Iomart Regulatory News (IOM)

7 Mar 2007 07:03

Iomart Group PLC07 March 2007 IOMART GROUP PLC ("iomart" or the "Company") Acquisition of a controlling interest in the data centre company Ezee DSL Limited and Proposed placing of 20,000,000 new ordinary shares Highlights • iomart enters the data centre market with a conditional agreement to acquire a 51 per cent stake in Ezee DSL Limited (to be renamed Easyspace Datacentres Ltd) for £4.8 million in cash. • KBC Peel Hunt has conditionally placed 20,000,000 Placing Shares to raise £11 million at a price of 55 pence per share • The Directors believe that they are acquiring their 51 per cent. stake at a significant discount to the replacement cost of iomart's share of the equipment, which the Directors estimate to be £14m • The Directors are confident that the delivery of the Easyspace Datacentres' business plan will result in iomart achieving entry into a profitable and growing business at a relatively low earnings multiple. • EGM to approve, inter alia, the Investment Agreement, to be held at the offices of iomart Group plc on 30 March 2007 at 10:00am. Certain definitions apply throughout this announcement and your attention isdrawn to the table at the end of this announcement where these definitions areset out in full. Angus MacSween, Chief Executive Officer said: The Directors believe that the acquisition of a significant amount of highquality data centre capacity which is close to being operational would, at thispoint in the cycle, be highly opportunistic. Existing data centres are believedto be close to capacity and new data centres are time-consuming to build and fitout. Independent research suggests that occupancy rates for carrier neutral datacentres will be close to capacity by the end of 2007 and that prices for rackspace will nearly double from 2006 prices over the next three years. We look forward to working with Dominic Marrocco (owner of Ezee DSL Limited) whohas a proven track record in the data centres market and believe his skills,experience and enthusiasm will be highly beneficial to the group". For further information: iomart Group plcAngus MacSween 0141 931 6400Nick Kuenssberg 07860 635 191 KBC Peel Hunt 020 7418 8900Oliver Scott/Richard Kauffer FORWARD LOOKING STATEMENTS This announcement may contain forward-looking statements, including, withoutlimitation, statements containing the words "believes", "anticipates", "expects", and similar expressions. Such forward-looking statements involve unknownrisks, uncertainties and other factors which may cause the actual results,financial condition, performance or achievements of the Company, or industryresults, to be materially different from any future results, performance orachievements expressed or implied by such forward-looking statements. Giventhese uncertainties, prospective investors are cautioned not to place any unduereliance on such forward-looking statements. The Company disclaims anyobligation to update any such forward-looking statements in this announcement toreflect future events or developments. The Placing Shares referred to in this announcement have not been and will notbe registered under the US Securities Act and may not be offered or sold in theUnited States except pursuant to an exception from, or a transaction not subjectto, the requirements of the US Securities Act. There will be no public offer ofthe Placing Shares in the United Kingdom, United States of America or elsewhere. Introduction iomart has today conditionally entered into an agreement to acquire a 51 percent stake in Ezee DSL Ltd (to be renamed Easyspace Datacentres Ltd) for £4.8million in cash. Easyspace Datacentres will have up to five carrier neutralco-location facilities in the UK with net useable space of approximately 55,000square feet and the capacity to house up to 2,300 server racks. The Directorsbelieve that they are acquiring their 51 per cent. share of EasyspaceDatacentres at a significant discount to the replacement cost of iomart's shareof the equipment, which the Directors estimate to be £14 million, ignoring thecost of and time required to fit out the buildings with adequate power suppliesand fibre access. These data centres are in varying degrees of readiness for operation and, withthe exception of one of the data centres, none of these assets has ever beenused. The Directors estimate that Easyspace Datacentres will need to investapproximately £2.3 million to upgrade the equipment at the five data centres inorder to make them fully operational. In addition, Easyspace Datacentres isexpected to require up to £3.1 million of working capital to support the growthand development of its business. iomart and 186k, the current owner of Ezee DSL,will contribute to Easyspace Datacentres' capital expenditure and workingcapital requirements in proportion to their shareholding in EasyspaceDatacentres. The consideration for iomart's stake in Easyspace Datacentres, together with itsshare of the capital expenditure and working capital requirements as well as acontingency reserve amounts to £10.3 million (net of expenses). This will befunded by a placing of 20,000,000 Placing Shares at a placing price of 55p perOrdinary Share representing 20.11 per cent. of the Enlarged Share Capital. KBC Peel Hunt has agreed, as agent for the Company, to procure subscribers for20,000,000 Placing Shares under the terms of the Placing. KBC Peel Hunt hasfully underwritten the Placing. The Directors believe that the acquisition of a significant amount of highquality data centre capacity, albeit requiring further investment to enable fulloperation, would at this point in the cycle be highly opportunistic. Existingdata centres are expected to be close to capacity by the end of 2007 and newdata centres are time-consuming to build and fit out. Prices for rack spaceare also forecast to nearly double over the next three years. Consequently theDirectors are confident that the delivery of the Easyspace Datacentres' businessplan will result in iomart achieving entry into a profitable and growingbusiness at a relatively low earnings multiple. Information on iomart iomart, a web based managed services company, was founded in 1998 and was listedon AIM in April 2000. The group comprises three separate operating divisions:Ufindus, Netintelligence and Easyspace. In the year ended 31 March 2006, iomartgenerated a profit before tax of £4.0 million on revenue of £24.3 million. As at31 March 2006, iomart had net assets of £18.7 million. Brief descriptions ofeach of the Company's operating subsidiaries are set out below: Ufindus - an internet Business Directory, providing a web marketing presence tothe business community. Easyspace - a range of managed webhosting services ranging from complexapplication hosting through to single dedicated servers, shared virtual hostingand a full range of domain name services. Netintelligence - leading edge 'software as a service' product set using client/web technology to deliver a range of control and security services addressing amarket gap in the management of networks inhabited by more and more laptops andmobile devices. The Data Centre Market Data centres are designed to provide a secure environment for IT andtelecommunications equipment comprising racks of servers that use, process andstore data for computer applications. Critical requirements for these serversare fibre access to one or more data networks, access to uninterrupted andsignificant amounts of resilient power as well as cooling, security and fireprotection systems. Whilst many organisations operate and maintain their own servers, it is becomingincreasingly common for organisations to outsource the location and to a lesserextent maintenance of their servers to data centres that host servers formultiple customers, also known as co-location centres. Data centres are able toprovide access to primary optical fibre networks and uninterrupted powersupplies in order to guarantee the operation of the customers' equipment. Keydrivers of this outsourcing trend include cost reduction, better security,access to sufficient resilient power supplies and the requirement for off-sitedisaster recovery solutions. There are two basic models of co-location centre. Carrier specific facilitieshave a single link to the fibre network and are operated by a single networkcarrier to accommodate their own equipment, or to provide co-location servicesto their corporate clients. By contrast, carrier neutral co-location centres arespeculative developments by independent third parties that offer organisationsserviced rack space for rent and access to multiple fibre networks alongside thecorrect power requirements, a factor that is becoming increasingly important forcustomers. Following the downturn in the technology and telecommunications market in 2000,there was significant global overcapacity of data centre space. However, withthe significant increase in internet content and usage, the development ofhigh-bandwidth services such as video-streaming, the increasing usage of IPtelephony and the development of the 'software as a service' model of softwaredistribution, the utilisation of data centre space has increased significantlyto a point at which data centre space and power is becoming scarce. Independent research suggests that data centre prices will almost double between2006 and 2010 and that the existing carrier neutral data centre capacity in theUK will effectively run out by the end of 2007. Information on 186k and Easyspace Datacentres In the late 1990s Lattice Group PLC, a FTSE 100 company which had been demergedfrom BG Group, invested £450 million in establishing a state of the art opticalfibre and data centre network throughout the UK under the name 186k. Followingthe merger of Lattice Group PLC into National Grid Transco PLC in October 2002,the merged group disposed of this network, part of its assets being sold toHutchinson 3G and the remainder, including data centres and the 186k name beingsold to Data Centre Holdings UK Ltd, a company owned by Dominic Marrocco. In acorporate re-organisation in 2005 the data centre assets were vested inEasyspace Datacentres, a wholly-owned subsidiary of 186k, a new company alsoowned by Dominic Marrocco, which had been formed to use the 186k name. 186k itself is primarily an internet service provider, having consolidated anumber of smaller broadband providers, trading under the names 186k, EliteInternet Services, Mailbox Internet and EFH Broadband, with a customer base inexcess of 14,000 broadband customers, with thousands more customers takingassociated products and services. 186k has two subsidiaries apart from its ISPbusiness. Invade International Ltd is a telephony management softwarespecialist, providing voice over internet protocol (VoIP) telephony. In the last financial year to 31 August 2006, the unaudited accounts of the 186kgroup showed revenues of £4.9 million, EBITDA of £1.3 million and net assets of£8.9 million. In mid 2006 iomart commenced negotiations with Mr Marrocco to utilise space inEasyspace Datacentres' Glasgow data centre and currently has 34 of its serverracks located at this centre. Summary of Data Centre Assets The gross assets of Easyspace Datacentres as disclosed in their unauditedaccounts as at 31 August 2006 were £9 million (after a depreciation charge of£0.6 million). These assets include two freehold data centre properties. Inaddition, a leasehold data centre property in London will be leased by iomart atcompletion. It is intended that a further two leasehold data centre propertiesin Leeds and Leicester, or suitable alternatives, will be leased to EasyspaceDatacentres by December 2008. Details of the data centre locations are set outin the table below: Location Tenure and details Estimated server rack capacityGlasgow Freehold owned by Easyspace Datacentres 342London To be sub-leased from National Grid Property Holdings Limited by 675 iomart Group plc. Lease due to expire in 2020.Nottingham Freehold owned by Easyspace Datacentres 184Leicester Proposed Leasehold 277Leeds Proposed Leasehold 826Total 2,304 Glasgow The Glasgow data centre which was originally built in 2002, is located on anindustrial estate outside the City centre and is split into two sections, thefirst of which was originally commissioned in 2002. The first is operationaland currently houses 34 server racks with capacity for a further 149 serverracks with a 2KW per rack power capacity, subject to the Directors estimate ofapproximately £0.1 million being invested in additional network equipment and anupgrade of the air-conditioning system. The other part of the Glasgow data centre is currently non-operational, althoughit does have power and fibre connectivity supplied. The Directors estimate thatthis part of the centre will require approximately £0.5 million of capitalinvestment on items including upgraded power suppliers, air conditioningequipment, networking and cabling equipment, fire detection/prevention andsecurity systems, in order to create capacity for another 159 server racks. London The London data centre is located in the City of London (EC2). The building hasdual 1,500kw power supplies and has been fitted out with electrical andmechanical services comprising uninterrupted power supplies, cooling and airconditioning systems, sufficient power to supply 2KW of power per rack, fibreaccess, fire suppression and detection, building monitoring and securitysystems. Based on an expert report commissioned by iomart, the Directorsestimate that the total replacement cost of the equipment in the facility wouldin the region of £6.8 million. The London data centre was originally commissioned in 2001 and all the equipmentwas re-commissioned in mid 2006. The Directors estimate that capitalexpenditure of approximately £0.2 million will be required in order to installthe necessary network equipment and re-commission the data centre again in orderfor it to become fully operational with a capacity of 675 racks and ready forimmediate use. Nottingham The Nottingham data centre is located on an industrial estate outside the Citycentre. The site is not currently operational and the Directors estimate thatan investment of approximately £0.2 million will be required to upgrade theuninterruptible power supply and air conditioning systems as well as on otheritems in order to achieve the potential site capacity of 184 server racks andfor the facility to become fully operational. Leicester The Leicester data centre is located on an industrial estate outside the Citycentre. The data centre is split into two sections, the first of which wasoriginally commissioned in 2002 and is fitted out, but the Directors estimate itrequires an additional capital outlay of approximately £0.2 million tore-commission the centre and upgrade the network equipment. In addition theDirectors estimate a further approximately £0.1 million is required to upgradethe air-conditioning system in order for this part of the facility to serviceits full capacity of 134 server racks. The second part of the building is not yet fitted out but does have power anddata connectivity. The Directors estimate that an investment of approximately£0.6 million will be required on items including upgraded power suppliers, airconditioning equipment, networking and cabling equipment, fire detection/prevention and security systems in order to create capacity for another 143server racks. Leeds The Leeds data centre is located on an industrial estate outside the City centreand is not yet fitted out, nor does it have any power or data connectivitysupply nor planning permission to operate as a data centre. All the equipmentis currently stored in a warehouse in Reading. The Directors estimate that itwill cost approximately £0.3 million to transfer and install the equipment andto commission the data centre with air conditioning systems, network, cabling,security and fire detection/prevention systems. In addition, an estimatedfurther £0.3 million would need to be invested in a power supply that will meetthe Directors' aspirations of delivering 2KW of power per rack for 826 serverracks. Terms of the Investment Agreement iomart will acquire 51 per cent. of the ordinary shares in Easyspace Datacentresfor a consideration of £4.8 million in cash on completion. All of this will beused to repay an inter-company loan to 186k, Easyspace Datacentres' currentholding company, which is owned by Dominic Marrocco. 186k has agreed to investup to £1.3m of the consideration back into Easyspace Datacentres by way ofshareholder loan to meet its share of the initial working capital and capitalexpenditure requirements. On completion Easyspace Datacentres will own the equipment required to operatefive data centres and have the freehold titles for the Glasgow and Nottinghambuildings and a thirteen year leasehold for the London building, through asublet arrangement with iomart. It is a condition to completion that landlord'sconsent is obtained in relation to the granting of the London lease. 186k willbe obliged to procure the assignment of the Leicester lease and also to procureall necessary consents to allow the Leeds property to be used as a data centre.Alternatively, it will be required to provide suitable substitute premises forthe assets and racks which would otherwise have been operated at Leeds and/orLeicester The Agreement requires an estimated £5.4 million to be invested in total inEasyspace Datacentres. Such investment will be made by each shareholder on apro rata basis. The initial working capital will be in the form of shareholderloans. Further capital expenditure or working capital requirements will bedetermined by the board of directors of Easyspace Datacentres, two of whom willbe iomart representatives and the other of whom will be a 186k representative. If either iomart or 186k fails to comply with its obligations to meet EasyspaceDatacentres' working capital or capital expenditure requirements up to agreedlimits, the party in default will transfer shares in Easyspace Datacentres tothe value of any shortfall made good by the other party. Further, if 186k failsto deliver the assets to enable the properties to operate as data centres inLeicester and Leeds, or the agreed alternatives, 186k will transfer a certainpre-determined percentage of Easyspace Datacentres' share capital to iomart. The Agreement contains an option for iomart to require 186k to sell its minorityshareholding in Easyspace Datacentres (a "call option") and an option for 186kto require iomart to purchase its remaining minority shareholding in EasyspaceDatacentres (a "put option"). These options are exercisable at any time on orafter the second anniversary of the date of completion of the Agreement for aperiod of five years (the "option period"). The consideration required tosatisfy the option will be determined by reference to a formula valuing the 49%held by 186k on the following basis: - between 0.5x and 1.6x the annualised revenue of thepreceding quarter; the actual multiple will be determined by the operatingmargin, excluding staff costs, achieved by Easyspace Datacentres in thepreceding quarter. The operating margin thresholds and the corresponding revenuemultiples are set out in the table below: Operating margin achieved (excluding staff costs) Revenue multiple < 30.0% 0.50x30.0% - 34.9% 0.60x35.0% - 39.9% 0.75x40.0% - 44.9% 0.85x45.0% 1.00x45.1% - 49.9% 1.20x50.0% - 54.9% 1.50x > 55.0% 1.60x - The consideration payable for the 49% minority stake willbe subject to a minimum of £4.8 million if the put option or call option isexercised within the first six months that the option is exercisable. After thisperiod there will be no minimum consideration. - The maximum consideration payable for the 49 per cent. minoritystake will be £20 million at all times. On exercise of a put option within the first six months of the option period, atleast half of the consideration will be satisfied in cash and any excess may besatisfied by Consideration Shares. On exercise of a put option after the firstsix months of the option period, all the consideration may be satisfied inConsideration Shares. On exercise of a put option, 186k's shareholder loan will be repaid in cash ifless than £1.3 million. If the shareholder loan owed to 186k exceeds £1.3million, the loan, in its entirety, will be satisfied through the issue of newConsideration Shares. In the event that the call option is exercised by iomart, the considerationrelating to 186k's shareholding in Easyspace Datacentres and the repayment of upto £1.3 million of the shareholder loans owed to 186k will all be satisfied incash. Any shareholder loans owed to 186k exceeding £1.3 million will be repaidout of free cash in Easyspace Datacentres from time to time. iomart's Strategy The Directors have over the past year been seeking ways to ensure iomart's longterm growth. They identified co-location and managed services as growth markets,participation in which could enhance margins within iomart's existing businessesas well as providing the Company with significant incremental revenue growth. The Directors have a good knowledge of the data centre market, due to each ofiomart's operations either being a user or reseller of data centre space. Inaddition, Angus MacSween co-founded a data centre business called AboveNet UKLimited in March 1999 which was sold to Metromedia Fiber Networks Inc inFebruary 2000. The Directors believe that the acquisition of a significant amount of highquality data centre capacity which is close to being operational would, at thispoint in the cycle, be highly opportunistic. Existing data centres are believedto be close to capacity and new data centres are time-consuming to build and fitout. Independent research suggests that occupancy rates for carrier neutral datacentres will be close to capacity by the end of 2007 and that prices for rackspace will nearly double from 2006 prices over the next three years. On the completion of this acquisition the Directors will take the opportunity toreview strategically all of the Group's areas of operation. In principle theyconsider that the opportunity presented by this acquisition will lead to itsfuture core business being in the complex hosting and co-location market andwill consider how the other areas of business fit within this. Consequentlyiomart expects a period of investment, focusing on growth and accordingly achange in dividend policy to reflect its increasing working capitalrequirements. Easyspace Datacentres' Strategy Dominic Marrocco will be Chief Executive of Easyspace Datacentres. Mr Marroccohas significant expertise in this market having founded Firstnet in 1996 as aninternet service provider, an integral part of whose service was the provisionof data centre services. One of the reasons for structuring this transaction sothat 186k retains a substantial minority interest is to retain the services ofDominic Marrocco and to incentivise him to build Easyspace Datacentres into asubstantial business with good margins and long term sustainable revenues. Easyspace Datacentres' marketing proposition will be centred around theprovision of high quality co-location assets with resilient power supply of 2KWper rack and a high quality responsive customer service. With its lack of operational history, Easyspace Datacentres does not have any ofthe legacy problems associated with longer established data centres such asreduced priced contracts that were entered into when there was significantovercapacity in the market or inefficiently used space as a result of centresbeing filled in a piecemeal fashion. The Directors intend to capitalise on thisby targeting customers requiring a blend of services ranging from the provisionof dedicated and single servers, or managed service and co-location facilities,to fully supported data centre solutions. It is anticipated that customers willbe signed up on contracts ranging from 12 months to 5 years, but with an averageof 3 years. It is expected that charges for services and space will be made ona monthly basis in advance. The Directors intend to manage the blend of these services in each data centreas well as the nature of the contracts in order to create a high margin businesswith a highly visible stream of future revenues and low churn rates. In order to minimise working capital requirements, the Directors intend tostagger the commissioning of each data centre. Their initial focus will be onsecuring customers for the already operational Glasgow data centre as well as tocommission the London data centre and make it operational as soon as possible.Space in the London centre will start to be marketed shortly after completion toprospective customers including Tier 2 banks and other large organisations forwhom a high quality, secure and resilient offering is a key businessrequirement. As the London and Glasgow centres start to fill, the Directors intend tocommission the other data centres; however, the Directors recognise that theirroll-out plans will need to remain flexible in order to capitalise on specificopportunities as they arise. The order in which data centres open will bedemand-led. It is expected that regional data centre customers will includepublic sector organisations and smaller corporates. Some of these regionalcentres will also be marketed as remote disaster recovery facilities for Londonbased organisations. Reasons for and details of the Placing The Placing will raise approximately £10.3 million (net of expenses). Of thesenet proceeds, £4.8 million will be used to fund the cash element of the initialconsideration due under the Investment Agreement. Of the balance, £1.15 millionwill be used to fund iomart's share of Easyspace Datacentres' capitalexpenditure requirements and £1.6 million will be used to fund iomart's share ofthe anticipated working capital needed to support the growth and development ofEasyspace Datacentres' business. The remainder will be kept for contingencypurposes. Under the terms of the Placing Agreement, KBC Peel Hunt, as agent for iomart,has agreed conditionally to use reasonable endeavours to place 20,000,000Placing Shares with investors procured by it at 55p per share. KBC Peel Huntwill subscribe for any Placing Shares which are not taken up under the Placing. The Placing price of 55 pence per Placing Share is at a discount of 29.03 percent below the closing middle market price of 77.5 pence per Ordinary Share on 6March 2007 being the day before announcement of the Placing, which the Directorsconsider to be fair and reasonable given the size of the Placing. The Board had hoped to provide existing Shareholders with the opportunity toparticipate in the fundraising through an offer of new Ordinary Shares on apre-emptive basis. However, the Board concluded, having taken appropriateadvice, that it was not in the best interests of the Company to make availablesuch a pre-emptive offer due to the time and cost involved and the necessity tocomplete the Investment Agreement successfully in a timely manner. The Placing is conditional, inter alia, upon: - the Investment Agreement becoming unconditional in accordance with its terms; - all Resolutions being passed at the EGM; and - Admission. Settlement and dealings Application will be made to the London Stock Exchange for the Placing Shares tobe admitted to trading on AIM. It is expected that, subject to the passing ofthe Resolutions at the EGM, Admission will become effective on 2 April 2007. ThePlacing Shares will, when issued, rank pari passu in all respects with theExisting Ordinary Shares including the right to receive dividends and otherdistributions declared following Admission. Interests of Directors following the PlacingImmediately following the Placing, the Directors' interests in the Company will be as follows: Directors and proposed Number of Total number of Percentage Placing Shares shares held interest in theDirector subscribed following the Enlarged Share Placing Capital Nick Kuenssberg 91,000 1,060,400 1.07%Angus MacSween 91,000 19,286,304 19.40%Richard Logan 45,500 45,500 0.05%Sarah Haran 9,100 720,704 0.72%Mark Hallam 9,100 1,324,767 1.33%Stuart Forrest - 1,689,284 1.70%Fred Shedden 18,200 744,588 0.75%Chris Batterham 9,100 45,621 0.05%Dominic Marrocco 91,000 91,000 0.09% Appointment of Dominic Marrocco The Board of iomart has invited Dominic Marrocco to become a director of iomartimmediately on the Investment Agreement becoming unconditional in all respects.Details on Mr Dominic Anthony Marrocco, aged 33, are as follows: Dominic Marrocco has extensive experience in data centre services. Mr Marroccoset up his first business, Firstnet Services Ltd in 1996. Firstnet was aninternet service provider, an integral part of whose service was the provisionof secure data centre hosting facilities. In 2000 Minorplanet Systems plcacquired a 51 per cent interest in Firstnet for approximately £6 million. Thiswas followed by the sale of 100 per cent. of Firstnet to Pipex in 2004. Sincethen Dominic has built up the 186k group and its businesses by acquisition anddevelopment. Dominic will enter into a service agreement with Easyspace Datacentres pursuantto which he is to be paid an annual salary of £90,000. The service agreement isterminable upon the giving of six months' written notice by either party. Dominic has ten current directorships; 186k Ltd, Ezee DSL Ltd, Elite InternetServices Ltd, ISL Solutions Limited, Idesta Holdings Ltd, Idesta Solutions Ltd,Domain Estates Ltd, Data Centre Holdings UK Ltd, Magicwasted Ltd and MagicwastedHousing Ltd. Within the last five years he was a director, in addition to theabove of Firstnet Services Ltd (now Pipex Communications Ltd), and Onyx InternetLtd. Dominic has confirmed that there are no other matters to be disclosed inrelation to Schedule 2 paragraph (g) of the AIM Rules. Current Trading and Prospects Since we reported the interim results for the 6 months ended 30 September 2006,Easyspace which provides a full range of hosting, domain name, search and designservices has continued to show encouraging levels of new business and has beentrading broadly in line with our expectations. Sales at Ufindus, our internetdirectory services company, have also continued to grow, albeit not at the ratepreviously anticipated. This was largely due to difficulties encountered withestablishing the new Carlisle office, which has since been closed down. The momentum of Netintelligence orders reported in our interims has notmaterialised as expected due to delays in winning new orders as well as seriousmalpractice by a sales person. This malpractice was quickly identified andappropriate action taken. Consequently, the level of new Netintelligence ordersis well below that envisaged at the time of our interim announcement withcurrent monthly sales orders in the region of £20,000. Encouragingly, the Company is in discussions regarding a licensing opportunityfor Netintelligence. If completed, in line with current discussions, this wouldlargely offset the performance at Netintelligence and Ufindus as a result ofwhich the Group would achieve full year profits close to its target for the yearending 31 March 2007. The Directors believe that the completion of the proposed acquisition of the 51per cent. stake in Easyspace Datacentres will significantly enhance the growthprospects for the Group. In order to capitalise on iomart's entry into thisgrowth area, and recognising the possibility of further expansion in the datacentre market, the Directors expect that they will be reinvesting all excesscash generated by the Group to further grow the business. In conjunction with the Company's auditors, Grant Thornton, the Directors areundertaking a review of the likely implications of complying with IFRS. Thisreview is expected to be completed before the end of the financial year at whichtime the Directors will make a decision about whether to implement IFRS for theaudit of the financial year ended March 2007, or whether to adopt it for thefinancial year commencing on 1 April 2007 as required by the AIM Rules. Extraordinary General MeetingThe approval of the Investment Agreement and to allot shares for cash to personsother than Shareholders is subject to the prior approval of shareholders at anEGM to be held at the at the offices of iomart Group plc, Lister Pavilion,Kelvin Campus, West of Scotland Science Park, Glasgow, G20 0SP on 30 March 2007at 10:00 am. Circular The circular containing information of the proposed Investment Agreement andPlacing including EGM details is being posted today to shareholders. Timetable • Latest time and date for receipt of Forms of Proxy : 10:00 am on 28 March 2007 • Extraordinary General Meeting : 10:00 am on 30 March 2007 • Dealings of Placing Shares at 8:00am on 2 April 2007 APPENDIX 1 TERMS AND CONDITIONS OF THE PLACING For Invited Placees only - Important Information 1. Eligible Participants This Appendix, including the terms and conditions of the Placing set out below,is directed only at persons who are FSMA Qualified Investors. In this Appendix "you" or "Placee" means any person who is or becomes committedto subscribe for Placing Shares under the Placing. Members of the public are not eligible to take part in the Placing. 2. Overseas jurisdictions The distribution of this announcement and the Placing and/or issue of ordinaryshares in certain other jurisdictions may be restricted by law. No action hasbeen taken by the Company or KBC Peel Hunt that would permit an offer ofordinary shares or possession or distribution of this announcement or any otheroffering or publicity material relating to such ordinary shares in anyjurisdiction where action for that purpose is required. FSMA QualifiedInvestors who seek to participate in the Placing must inform themselves aboutand observe any such restrictions. In particular, this announcement does notconstitute an offer to sell or issue or the solicitation of an offer to buy orsubscribe for ordinary shares in the capital of the Company in the UnitedStates, Canada, Japan or Australia or in any other jurisdiction in which suchoffer or solicitation is or would be unlawful. The Placing Shares have not beenand will not be registered under the US Securities Act or under the securitieslaws of any State or other jurisdiction of the United States, and, subject tocertain exceptions, may not be offered or sold, resold or delivered, directly orindirectly in or into the United States, or to, or for the account or benefitof, any US persons (as defined in Regulation S under the US Securities Act). Nopublic offering of the Placing Shares is being made in the United States. Nomoney, securities or other consideration from any person inside the UnitedStates is being solicited pursuant to this announcement or the Placing. 3. Placing This Appendix gives details of the terms and conditions of, and the mechanics ofparticipation in, the Placing. KBC Peel Hunt will arrange the Placing as agentfor and on behalf of the Company. KBC Peel Hunt will determine in its absolutediscretion the extent of each Placee's participation in the Placing, which willnot necessarily be the same for each Placee. No commissions will be paid to orby Placees in respect of their agreement to subscribe for any Placing Shares. Each Placee will be required to pay to KBC Peel Hunt, on the Company's behalf,the Placing Price as the subscription sum for each Placing Share agreed to besubscribed by it under the Placing in accordance with the terms set out in thisAppendix. Each Placee's obligation to subscribe and pay for Placing Sharesunder the Placing will be owed to each of the Company and KBC Peel Hunt. EachPlacee will be deemed to have read this announcement in its entirety. To thefullest extent permitted by law, neither KBC Peel Hunt nor any other KBC Personshall have any liability to Placees or to any person other than the Company inrespect of the Placing. 4. Participation and settlement Participation in the Placing is only available to persons who are invited toparticipate in it by KBC Peel Hunt. A Placee's commitment to subscribe for a fixed number of Placing Shares underthe Placing will be agreed orally with KBC Peel Hunt. Such agreement willconstitute a legally binding commitment on your part to subscribe for thatnumber of Placing Shares at the Placing Price on the terms and conditions setout or referred to in this Appendix and subject to the Company's memorandum andarticles of association. After such agreement is entered into a writtenconfirmation will be dispatched to you by KBC Peel Hunt confirming the number ofPlacing Shares that you have agreed to subscribe, the aggregate amount you willbe required to pay for those Placing Shares and settlement instructions. It isexpected that such written confirmations will be despatched on the date of thisannouncement, that the "trade date" for settlement purposes will be Friday 30March 2007 and the "settlement date" will be Monday 2 April 2007. A settlement instruction form will accompany each written confirmation and, onreceipt, should be completed and returned to Jamie Reynolds at KBC Peel Hunt byfax on 020 7972 0112 by 3.00 p.m. on Friday 9 March 2007. Settlement of transactions in the Placing Shares (ISIN:GB0004281639) will takeplace within the CREST system, subject to certain exceptions, on a "deliveryversus payment" (or "DVP") basis. You should settle against CREST ID: 546. KBCPeel Hunt reserves the right to require settlement for and delivery of thePlacing Shares to Placees by such other means that it deems appropriate ifdelivery or settlement is not possible or practicable within the CREST systemwithin the timetable set out in this announcement or would not be consistentwith the regulatory requirements in any Placee's jurisdiction. If Placing Shares are to be delivered to a custodian or settlement agent, pleaseensure that the written confirmation is copied and delivered immediately to theappropriate person within that organisation. 5. No Prospectus No prospectus has been or will be submitted for approval by the FSA in relationto the Placing or the Placing Shares. Placees' commitments in respect ofPlacing Shares will be made solely on the basis of the information contained inthis announcement and on the terms contained in it. 6. Placing Shares The Placing Shares will, when issued, be credited as fully paid and will rankpari passu in all respects with the existing issued ordinary shares. Application will be made for the admission of the Placing Shares to trading onAIM. It is expected that Admission will take place, and dealings in the PlacingShares will commence, on 2 April 2007. 7. Placing Agreement KBC Peel Hunt has today entered into the Placing Agreement with the Companyunder which KBC Peel Hunt has, on the terms and subject to the conditions setout in the Placing Agreement, agreed to use its reasonable endeavours as agentof the Company to procure subscribers for Placing Shares at the Placing Priceand, to the extent it does not do so, itself as underwriter to subscribe for therelevant Placing Shares at the Placing Price. 8. Placing conditions The Placing is conditional, inter alia, on (a) the passing of the EGMResolutions, (b) the Investment Agreement becoming unconditional in accordancewith its terms, (c) the Placing Agreement not being terminated in accordancewith its terms, (d) Admission taking place not later than 8.00 a.m. on 2 April2007, and (e) the Placing Agreement becoming unconditional in all otherrespects. KBC Peel Hunt reserves the right (with the agreement of the Company) to waive orextend the time and or date for the fulfilment of any of the conditions in thePlacing Agreement to a time no later than 8.00 am on 16 April 2007 ("the LongStop Date"). If any condition in the Placing Agreement is not fulfilled or waived by KBC PeelHunt by the relevant time, the Placing will lapse and your rights andobligations pursuant to the Placing shall cease and terminate at such time. The Placing Agreement may be terminated by KBC Peel Hunt at any time prior toAdmission in certain circumstances including, inter alia, following a materialbreach of the Placing Agreement by the Company or the occurrence of certainforce majeure events. The exercise of any right of termination of the PlacingAgreement, any waiver of any condition to the Placing Agreement and any decisionby KBC Peel Hunt whether or not to extend the time for satisfaction of anycondition to the Placing Agreement or otherwise in respect of the Placing shallbe within KBC Peel Hunt's absolute discretion. KBC Peel Hunt shall have noliability to you in the event of any such termination, waiver or extension or inrespect of any decision whether to exercise any such right of termination,waiver or extension. 9. Payment default Your entitlement to receive any Placing Shares will be conditional on KBC PeelHunt's receipt of payment by the relevant time to be stated in the writtenconfirmation referred to above, or by such later time and date as KBC Peel Huntmay in its absolute discretion determine. KBC Peel Hunt may, in its absolutediscretion, waive such condition, and shall not be liable to you in the event ofit deciding whether to waive or not to waive such condition. If you fail to make such payment by the required time for any Placing Shares (1)the Company may release itself (if it decides, at its absolute discretion, to doso) and will be released from all obligations it may have to allot and/or issueany such Placing Shares to you or at your direction which are then unallottedand/or unissued, (2) the Company may exercise all rights of lien, forfeiture andset-off over and in respect of any such Placing Shares to the fullest extentpermitted under its articles of association or otherwise by law and to theextent that you then have any interest in or rights in respect of any suchshares, (3) the Company or, as applicable, KBC Peel Hunt may sell (and each ofthem is irrevocably authorised by you to do so) all or any of such shares onyour behalf and then retain from the proceeds, for the account and benefit ofthe Company or, where applicable, KBC Peel Hunt (i) any amount up to the totalamount due to it as, or in respect of, subscription monies, or as interest onsuch monies, for any Placing Shares, (i) any amount required to cover any stampduty or stamp duty reserve tax arising on the sale, and (iii) any amountrequired to cover dealing costs and/or commissions necessarily or reasonablyincurred by it in respect of such sale, and (4) you shall remain liable to theCompany and to KBC Peel Hunt for any loss which it may suffer as a result of it(i) not receiving payment in full for such Placing Shares by the required time,and/or (ii) the sale of any such Placing Shares to any other person at whateverprice and on whatever terms are actually obtained for such sale by or for it.Interest may be charged in respect of payments not received by KBC Peel Hunt forvalue by the required time referred to above at the rate of two percentagepoints above the base rate of Barclays Bank plc. 10. Placees' warranties and undertakings to the Company and KBC PeelHunt By agreeing with KBC Peel Hunt to subscribe Placing Shares under the Placing youwill irrevocably acknowledge and confirm and warrant and undertake to, and agreewith, each of the Company and KBC Peel Hunt (in its capacity as underwriter ofthe Placing and in its capacity as placing agent), in each case as a fundamentalterm of your application for Placing Shares and of the Company's obligation toallot and/or issue any Placing Shares to you or at your direction, that: (a) you agree to and accept all the terms set out in thisannouncement; (b) your rights and obligations in respect of the Placing willterminate only in the circumstances described in this announcement and will notbe capable of rescission or termination by you in any circumstances; (c) this announcement, which has been issued by the Company, is thesole responsibility of the Company; (d) you have not been, and will not be, given any warranty orrepresentation in relation to the Placing Shares or to the Company or to anyother member of its Group in connection with the Placing, other than by theCompany as included in this announcement or to the effect that the Company isnot now in breach of its obligations under the AIM Rules to disclose publicly inthe correct manner all such information as is required to be so disclosed by theCompany; (e) you have not relied on any representation or warranty in reachingyour decision to subscribe Placing Shares under the Placing, save as given ormade by the Company as referred to in the previous paragraph; (f) you are not a customer of KBC Peel Hunt in relation to thePlacing and KBC Peel Hunt is not acting for you in connection with the Placingand will not be responsible to you in respect of the Placing for providingprotections afforded to its customers; (g) you have not been, and will not be, given any warranty orrepresentation by any KBC Person in relation to the Placing Shares or theCompany or any other member of its Group; (h) you will pay the full subscription amount as and when required inrespect of all Placing Shares allocated to you in accordance with such terms andwill do all things necessary on your part to ensure that payment for such sharesand their delivery to you or at your direction is completed in accordance withthe standing CREST instructions (or, where applicable, standing certificatedsettlement instructions) that you have in place with KBC Peel Hunt or put inplace with KBC Peel Hunt with its agreement; (i) you are entitled to subscribe for Placing Shares under the lawsof all relevant jurisdictions which apply to you and you have complied, and willfully comply, with all such laws (including where applicable, theAnti-Terrorism, Crime and Security Act 2001, the Proceeds of Crime Act 2002, andthe Money Laundering Regulations 2003) and have obtained all governmental andother consents (if any) which may be required for the purpose of, or as aconsequence of, such subscription, and you will provide promptly to KBC PeelHunt such evidence, if any, as to the identity of any person which it mayrequest from you (for the purpose of its complying with such Regulations orotherwise in connection with your participation in the Placing) in the form andmanner requested by KBC Peel Hunt on the basis that any failure by you to do somay result in the number of Placing Shares that are to be allotted and/or issuedto you or at your direction pursuant to the Placing being reduced to suchnumber, or to nil, as KBC Peel Hunt may decide at its sole discretion; (j) you have complied and will comply with all applicable provisionsof the FSMA with respect to anything done or to be done by you in relation toany Placing Shares in, from or otherwise involving the United Kingdom and youhave not made or communicated or caused to be made or communicated, and you willnot make or communicate or cause to be made or communicated, any "financialpromotion" in relation to Placing Shares in contravention of section 21 of FSMA; (k) you are a FSMA Qualified Investor; (l) you are acting as principal only in respect of the Placing or, ifyou are acting for any other person in respect of Placing (1) you are both an "authorised person" for the purposes of FSMA and a "qualified investor" asdefined at Article 2.1(e)(i) of Directive 2003/71/EC (known as the ProspectusDirective) acting as agent for such person, and (2) such person is either (i) aFSMA Qualified Investor or (ii) a "client" (as defined in section 86(2) of FSMA)of yours that has engaged you to act as his agent on terms which enable you tomake decisions concerning the Placing or any other offers of transferablesecurities on his behalf without reference to him; (m) nothing has been done or will be done by you in relation to thePlacing or to any Placing Shares that has resulted or will result in any personbeing required to publish a prospectus in relation to the Company or to anyordinary shares in accordance with FSMA or the UK Prospectus Rules or inaccordance with any other laws applicable in any part of the European Union orthe European Economic Area; (n) you are not, and are not acting in relation to the Placing asnominee or agent for, a person who is or may be liable to stamp duty or stampduty reserve tax in respect of any agreement to acquire (or any acquisition of)shares or other securities at a rate in excess of 0.5% (including, withoutlimitation, under sections 67, 70, 93 or 96 of the Finance Act 1986 concerningdepositary receipts and clearance services), and the allocation, allotment,issue and/or delivery to you, or any person specified by you for registration asholder, of Placing Shares will not give rise to a liability under any suchsection; (o) you will not treat any Placing Shares in any manner that wouldcontravene any legislation applicable in any territory or jurisdiction and noaspect of your participation in the Placing will contravene any legislationapplicable in any territory or jurisdiction in any respect or cause the Companyor KBC Peel Hunt to contravene any such legislation in any respect; (p) (applicable terms and expressions used in this paragraph have themeanings that they have in Regulation S made under the US Securities Act) (1)none of the Placing Shares has been or will be registered under the USSecurities Act, (2) none of the Placing Shares may be offered, sold, taken up ordelivered, directly or indirectly, into or within the United States exceptpursuant to an exemption from, or in transactions not subject to, theregistration requirements of the US Securities Act, (3) you are not within theUnited States and (unless you will be subscribing Placing Shares pursuant to anexemption referred to above in this paragraph) you are not a US person, (4) youhave not offered, sold or delivered and will not offer sell or deliver any ofthe Placing Shares to persons within the United States, directly or indirectly,(5) neither you, your affiliates, nor any persons acting on your behalf, haveengaged or will engage in any directed selling efforts with respect to thePlacing Shares, (6) you will not be subscribing Placing Shares with a view toresale in or into the United States, and (7) you will not distribute anyoffering material relating to Placing Shares, directly or indirectly, in or intothe United States or to any persons resident in the United States; (q) KBC Peel Hunt may (at its absolute discretion) satisfy itsobligations to procure Placees by itself agreeing to become a Placee in respectof some or all of the Placing Shares or by nominating any other KBC Person orany person associated with any KBC Person to do so or by allowing officers ofthe Company and/or employees of Group companies to subscribe Placing Sharesunder the Placing at the Placing Price; (r) time is of essence as regards your obligations under thisAppendix; (s) you shall indemnify and hold each of the Company and KBC Peel Huntharmless, on an after tax basis, from any and all costs, claims, liabilities andexpenses (including legal fees and expenses) arising out of or in connectionwith any breach by you of the terms in this Appendix; (t) this Appendix and any contract which may be entered into betweenyou and KBC Peel Hunt and/or the Company pursuant to it or the Placing shall begoverned by and construed in accordance with the laws of England, for whichpurpose you submit to the exclusive jurisdiction of the courts of England andWales as regards any claim, dispute, or matter arising out of or relating tothis Appendix or such contract, except that each of the Company and KBC PeelHunt shall have the right to bring enforcement proceedings in respect of anyjudgement obtained against you in the courts of England and Wales in the courtsof any other relevant jurisdiction; and (u) nothing in this Appendix shall exclude any liability of any personfor fraud on its part. All times and dates in this announcement are subject toamendment at the discretion of KBC Peel Hunt, except that in no circumstanceswill the date scheduled for Admission be later than the Long Stop Date. Definitions "186k" 186k Limited, a private limited company registered in England and Wales with number 4937421 and having its registered office at 195 North Street, Leeds, LS7 2AA, and the current owner of Ezee DSL Ltd "Admission" the admission to AIM of the Placing Shares "AIM" AIM, a market operated by the London Stock Exchange plc "AIM Rules" the current version of London Stock Exchange's publication titled "AIM Rules for Companies" "Board" the board of directors of the Company "Company" or "iomart" iomart Group plc, a company registered in Scotland with registered number SC204560 and having its registered office at Lister Pavilion, Kelvin Campus, West of Scotland Science Park, Glasgow G20 0SP "Consideration new Ordinary Shares to the maximum value of the Shares" consideration in respect of the put and call option, or the 186k shareholder loan, to be priced at a discount of 7.5 per cent. to the average closing mid market price of the Company's Ordinary Shares in the 10 business days prior to the Company acquiring the additional shares in Easyspace Datacentres "Directors" the directors of the Company "Easyspace the new company name of Ezee DSL Ltd following Datacentres" completion "EGM" the Extraordinary General Meeting of the Company convened for 10 a.m. on 30 March 2007 "Enlarged Share the Company's issued share capital immediately after Capital" the completion of the Placing "Existing Ordinary the Ordinary Shares currently in issue at 7 March Shares" 2007 "Ezee DSL Ltd" Ezee DSL Ltd, a company registered in England and Wales with number 5532548 and having its registered office at Northwood House, 195 North Street, Leeds, LS7 2AA, the name of which is to be changed to Easyspace Datacentres Limited following completion "Form of Proxy" the form of proxy for use in connection with the EGM "FSA" the Financial Services Authority "FSMA" the Financial Services and Markets Act 2000 "FSMA Qualified a person who is a "qualified investor" as referred toInvestor" at section 86(7) of FSMA and at or to whom any private communication relating to the Company that is a "financial promotion" (as such term is used in relation to FSMA) may lawfully be issued, directed or otherwise communicated without the need for it to be approved, made or directed by an "authorised person" as referred to in FSMA "IFRS" International Financial Reporting Standards "Investment the investment agreement entered into on 7 March 2007Agreement" between iomart and 186k relating to Easyspace Datacentres "KBC Peel Hunt" KBC Peel Hunt Ltd "KBC Person" any person being (i) KBC Peel Hunt, (ii) an undertaking which is a subsidiary undertaking of KBC Peel Hunt, (iii) a parent undertaking of KBC Peel Hunt or (other than KBC Peel Hunt) a subsidiary undertaking of any such parent undertaking, or (iv) a director, officer, agent or employee of any such person "Ordinary Shares" the ordinary shares of 1p each in the Company "Placees" persons who agree to subscribe Placing Shares pursuant to the Placing "Placing" the conditional placing by KBC Peel Hunt of the Placing Shares pursuant to the Placing Agreement "Placing Agreement" the agreement dated 7 March 2007 between the Company and KBC Peel Hunt relating to the Placing "Placing Price" 55p "Placing Shares" 20,000,000 Ordinary Shares to be placed pursuant to the Placing "Resolutions" the resolutions set out in the notice of EGM dated 7 March 2007 "Shareholders" holders of Ordinary Shares "UK" or "United the United Kingdom of Great Britain and Northern Kingdom" Ireland "United States" the United States of America, its territories and possessions, any State of the United States and the District of Columbia "US Securities Act" the US Securities Act of 1933 This information is provided by RNS The company news service from the London Stock Exchange