MXCP.L Regulatory News (MXCP)

THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, JAPAN, SOUTH AFRICA, THE REPUBLIC OF IRELAND OR AUSTRALIA OR ANY JURISDICTION IN WHICH SUCH PUBLICATION OR DISTRIBUTION IS PROHIBITED.

17 June 2013

2ergo Group plc

Placing and subscription to raise £3.1 million - new management team to join

2ergo Group plc (AIM: RGO, "2ergo" or "the Company"), the mobile solutions company, has conditionally raised £3.1m (before expenses) through the placing of 256,000,000 new Ordinary Shares with both new and existing shareholders at a price of 1 pence per Ordinary Share, and the subscription by certain directors for a total of 54,000,000 new Ordinary Shares, also at a price of 1 pence per Ordinary Share.

MXC Capital is a cornerstone investor in the Placing. MXC Capital is a specialist investment and advisory group with proven expertise in investment, strategy and funding, focused particularly on the technology sector. Ian Smith, the proposed Executive Chairman of the Company, is a founding partner and shareholder of MXC Capital.

Placing and Subscription

·; Conditionally raised £3.1m million (before expenses) through:

o the placing by Numis Securities of 256,000,000 new Ordinary Shares ("Placing Shares"), at a price of 1 pence per Placing Share; and

o the subscription by directors, Neale Graham, Barry Sharples and Keith Seeley for a total of 54,000,000 new Ordinary Shares ("Subscription Shares"), also at a price of 1 pence per Subscription Share

·; The Placing Shares and the Subscription Shares represent, in aggregate, approximately 80.1 per cent. of the Company's enlarged share capital

·; The proceeds will be used to provide additional working capital and the resources required to implement a revised strategy, with a view to improving the performance of the business and generating increased value for Shareholders

Revised Strategy

·; The Company will focus on monetising its existing pipeline of new business, which is healthy and well qualified

·; The Proposed New Board will devise a focused strategy for podifi to more effectively penetrate the rapidly growing, evolving and converging space of mobile couponing and loyalty

·; The Proposed Executive Chairman intends to exploit his experience and contacts across the industry to develop larger enterprise opportunities and explore other applications of the Company's patented technology

Board changes

·; Subject to the Placing becoming unconditional in all respects, Barry Sharples, Keith Seeley and Peter Kenyon will resign as directors

·; Ian Smith and Simon Duckworth will be appointed respectively as Executive Chairman and as an independent Non-Executive Director. Ian has significant experience of leading and creating value in the technology industry and Simon is a seasoned non-executive director with experience of guiding growth technology businesses

·; Neale Graham will become Executive Director

The Placing Shares and the Subscription Shares will, upon Admission, rank pari passu in all respects with the Ordinary Shares in issue as at the date of this Announcement.

The Placing Price and the Subscription Price are each at a discount of 70.4 per cent. to the closing middle market price of 3.375 pence per Ordinary Share on 14 June 2013, the latest date prior to this Announcement.

Ian Smith, Proposed Executive Chairman, commented:

"2ergo has developed what we believe is the best mobile solution for coupon and loyalty programmes with strong technology that is cost effective to deploy. There is a great opportunity to commercialise this further and monetise the new business wins that have already come through.

"With the funding in place, we have the people, capabilities and track record to deliver on the pipeline of podifi business. The significant investment in 2ergo's technology means that it is now well positioned to facilitate broader adoption of the Group's technology.

"We very much look forward to working with the team to build on the progress they have already made."

Enquiries:

This Announcement is for information purposes only and does not constitute an offer to sell or an invitation to subscribe for or a solicitation of an offer to buy or subscribe for any securities in any jurisdiction including in which such an offer or solicitation is prohibited and is not for distribution in or into, without limitation, the United States, Canada, Australia or Japan (the "Excluded Territories"), or to US persons (within the meaning of Regulation S of the United States Securities Act 1933 (as amended)) (the "Securities Act").

The Placing Shares and the Subscription Shares have not been and will not be registered under the Securities Act or under the applicable securities laws of any state in the United States or any Excluded Territory and, unless an exemption under such act or laws is available may not be offered for sale or subscription or sold or subscribed directly or indirectly within the Excluded Territories or for the account or benefit of any national, resident or citizen of the Excluded Territories. No public offering of securities will be made in the United States. The distribution of this Announcement in other jurisdictions may be restricted by law and therefore persons into whose possession this Announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of such jurisdictions.

Numis, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for 2ergo and for no one else in connection with the Placing and will not be responsible to anyone other than 2ergo for providing the protections afforded to clients of Numis nor for providing advice in relation to the Placing or any other matters referred to in this Announcement.

The contents of this Announcement are not to be construed as legal, financial or tax advice. If necessary, each recipient of this Announcement should consult his, her or its own legal adviser, financial adviser or tax adviser for legal, financial or tax advice.

This Announcement contains certain statements that are or may be "forward-looking statements". These statements typically contain words such as "will, "believes", "proposes", "intends", "expects", "anticipates", "estimates" and words of similar import. All the statements other than statements of historical facts included in this Announcement, including, without limitation, those regarding 2ergo's financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to 2ergo's products and services) are forward-looking statements. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future and therefore undue reliance should not be placed on such forward-looking statements. There are a number of factors that could cause the actual results, performance or achievements of 2ergo to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding 2ergo's present and future business strategies and the environment in which 2ergo will operate in the future and such assumptions may or may not prove to be correct. Forward-looking statements speak only as at the date they are made. Neither 2ergo, nor Numis nor any other person undertakes any obligation (other than, in the case of 2ergo, pursuant to the AIM Rules for Companies) to update publicly any of the information contained in this Announcement, including any forward-looking statements, in the light of new information, change in circumstances or future events.

Introduction

The Company announces today that it has conditionally raised £3,100,000 (before expenses) through the placing of 256,000,000 new Ordinary Shares with both new and existing shareholders at a price of 1 pence per Ordinary Share and through three of the current Directors, being Neale Graham, Barry Sharples and Keith Seeley, agreeing to subscribe, in aggregate, for 54,000,000 new Ordinary Shares, also at a price of 1 pence per Ordinary Share. MXC Capital, the investment and advisory group focused on the technology sector, is a cornerstone investor in the Placing. Ian Smith, the proposed Executive Chairman of the Company, is a founding partner and shareholder of MXC Capital.

The net proceeds of the Placing and the Subscription (assuming no Additional Demand Option Shares are issued) are expected to be approximately £2,900,000 and will be used by the Company to provide the Group with access to additional working capital and the capital resources required to develop its business of contactless mobile technology solutions, initially focusing on converting the existing pipeline of opportunities to deploy the podifi platform (and associated know-how).

The Placing Price and the Subscription Price are each 1 pence per Ordinary Share and are at a discount of 70.4 per cent. to the closing middle market price of 3.375 pence per Ordinary Share on 14 June 2013, being the last practicable date prior to the date of this Announcement.

Subject to the Placing becoming unconditional in all respects, certain changes will be made to the Board. Barry Sharples, Keith Seeley and Peter Kenyon will resign as directors of the Company and Ian Smith and Simon Duckworth will be appointed respectively as Executive Chairman and as an independent Non-Executive Director. As part of these changes to the Board, Neale Graham will become Executive Director. In addition, the Company will grant EMI Options to Neale Graham, Barry Sharples and Jill Collighan to subscribe, in aggregate, for up to 66,644,176 Ordinary Shares.

In addition to the Placing Shares and the Subscription Shares, the Company has, subject to the Placing becoming unconditional in all respects, separately agreed to:

(a) issue to Keith Seeley and Peter Kenyon, in aggregate, 2,500,000 fully paid new Ordinary Shares in satisfaction of certain contractual obligations owed by the Company to them, details of which are set out in Appendix II;

(b) issue to Numis 5,000,000 fully paid new Ordinary Shares in satisfaction of certain contractual obligations owed by the Company to it, details of which are set out in paragraph 3 of this Announcement; and

(c) issue to MXC Capital Advisory LLP 5,000,000 fully paid new Ordinary Shares in satisfaction of certain contractual obligations owed by the Company to it, details of which are set out in paragraph 2.8 of this Announcement.

The Placing, the Subscription, the issue of the Payment Shares, the changes to the Board referred to above and the grant of the EMI Options are conditional, amongst other things, on: (a) Shareholders passing both of the Resolutions at the General Meeting; (b) the Placing Agreement between the Company and Numis becoming unconditional and not having been terminated; and (c) Admission having become effective by no later than 8.00 a.m. on 4 July 2013 (or such later date as the Company and Numis may agree, not being later than 18 July 2013).

In the event that Shareholders do not approve the Resolutions, the Placing, the Subscription, the issue of the Payment Shares, the grant of the EMI Options and the proposed Board changes will not proceed and the current Board will need to consider alternative sources of funding, which the Board believes may be difficult to secure.

It is therefore of the utmost importance that Shareholders vote in favour of the Resolutions. If the Resolutions are not passed by Shareholders at the General Meeting and the Placing and the Subscription do not proceed, no further assurance can be given on the future of the Company.

Background to, and reasons for, the Placing and the Subscription

Background

Following a comprehensive review of its strategy by the Board, as detailed in the Company's annual report for the year ended 31 August 2012, the Company has been focused on the development, exploitation and commercialisation of the Group's patented proprietary contactless mobile technology, podifi, which records and tracks a transaction at the point of sale. Through a handset download, podifi renders any smartphone as a digital wallet. Then, through the introduction of a "plug and play" pod (the reader) at the point of sale, virtually any EPOS terminal can complete a contactless digital transaction. The introduction of these two elements enables mobile coupons to be issued and redeemed, mobile loyalty cards to be swiped, mobile payments to be transacted and valuable data to be collected.

Despite some progress in the intervening period, including some contract wins and the launch of a mobile wallet pilot with O2 in Dublin's Docklands, uptake has been slower than previously expected. Consequently, it has become apparent that the Company will require further financial resources and strategic guidance in order to stem the losses being incurred and execute the Company's pipeline of opportunities. The Company will focus on larger opportunities in defined sectors that the Board believes will effectively showcase the Company's proprietary technology and facilitate further sales.

Proposed Board changes

It has been agreed that subject to, and conditional upon, the Placing becoming unconditional in all respects, the following changes will be made to the Board:

(a) Barry Sharples, Keith Seeley and Peter Kenyon will resign as directors of the Company. Barry Sharples and Keith Seeley will remain employed by the Company on a part time basis to provide general business advice;

(b) Andrew Ian Smith will be appointed as Executive Chairman of the Company. Ian, aged 49, has significant experience of leading and creating value in the technology industry. Ian is a founding partner of MXC Capital, an investment and advisory group focused on the technology sector. Ian has recently led strategic change and value accretion at Redstone plc and Accumuli plc and also brings significant experience from senior positions at Cisco Systems, Foundry Networks and Cable & Wireless. Including the Placing, MXC Capital has now led 5 restructurings of quoted companies in the past three years including Redstone plc, Netservices plc, Maxima Holdings plc and Coms plc;

(c) Simon D'Olier Duckworth will be appointed as an independent Non-Executive Director of the Company. Simon, aged 48, is a seasoned non-executive director with experience of guiding growth technology businesses. A Cambridge graduate, Simon has over 10 years' experience in the security sector. A former Chairman of the City of London Police Authority, Simon is a non-executive director of Accumuli plc and the Police ICT Company Ltd. Chairman of Barings Targeted Return Fund, Simon holds a number of non-executive directorships and appointments in the private and public sectors, including membership of the Home Office's Economic Crime Co-Ordination Board. He was appointed as one of HM's Lieutenants for the City of London in 2010 and as a Deputy Lieutenant for Greater London in 2008; and

(d) Neale Graham will become Executive Director of the Company.

Jill Collighan will remain as Group Finance Director of the Company. Appendix II sets out details of the material terms which have been agreed with each of the Directors and the Proposed New Directors.

Revised strategy

The cornerstones of a revised strategy, with a view to improving the performance of the business and generating increased value for Shareholders (the "Revised Strategy"), are set out below:

(a) the initial focus will be on trying to successfully monetise the Company's existing pipeline of new business which is healthy and well qualified rather than develop further new business opportunities;

(b) the Proposed New Board will devise a focused strategy for podifi to more effectively penetrate the rapidly growing, evolving and converging space of mobile couponing and loyalty; and

(c) the Proposed Executive Chairman intends to exploit his experience and contacts across the industry to develop larger enterprise opportunities and will explore other applications of the Company's patented technology.

Near term actions

In order to develop the Revised Strategy and facilitate its successful execution, the Proposed New Board has identified certain key near-term actions, including through a full operational review to identify opportunities to reduce costs and reallocate cash and resources for growth-supportive operations as well as to test the potential to improve the Company's cost of sales.

The Board believes that the Revised Strategy is at this point the best way to take the Company forward and to enhance shareholder value. Reporting on the aforementioned near-term reviews will form a core part of update communications to Shareholders in the future.

It is anticipated that the Proposed New Board will propose execution of the existing pipeline for podifi and a strategic review of the remainder of the Company's operations. The Board will monitor the balance between cash burn and execution on a monthly and quarterly basis. Subject to, and conditional upon, the Placing becoming unconditional in all respects, the Proposed New Board will update Shareholders on the execution of the plan in due course. 

Reasons for the Placing and the Subscription and use of proceeds

The Company is carrying out the Placing and the Subscription in order to provide it with access to additional working capital and the capital resources required to develop its business of contactless mobile technology solutions, including further development and roll-out of solutions utilising the podifi platform (and associated know-how), and to utilise partner channels for marketing and sales purposes.

In deciding to structure the equity fundraising as a Placing and Subscription, and in determining the price at, and the terms on, which the Placing and Subscription would be undertaken, the Directors have considered a number of factors, including the current financial and trading position of the Group and a desire to achieve certainty of funding within the shortest permissible timeframe. The Directors also took into consideration that the majority of the Company's institutional Shareholders were given the opportunity to participate in the Placing.

Additional Demand Option

The Company has granted the Additional Demand Option to Numis in order to give Numis, with the agreement of the Company (and subject to applicable laws and regulations), the flexibility to meet any additional demand for the Company's shares in the period from the date of this Announcement to 4.30 p.m. on 21 June 2013.

The Additional Demand Option is exercisable on more than one occasion at any time prior to 4.30 p.m. on 21 June 2013. Any Ordinary Shares issued pursuant to the exercise of the Additional Demand Option will be issued on the same terms and conditions as other Ordinary Shares issued pursuant to the Placing and the Subscription. The Additional Demand Option may be exercised by Numis with the agreement of the Company and there is no obligation on Numis to exercise the Additional Demand Option or to seek to procure subscribers for Additional Demand Option Shares. The maximum number of Ordinary Shares that will be issued pursuant to the exercise of the Additional Demand Option is 10,000,000 Ordinary Shares. The maximum number of Ordinary Shares (including Additional Demand Option Shares) that may be issued pursuant to the Placing and the Subscription is 320,000,000 Ordinary Shares.

Current trading and outlook

The Group has deployed its podifi technology with a number of initial customers, with recent wins including a Premier League football club which has been trialling the podifi platform at the end of this football season. The club-branded digital wallet will allow supporters to download mobile coupons for use within the stadium, collect loyalty points, place off-line bets and view club related content. The podifi technology will enable the club to collect data within its stadium, corporate suites and in-house gaming facilities whilst offering fans state-of-the-art mobile services.

A large food services provider is also installing podifitechnology in several of its catering sites in the UK, with the intent that Podifi will enable these sites to generate footfall and build customer loyalty by rapidly creating, launching and managing mobile coupon based offers and loyalty promotions. The technology is also able to measure the performance of a specific promotion or campaign accurately and in real time.

Following a trial of podifi with O2 in Dublin, 2ergo is currently working with O2 to scope possible extensions of the programme.

The Group also has an agreement with Jersey Telecom ("JT") to launch podifi contactless wallet services in Jersey. This service will enable JT customers to redeem mobile coupons at participating retailers using their smartphones. Sales have recently commenced by JT's sales team, with a number of merchants already on board.

2ergo now has a total potential student audience for podifi of over 90,000 students with a number of universities, including the University of Salford, Trinity College Dublin, University College Birmingham, Warwick University and De Montfort University, already signed up. Students are able to redeem mobile coupons and build loyalty points by tapping their smartphone over a podifi pod at till points within university shops and bars and at participating local merchants.

The Board is targeting returning to cash flow positive trading as soon as is practicable but the uncertainty surrounding the rate of uptake of new business renders any forecasting of sales performance difficult. The successful implementation of the Revised Strategy will be a key factor in improving the performance of the business. It is therefore difficult for the Directors to predict the timing and amount of capital required with accuracy. The Company may, in the future, need to access additional funds to finance working capital requirements. The Company may be unable to obtain adequate funding on acceptable terms.

MXC Capital Advisory LLP

Ian Smith, the proposed Executive Chairman of the Company, is a founding partner and shareholder of MXC Capital Advisory LLP.

The Company has appointed MXC Capital Advisory LLP to provide corporate finance consultancy services in relation to the Placing. In return for those services the Company has agreed to pay MXC Capital Advisory LLP subject to, and conditional upon, the Placing becoming unconditional in all respects, a fee of £100,000 plus VAT together with certain costs and expenses incurred in connection with the services. The Company will satisfy £50,000 of this fee by the issue to MXC Capital Advisory LLP of 5,000,000 fully paid new Ordinary Shares and the remainder of the fee will be satisfied in cash.

It has been agreed that subject to, and conditional upon, the Placing becoming unconditional in all respects, the Company will appoint MXC Capital Advisory LLP as a corporate finance consultant to advise on future corporate activity and development.

Importance of the Shareholder vote

As at 31 May 2013, the cash balances of the Group were £168,000. The Company has access to an unutilised overdraft facility of up to £500,000.If the Resolutions are not passed by Shareholders at the General Meeting and the Placing, the Subscription and the Board changes do not proceed, no further assurance can be given on the future of the Company. It is therefore of the utmost importance that Shareholders vote in favour of both of the Resolutions.

Details of the Placing and the Subscription

The Company proposes to issue 310,000,000 new Ordinary Shares at 1 pence per Ordinary Share to both new and existing Shareholders (including three of the current Directors, being Neale Graham, Barry Sharples and Keith Seeley) in order to raise up to £3,100,000 (before expenses and assuming no Additional Demand Option Shares are issued). After expenses, the net proceeds of the Placing and the Subscription are expected to be approximately £2,900,000. In addition, the Company proposes to issue the Payment Shares.

The Placing Price and the Subscription Price are each at a discount of 70.4 per cent. to the closing middle market price of 3.375 pence per Ordinary Share on 14 June 2013, being the last practicable date prior to the date of this Announcement.

The Initial Placing Shares, the Subscription Shares and the Payment Shares (assuming no Additional Demand Option Shares are issued and that there is no exercise of the rights to subscribe under the EMI Options) will represent approximately 83.34 per cent. of the Enlarged Share Capital.

The Placing is subject to the terms of the Placing Agreement. Pursuant to the Placing Agreement, Numis has conditionally agreed to use its reasonable endeavours, as agent for the Company, to place the Initial Placing Shares at the Placing Price. The Placing is not being underwritten. The Company has agreed to pay Numis a placing fee of £100,000 together with certain costs and expenses incurred in connection with the Placing. The Company will satisfy £50,000 of the placing fee by the issue to Numis of 5,000,000 fully paid new Ordinary Shares and the remainder of the placing fee will be satisfied in cash.

The Placing Agreement also contains certain warranties (subject to limitations which are normal for an agreement of this type) given by the Company in favour of Numis as to certain matters relating to the Company and its business. In addition, the Company has given certain undertakings to Numis and has agreed to indemnify Numis in relation to certain liabilities it may incur in respect of the Placing. Numis has the right to terminate the Placing Agreement in certain circumstances prior to Admission including, amongst other things: (a) for certain force majeure events or other events involving certain material adverse changes or prospective material adverse changes relating to the Group; or (b) in the event of a breach of the warranties or other obligations of the Company set out in the Placing Agreement.

The Placing, the Subscription, the issue of the Payment Shares  and the grant of the EMI Options are conditional, amongst other things, on:

(a) Shareholders passing both of the Resolutions at the General Meeting;

(b) the Placing Agreement becoming unconditional and not having been terminated; and

(c) Admission having become effective by no later than 8.00 a.m. on 4 July 2013 (or such later date as the Company and Numis may agree, not being later than 18 July 2013).

In addition to the Placing, three of the current Directors, being Neale Graham, Barry Sharples and Keith Seeley, have conditionally agreed to subscribe, in aggregate, for 54,000,000 new Ordinary Shares at a price of 1 pence per Ordinary Share. The Company has also separately agreed to issue to Keith Seeley and Peter Kenyon, in aggregate, 2,500,000 fully paid new Ordinary Shares in satisfaction of certain contractual obligations owed by the Company to them, details of which are set out in Appendix II.

Application will be made to the London Stock Exchange for the Placing Shares, the Subscription Shares and the Payment Shares to be admitted to trading on AIM. It is expected that Admission of the Placing Shares, the Subscription Shares and the Payment Shares will occur at 8.00 a.m. on 4 July 2013. The Placing Shares, the Subscription Shares and the Payment Shares will, upon Admission, rank pari passu in all respects with the Ordinary Shares in issue as at the date of this Announcement, including as regards the right to receive all dividends or other distributions declared, made or paid after Admission. Following completion of the Placing and the Subscription and the issue of the Payment Shares, the total number of issued Ordinary Shares in the Company will be 386,991,404 (assuming no Additional Demand Option Shares are issued and that there is no exercise of the rights to subscribe under the EMI Options).

Shareholder approval

The Placing the Subscription, the issue of the Payment Shares and the grant of the EMI Options are conditional upon, amongst other things, Shareholder approval. A circular will be posted to Shareholders today, providing further details of the Placing, the Subscription, the issue of the Payment Shares and the grant of the EMI Options and incorporating a notice convening the General Meeting at which the Resolutions will be proposed (the "Circular").

The General Meeting, will be held at 10.00 a.m. on 3 July 2013 at 4th Floor, Digital World Centre, 1 Lowry Plaza, The Quays, Salford, Manchester, M50 3UB and at which the Resolutions described below will be proposed:

Resolution 1 - Authority to allot Ordinary Shares

Resolution 1 will, if passed, grant the Board authority to allot up to 332,500,000 new Ordinary Shares pursuant to the Placing, the Subscription and the Share Payments (representing approximately 515.57 per cent. of the Ordinary Shares in issue as at the date of this Announcement). This authority will also allow the Board to allot any Additional Demand Option Shares to be allotted following any exercise of the Additional Demand Option by Numis. 

This is in addition to the authority given to the Board at the Company's annual general meeting on 28 February 2013 to allot shares in the capital of the Company up to an aggregate nominal amount of £648,353.58(and not in substitution for such authority). Resolution 1 requires an ordinary resolution of the Shareholders at a general meeting under section 551 of the Act. This authority will expire on 31 July 2013.

Resolution 2 - Disapplication of pre-emption rights

Resolution 2 will, if passed, disapply the statutory pre-emption rights set out in section 561(1) of the Act and authorise the Board to allot up to 332,500,000 new Ordinary Shares pursuant to the Placing, the Subscription and the Share Payments (representing approximately 515.57 per cent. of the Ordinary Shares in issue as at the date of this Announcement) without being required to first offer such new Ordinary Shares to Shareholders. This authority will also allow the Board to allot any Additional Demand Option Shares to be allotted following any exercise of the Additional Demand Option by Numis.

This is in addition to the disapplication of the statutory pre-emption rights approved at the Company's annual general meeting on 28 February 2013 in respect of, inter alia, shares in the capital of the Company up to an aggregate nominal amount of £97,253.03 (and not in substitution for such disapplication). Resolution 2 requires a special resolution of the Shareholders at a general meeting under section 571 of the Act. This authority will expire on 31 July 2013.

Related party transaction

Director participation

Subject to, and conditional upon, the Placing becoming unconditional in all respects, pursuant to the Subscription and the Share Payments:

(a) Neale Graham has agreed to subscribe in cash for 18,500,000 Subscription Shares;

(b) Barry Sharples has agreed to subscribe in cash for 18,500,000 Subscription Shares;

(c) Keith Seeley has agreed to subscribe in cash for 17,000,000 Subscription Shares and the Company has agreed to issue 1,250,000 Payment Shares to him; and

(d) the Company has agreed to issue 1,250,000 Payment Shares to Peter Kenyon.

In addition, subject to, and conditional upon, the Placing becoming unconditional in all respects Neale Graham and Barry Sharples will each be granted EMI Options under the EMI Scheme, details of which are set out in Appendix II (Neale Graham, Barry Sharples, Keith Seeley and Peter Kenyon together being the "Participating Directors").

By virtue of their role as Directors of the Company, the Participating Directors are considered to be "related parties" as defined under the AIM Rules, and accordingly, their aggregate participation in the Subscription and the grant of the EMI Options to them described above will constitute a related party transaction for the purposes of Rule 13 of the AIM Rules.

Accordingly, for the purposes of the AIM Rules, Jill Collighan, Finance Director (being the only member of the Board who is not a Participating Director and is therefore considered to be independent for these purposes), having consulted with Numis in its capacity as the Company's nominated adviser, considers that the terms on which the Participating Directors will participate in the Subscription, the issue of the Payment Shares to Keith Seeley and Peter Kenyon and the grant of the EMI Options to Neale Graham and Barry Sharples are fair and reasonable insofar as Shareholders are concerned.

Substantial shareholder participation

Pursuant to the Placing:

(a) Aviva Investors Global Services Limited ("Aviva") has agreed to subscribe in cash for 40,000,000 Initial Placing Shares; and

(b) Nigel Wray has agreed to subscribe in cash for 45,000,000 Initial Placing Shares.

As Aviva (together with other members of the Aviva group) and Nigel Wray are each interested in 10% or more of the issued share capital of the Company as at the date of this Announcement, they are each considered to be "related parties" as defined under the AIM Rules and, accordingly, the subscription by each of them for Initial Placing Shares will constitute a related party transaction for the purposes of Rule 13 of the AIM Rules.

Accordingly, for the purposes of the AIM Rules, the Board, having consulted with Numis in its capacity as the Company's nominated adviser, considers that the terms on which Aviva and Nigel Wray will subscribe for Initial Placing Shares are fair and reasonable insofar as Shareholders are concerned.

Risk Factors

Attention is drawn to the Risk Factors set out the Circular.

Recommendation and Intentions of the Directors

The Board considers that the Placing, the Subscription, the issue of the Payment Shares, the proposed changes to the Board and the grant of the EMI Options are in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of both of the Resolutions at the General Meeting, as each of the Directors has irrevocably undertaken to do in respect of their entire beneficial holdings amounting, in aggregate, to 18,438,089 Ordinary Shares, representing approximately 28.59 per cent. of the Ordinary Shares in issue as at the date of this Announcement.

The Company will also make copies of the Circular (including the notice of general meeting) available on its website at www.2ergo.com.

PLACING STATISTICS

1 Throughout this Announcement, all references to the number of shares in issue as at any time and/or date exclude the Ordinary Shares held by the Company in treasury.

2 This includes the Payment Shares and assumes that no Ordinary Shares (including any EMI Option Shares) are issued after the date of this Announcementand prior to Admission and that there is no exercise of the Additional Demand Option.

EXPECTED TIMETABLE OF KEY EVENTS

Each of the times and dates in the above timetable is subject to change. If any of the above times and/or dates change, the revised times and/or dates will be notified to Shareholders by announcement via a regulatory information service.

ApPendix I

DEFINITIONS

The following definitions apply throughout this Announcement, unless the context requires otherwise:

APPENDIX II

ARRANGEMENTS RELATING TO THE DIRECTORS AND THE PROPOSED NEW DIRECTORS

Resignation of Barry Sharples

Subject to, and conditional upon, the Placing becoming unconditional in all respects, Barry Sharples has agreed to resign as a director of the Company and to vary the conditions of his employment.

Barry Sharples will continue to be employed by the Company on a part-time basis as a general business adviser pursuant to which the Company has agreed to pay him a salary of £6,000 per annum.

Barry Sharples has entered into a compromise agreement with the Company (which is conditional upon the Placing becoming unconditional in all respects) pursuant to which the Company has agreed to pay £35,000 as compensation for the change in his role from director to a general business adviser.

Resignation of Keith Seeley

Subject to, and conditional upon, the Placing becoming unconditional in all respects, Keith Seeley has agreed to resign as a non-executive director of the Company.

Keith Seeley will be employed by the Company on a part-time basis as a general business adviser pursuant to which the Company has agreed to pay him a salary of £6,000 per annum.

Upon his resignation as a non-executive director of the Company becoming effective, the Company has agreed to pay the sum of £12,500 to Keith Seeley for compensation for loss of office which will be satisfied by the issue to him of 1,250,000 fully paid Ordinary Shares.

Resignation of Peter Kenyon

Subject to, and conditional upon, the Placing becoming unconditional in all respects, Peter Kenyon has agreed to resign as a non-executive director of the Company.

Upon his resignation as a non-executive director of the Company becoming effective, the Company has agreed to pay the sum of £12,500 to Peter Kenyon for compensation for loss of office which will be satisfied by the issue to him of 1,250,000 fully paid Ordinary Shares.

Change to Neale Graham's terms of employment

Subject to, and conditional upon, the Placing becoming unconditional in all respects, Neale Graham has agreed to vary the conditions of his employment as follows:

(a) he will cease to be employed as Chief Executive Director and will become Executive Director of the Company;

(b) he will be paid a salary of £35,000 per annum for the first 12 months following Admission;

(c) after 12 months he will be paid a salary of £135,000 per annum, of which £35,000 will be payable in monthly instalments and of which £100,000 will be deferred until the Company returns to profitability; and

(d) the period of notice which either he or the Company is required to give in order to terminate his employment will be reduced from 12 months to 6 months.

Remuneration arrangements of the Proposed New Directors

The Company has agreed to the following remuneration arrangements in respect of Ian Smith and Simon Duckworth:

Ian Smith: Fees of £120,000 per annum will be paid to Mathian LLP in return for the provision of the services of Ian Smith. Mathian LLP is a limited liability partnership incorporated and registered in England and Wales with company number OC37388.

Simon Duckworth: Non-executive director's fee of £25,000 per annum.

Share option arrangements

Within the period of 14 dealing days (being a day on which AIM is open for the transaction of business) of Admission ("Date of Grant"), the EMI Options will be granted to the Executives as set out below:

The detailed terms of each grant of the EMI Options is as follows:

Barry Sharples and Neale Graham 

Subject to and conditional upon the Placing becoming unconditional, each of Barry Sharples and Neale Graham will be granted:

(a) an option over 10,000,000 Ordinary Shares at nil cost ("Nil Cost Option");

(b) an option over 10,000,000 Ordinary Shares at an exercise price of £0.01 per Ordinary Share ("Performance Option"); and

(c) an option over 8,232,088 Ordinary Shares (for Barry Sharples) and 8,412,088 Ordinary Shares (for Neale Graham) at an exercise price of £0.01 per Ordinary Share ("Additional Option"),

in each case under the rules of the EMI Scheme.

Nil Cost Option

The Nil Cost Option will vest immediately upon the Date of Grant but will not be exercisable until 12 months from the Date of Grant.

In the event that Barry Sharples or Neale Graham (as the case may be) cease to be an employee or director of the Company at any time, the Nil Cost Option shall not lapse but shall continue to subsist and be capable of being exercised in accordance with the rules of the EMI Scheme.

In the event of a sale of at least 51% of the issued share capital of the Company or of any subsidiary of the Company or a sale of a material proportion of the assets of the Company or any subsidiary of the Company ("Sale") or other similar corporate event such as a de-merger, scheme of arrangement or as determined by the remuneration committee of the Company ("Committee"), the Nil Cost Option shall be capable of being exercised immediately prior to the completion of the Sale or other corporate event in respect of all of the Ordinary Shares over which the Nil Cost Option has been granted.

Performance Option

The Performance Option will vest immediately upon the Date of Grant and will be subject to the performance conditions as set out below ("Performance Conditions"):

The Company's closing share price must reach or exceed the target share price for at least a period of 10 consecutive dealing days for the Performance Conditions to be met.

In the event that Barry Sharples or Neale Graham (as the case may be) ceases to be an employee or director of the Company due to death, serious ill health, injury or disability, redundancy, the Company ceasing to be a member of the Group, a TUPE transfer or any other circumstances in which the Committee decides, his Performance Option shall be capable of exercise as set out in the rules of the EMI Scheme and as follows:

(a) in the event of death, the Performance Option will be exercisable for a period of 12 months from the date of death; and

(b) in any other case referred to above, the Performance Option will be exercisable for the period as notified to the relevant optionholder by the Committee (which shall be a period of no less than 40 days from the date of cessation of employment or office).

In the event that either of Barry Sharples or Neale Graham (as the case may be) ceases to be an employee or director of the Company for any other reason, other than as set out above, his Performance Option shall lapse and cease to be exercisable in full.

In the event of a Sale or other similar corporate event such as a de-merger, scheme of arrangement or as determined by the Committee upon such a corporate event, the Performance Option shall be capable of being exercised immediately prior to the completion of the Sale or other corporate event in respect of all of the Ordinary Shares over which the Performance Option has been granted and the Performance Conditions shall not apply.

Additional Option

The Additional Option will vest immediately upon the Date of Grant and will not be subject to the Performance Conditions. However, the Additional Option will not be exercisable until such time as Barry Sharples or Neale Graham (as the case may be) cease to be an employee or director of the Company, save for in the case of gross misconduct or voluntary termination (except as a result of the optionholder's ill health, death or disability) in which case his Additional Option shall lapse in full.

To the extent that Barry Sharples or Neale Graham (as the case may be) sells any Ordinary Shares which: (i) he holds as at the Date of Grant of the Additional Option; or (ii) are issued or transferred to him following the exercise of the Nil Cost Option or the Performance Option, then the number of Ordinary Shares over which the Additional Option may be exercised shall be scaled back by a number equal to 18% of any Ordinary Shares sold before the Additional Option is exercised.

Subject to the paragraph set out directly above, in the event of a Sale or other similar corporate event such as a de-merger, scheme of arrangement or as determined by the Committee, upon such a corporate event, the Additional Option shall be capable of being exercised immediately prior to the completion of the Sale or other corporate event in respect of 100% of the Shares.

Jill Collighan

Jill Collighan currently holds 889,737 options over Ordinary Shares, which have been granted on various dates under a series of option agreements ("Existing Options"). Subject to and conditional upon the Placing becoming unconditional, Jill Collighan will surrender the Existing Options and the Company will grant an option over 10,000,000 Ordinary Shares at an exercise price of £0.01 per Ordinary Share under the rules of the EMI Scheme.

This option will vest immediately upon the Date of Grant but will be subject to the same Performance Conditions, leaver provisions and sale provisions as apply to the Performance Options granted to Barry Sharples and Neale Graham as set out above.

Further details relating to Ian Smith

(a) Ian Smith is, or has been in the five years preceding the date of this Announcement, a director or partner of the following companies and partnerships:

Name of company/partnership

Mathian LLP

MXC Capital Limited

Redstone plc

Redstone Converged Solutions Limited

Maxima Holdings Limited

Mantin Capital Limited

Mathian (CM) Limited

Redcentric plc

MXC Capital Finance Limited

Xploite plc

Xploite IHC Limited

Posetiv Limited

Anix Business Systems Limited

Anix Computers Limited

Anix Group Limited

Anix Holdings Limited

VBHG Limited

Itheon Limited

Red Squared Limited

1Spatial plc

FBHG Limited

Storage Fusion Limited

Blue River Systems Limited

Accumuli plc

1Spatial plc

(b) In 2007, Decorum Networks Limited, of which Ian Smith was a director was subject to a creditors voluntary liquidation.

(c) In 2009, Broadblue Catamaran Sales Limited, of which Ian Smith was a director was subject to a creditors voluntary liquidation.

(d) In 2011, Broadblue Catamarans Limited, of which Ian Smith was a director was subject to a creditors voluntary liquidation.

Further details relating to Simon Duckworth

Simon Duckworth is, or has been in the five years preceding the date of this Announcement, a director or partner of the following companies and partnerships:

Name of company/partnership

Association of Police and Crime Commissioners

Accumuli plc

Police I.C.T. Company Limited

Barings Targeted Return Fund (CI.F.)

Serious Fraud Office

Gresham College

Bann System Limited

Fidelity European Values plc

Association of Police Authorities

Empire & Overseas Auctions Limited