and the holders of share options, that the rules of the 2005 Plan relating to variations of capital be amended to allow the vested options to be adjusted by a reduction in the exercise price with no adjustment to the number of shares under option. Furthermore, it was agreed that the adjustment to options made in respect of any subsequent returns of cash would be on the same basis (subject to the overriding requirement that the exercise price per share may not be reduced below the nominal value of such share). Consequently, in accordance with the current rules, the exercise price of the share options under the 2005 Plan will be further reduced to 0.25pence per ordinary share after the General Meeting if approval to implement the Return of Cash is given. This equates to the nominal value of each Existing Ordinary share, as the exercise price is not permitted to reduce to less than this level. Consequently, it is expected that all the holders of share options would exercise their options prior to the Return of Cash becoming effective.

Change to Investing Policy

In addition in accordance with Rule 8 of the AIM Rules, the Company is seeking the consent of the Shareholders at the General Meeting to its proposed revised investing policy. SPARK proposes to alter the investing policy of the Company by extending the deadline by which all remaining investments made by the Company are intended to be realised and the proceeds of such sale returned to the shareholders from 31 March 2014 to 31 March 2015.  It is proposed that the Company's investing policy will, if approved, read as follows:

• Make no more investments into new businesses from its own balance sheet resources and will seek to realise its Existing Investments over the period to 31 March 2015. The Company will be restricted to making investments in assets or companies that are included in its Existing Investments

• Make further follow-on investments and realise its Existing Investments where to do so will enhance Shareholder value on a sale

• Seek to actively manage its Existing Investments where the Directors consider to do so will enhance Shareholder value on a sale. It is intended that the Existing Investments will be progressively realised over the period up to 31 March 2015;and

• Return surplus cash to Shareholders arising from its cash reserves and from the realisation of Existing Investments on at least an annual basis (subject to the Company maintaining sufficient working capital). The Company intends to make progressive returns of cash to Shareholders up to 31 March 2015. It is expected that Company's portfolio of assets will become more concentrated as Existing Investments are progressively realised. The Board has no present intention to leverage any of the Existing Investments (although some investee companies may themselves be leveraged) and there are no cross holdings. 

Management Agreement

In July 2009 the Company entered into a management agreement with Spark Venture Management Limited ("the Original Management Agreement"). Further details relating to that agreement were set out in Part 2 of the circular dated 21 July 2009. The Company's existing management arrangements under the Original Management Agreement expired on 31st March 2014. Accordingly, the Company has sought and agreed terms to renew such agreement on similar terms as the Original Management Agreement except in regards to the fees payable to the Manager and the term which will be one year. The Manager and the Company have agreed terms to enter into a new Management Agreement pursuant to which the Manager will continue to be responsible, subject to the overall supervision of the Company, for managing the investments ,as shown in the Company's half year report 2013, that remain ("Existing Investments"). In consideration for its services under the Management Agreement, the Company shall pay:-

· a Management Fee of £400,000 being a fixed fee for Administration Services and Investment Management Services (as defined in the Management Agreement) for the period ending 31 March 2015; and

· incentive payments, as further detailed below, in the event of the successful disposal of the Existing Investments:-

Incentive Payments

In addition to the Management Fee the Company shall also pay to the Manager the following, in respect of the sale of the Company's shareholding in:-

· IMImobile Private Limited ("IMI"), the Manager will receive, subject to certain deductions, a sum equal to a maximum of 20% of the cash profit realised for such shareholding ; and

· the remaining Existing Investments (excluding IMI) a sum equal to 12.5% of the increase in the realised investment value of the Company's Existing Investment, such increase being based on the difference in value as at 31 March 2014 and 31 March 2015, with a substantial penalty for any assets not sold by 31 March 2015.

In total, the potential payable to the Manager is less than could have been payable under the D share scheme were such D share scheme to simply be extended.

The Board believes that the new arrangements with the Manager are fair and reasonable and in the best interests of Shareholders because since the change of strategy implemented in August 2009, the Manager has delivered cash proceeds from investment sales of £50m compared with book values from these same investments at the start of the that period of £14m. Those investments that have not been sold are on aggregate at a similar value to the September 2009 value. Therefore it is clear that the Board and Shareholders have benefitted from the expertise of the existing Manager and we believe that if the realisation period is extended by an additional year, the outcome to Shareholders will be further enhanced. Additionally Shareholders should be aware that if the realisation date was not extended, the Board and Manager would be forced to sell assets quickly, which would be expected to result in cash proceeds being received that are considerably less than available from continuing to seek orderly sales processes. The most significant investment that remains is IMI Mobile, which represents approximately 75% of the remaining portfolio. The Manager continues to explore all possible exits for this investment ranging from an Initial Public Offering to a trade sale to a sale of SPARK's stake.

The entry into the Management Agreement will constitute a related party transaction for the purpose of the AIM Rules for Companies. The independent Directors of the Company not associated with the Manager, being David Potter, Charles Berry and Helen Sinclair, having consulted with the Company's nominated adviser, finnCap, consider the terms of the Management Agreement to be fair and reasonable insofar as the Shareholders are concerned.

D Share distributions

The holders of the D shares in the Company, all of whom are directors of the Manager have agreed to waive any further entitlements that could have arisen after 31 March 2014. It is the Board's best estimate at the time of writing that the aggregate amount due to the holders of D Shares is approximately £2.2m. Such payment is expected to be made after conclusion of the 2014 audit.

Dispute with a former director

Shareholders will recall that on 12 December 2013, Michael Whitaker left the Board of SPARK. This was due to Mr Whitaker claiming entitlement in respect of a carried interest scheme from 2003. Mr Whitaker asserts that this scheme was not cancelled as part of the Management Buy Out in October 2009, despite what was written in the Circular to Shareholders, and that he is entitled to the entire bonus pot from this scheme. The Board denies that Mr. Whitaker has the entitlement he alleges and has been strongly refuting his claim. As High Court Claims have been filed the matter is now sub judice and we will advise Shareholders when there are further developments.

Notice of General Meeting

The Company confirms that the Circular will be posted to Shareholders on 4 April 2014 and will be available from that date on the Company's website at http://www.sparkventures.com. Notice of the General Meeting, which is to be held on 25 April 2014 is included in the Circular.

An Election Form for use by Shareholders (with the exception of Non-United Kingdom Shareholders and Shareholders who hold their Existing Ordinary Shares in CREST) in connection with the Alternatives and a Form of Proxy for use in connection with the General Meeting are enclosed with the Circular.

 For further information, please contact:

Capitalised terms used in this announcement have the meaning given to them in the Circular dated 4 April 2014.

finnCap Ltd, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for SPARK Ventures plc and is acting for no-one else in connection with the Return of Cash and will not be responsible to anyone other than SPARK Ventures plc for providing the protections afforded to clients of finnCap nor for providing advice in connection with the Return of Cash or any other matter referred to herein.