NASA.L Regulatory News (NASA)

17 December 2013

Nasstar plc

("Nasstar" or the "Company")

Acquisition of Denara Holdings Limited, Placing and re-Admission to AIM

Nasstar, which provides hosted desktop cloud computing, is pleased to announce the proposed acquisition of Denara Holdings Limited ("Denara") for an aggregate consideration of £13.0m (£9m cash and £4m in New Ordinary Shares). Denara is a holding company for its sole operating subsidiary, e-know.net, a hosted desktop and managed services provider. The Enlarged Group will benefit both from the investment Nasstar has put into creating its hosted desktop solution and web based administration system and from the disciplined sales and marketing strategies e-know.net has developed. This will enable the Enlarged Group to provide hosted desktop and managed services to a wider range of business types and sizes whilst benefitting from the cost synergies and potential revenue synergies that the Directors and Proposed Directors have identified.

The Directors and Proposed Directors expect that the combined sales, technical and operational resources available to the Enlarged Group will enable it to grow organically and capitalise on the accelerating growth now being experienced in the hosted desktop and managed applications market.

In order to fund the cash element of the Acquisition consideration, related costs of the Proposals and additional working capital, the Company has conditionally raised £10.5m at a price of 5p per Ordinary Share.

The Acquisition constitutes a reverse takeover under Rule 14 of the AIM Rules for Companies and is therefore subject to shareholder approval. Accordingly, the Company has today published an AIM Admission Document containing detailed information about Nasstar, e-know.net and the Enlarged Group and convening a general meeting of shareholders in the Company to be held at the offices of Marriott Harrison LLP, 11 Staple Inn, London, WC1V 7QH at 9.30 am on Thursday 9 January 2014.

A copy of this document will be available shortly on the Company's website www.nasstar.com/investors.

finnCap Limited is acting as Nominated Adviser and sole broker to the Company. Oakley Capital Corporate Finance is advising Denara.

Transaction Highlights

· Conditional agreement to purchase the entire issued share capital of Denara for an aggregate consideration of £13.0m;

· The consideration comprises £9m cash and £4m New Ordinary Shares at the Issue Price;

· In order to fund the cash consideration, costs related to the Proposals, and additional working capital, the Company has conditionally raised £10.5m at the Issue Price;

· The Acquisition constitutes a reverse takeover under Rule 14 of the AIM Rules for Companies and accordingly requires Shareholder approval; and

· On Admission the Board will comprise Lord Daresbury (Peter) (Chairman), David Redwood (Deputy Chairman), Nigel Redwood (Chief Executive Officer), Niki Redwood (Finance Director), Angus McCaffery (Non-executive Director), Mike Read (Non-executive Director) and Nick Bate (Non-executive Director).

Financial and Strategic Highlights

· The combination of Nasstar's continued innovation and investment in its hosted desktop solution and web based administration system and e-know.net's disciplined sales and marketing strategies provide a platform from which to capitalise on the growth in the hosted desktop and managed applications market and to undertake further consolidation in the sector in due course;

· Cost synergies available from the amalgamation of certain key resources such as the migration of Nasstar's servers from outsourced data centres to e-know.net's on site data centre;

· Increased buying power arising from amalgamated higher user numbers;

· Upselling of e-know.net functionality to Nasstar customers; and

· Pooling of technical know-how and experience.

Lord Daresbury (Peter), Chairman of Nasstar commented:

"The acquisition of e-know.net is a significant milestone for Nasstar, bringing strong cost, revenue and operational benefits and provides a great platform for us to exploit the rapidly expanding, fragmented hosted desktop market. We have been delighted by the positive reaction to acquire this profitable and complementary business and furthermore are pleased to welcome a number of high quality UK institutions to our share register."

David Redwood, Chairman of e-know.net commented:

"We are delighted to be a part of a combined group that will be able to bring a portfolio of products and services to both its existing and prospective customers, that will truly add value to their management information and IT needs. The comprehensive capabilities we bring to the market support our strong growth plans. We look forward to building market share and consequently shareholder value."

Contacts:

BACKGROUND ON NASSTAR

Nasstar was founded in 1998 by Charles Black, initially providing website development and hosting services. Nasstar launched a hosted email service in 2003 and then in 2004 launched its hosted desktop service and hosted exchange email. Nasstar was admitted to trading on AIM on 29 December 2005.

Hosted desktop is a cloud computing solution enabling clients to access their desktops, business applications and files from anywhere with internet connectivity, using various devices. Since the launch of Nasstar's hosted desktop in 2004 it has continued to invest in the infrastructure designed for scalability and to seek to deliver the best possible user experience.

Nasstar currently serves approximately 160 organisations on its hosted desktop platform, with such organisations varying in size from very small organisations (fewer than 5 users), to comparatively bigger businesses (80 - 100 users). Nasstar sells its services both directly to customers and through resellers who 'white label' Nasstar's hosted desktop service. Under this structure resellers market Nasstar hosted desktop and management portal - known as the ''App Portal'' - as their own branded service. As at the end of September 2013 Nasstar had over 2,400 users on its hosted desktop platform.

As well as hosted desktop, Nasstar also provides hosted exchange, which is a hosted version of Microsoft Exchange email, providing each user with a mailbox which can be accessed from anywhere with internet connectivity, using various devices. Nasstar has earned accreditations including ISO 27001 certification, Microsoft Gold Partner status, and European Service Provider of the Year for 2012-2013 from Citrix. Nasstar is now most accurately described as being a Cloud Service Provider with a specialist focus and experience around hosted desktop.

BACKGROUND ON E-KNOW.NET

e-know.net provides a comprehensive cloud service package, offering hosted desktop and hosted exchange services, with the ability to host a wide variety of software applications on behalf of clients. e-know.net additionally hosts internet based telephony systems (known as Voice Over Internet Protocol (''VoIP'')), provides managed networks and an extensive user support service. e-know.net has approximately 103 managed service clients, ranging in size from 1 to approximately 1,500 users.

e-know.net has focused principally on direct sales to the legal, financial services and recruitment sectors. The regulated nature of these industry sectors makes them particularly suitable for outsourced IT solutions of the type provided by e-know.net. e-know.net's services provide high levels of functionality and regulatory compliance to businesses in such sectors alleviating them of the immediate burden of IT compliance as well as providing them with access to evolving software solutions. As a result of e-know.net's disciplined sector focus, and complemented by the comprehensive e-know.net product and services portfolio, e-know.net is able to demonstrate proven capability to prospective clients and has moved away from the lower to the mid range of the SME market place. As a consequence e-know.net has been able to attract larger clients with larger user numbers, and higher recurring revenues per user.

The three principal target sectors now account for approximately 51 per cent. of e-know.net's clients by number and 79 per cent. of e-know.net's recurring revenue per month. e-know.net's top ten customers currently account for approximately 60 per cent. of total revenue.

e-know.net delivers a number of services including:

· Hosted desktop, the outsourcing of a client's IT department and desktop environment to e-know.net, forming the central delivery mechanism on which a client can use a customised and flexible solution for its technological needs.

· Managed networks, a comprehensive network package with solutions including point-to-point connectivity, private networks, and the full design of a client's wide area network and in-house network. e-know.net aims to increase the performance and resilience of its clients' networks, whilst also reducing the clients' associated costs.

· Managed telephony, an extension to e-know.net's managed desktop service. Clients can opt to add mobile and internet protocol telephony to their e-know.net service to increase cost efficiency, integration and ease of IT management.

· Business solutions, e-know.net can provide companies with access to software at more affordable rates, whilst also increasing a company's functionality and business agility. This is facilitated by billing per user per month. These solutions appear as an 'app' within a client's managed desktop; e-know.net currently hosts and manages approximately 300 separate software applications on behalf of its clients.

· Software-as-a-Service (''SaaS''), enables a client to purchase individual applications from e-know.net on a per user per month basis without taking on the whole e-know.net managed desktop service. This allows clients to move away from the need to purchase often expensive packaged software licenses, providing them with access to up to date products they may not otherwise be able to afford.

· People and projects, this refers to e-know.net's comprehensive support function, from basic software queries, to in-depth technical support. The service may also include IT consultancy and project management.

A critical limb to e-know.net's strategy has been the clear focus on creating long-standing and loyal clients. Whilst the cost of switching providers has been a factor in retaining clients and typical contract durations range from 3 to 5 years, the directors of e-know.net have not relied on these factors alone to foster longevity and low customer churn. This has been achieved more effectively through a concerted focus on excellent customer service and staff development/retention. Staff development and retention within e-know.net has engendered very low staff turnover which has in turn been instrumental in providing continuity for clients, thereby helping to develop and retain client relationships.

FINANCIAL INFORMATION ON DENARA

e-know.net's growth during the period referred to above has been driven by its clear focus upon clients in its three key target vertical sectors. This strategy was facilitated in particular by e-know.net's move into its own data centre in January 2010 which enabled e-know.net to provide improved levels of data security as well as legal and regulatory compliance; these features are of particular value to the legal, financial and recruitment sectors. Since then e-know.net has steadily built its customer and user numbers, whilst also expanding the overall levels of contracted recurring revenue. Active control of costs, combined with operational cost savings following the opening of the data centre in January 2010 has seen e-know.net's gross margin rise from 63.6 per cent. during 2010 to 70.2 per cent. during 2013.

Key client wins during the period referred to above have included four legal firms, each with in excess of 150 managed desktop users; a recruitment company of approximately 90 users; a distribution company supporting multiple distribution centres; as well as a variety of other legal firms with 50-100 users each. At the start of e-know.net's year to 31 December 2010 the business supported 2,144 managed desktop users. By 1 December 2013 this number had grown to 4,470.

Pricing strategies are based upon fixed fees per user per month with typical payment terms on an in-advance basis, either quarterly or monthly. Consequently e-know.net has experienced strong cash generation, with cash generation post capital expenditure growing year on year.

BACKGROUND TO AND REASONS FOR THE ACQUISITION

Nasstar has, over the last 10 years, invested heavily in innovation to create a powerful hosted desktop solution, combining a quick and easy to use customer offering with an efficient web based administration system providing billing and the ability for customers to manage certain aspects of their hosted desktop and hosted exchange services.

e-know.net has likewise developed a powerful hosted desktop proposition for its customers, though has focused more so than Nasstar on developing a sustainable and profitable sales function, incorporating sector focus (as referred to above); a clear marketing strategy to address chosen sectors; a comprehensive IT support function for customers comprising proactive and reactive support; and provision of an increased portfolio of products and services to its client base.

The Directors and Proposed Directors believe that the combination of the respective strengths of e-know.net and Nasstar will provide the Enlarged Group with a product and service range capable of providing hosted desktop to a wide range of business types and sizes. Combining e-know.net's marketing approach with Nasstar's technology, the Directors and Proposed Directors believe that a range of synergies will be available to the Enlarged Group, both in terms of cost savings and revenues.

Cost synergies are expected to arise from the amalgamation of certain key resources such as data centres (where clear scope exists to migrate some of Nasstar's servers from outsourced data centres to e-know.net's own data centre in Telford, where spare capacity currently exists). In addition, the finance functions of the two businesses will be consolidated in Telford under the direct control of Niki Redwood. The management of sales, marketing, and technical support, will all be consolidated as appropriate.

The Directors and Proposed Directors believe that in the region of £0.5m can be saved on an annualised basis as a result of the above cost synergies. The Directors and Proposed Directors anticipate that approximately £0.4m of such cost synergies will be available to the Enlarged Group during the financial year to 31 December 2014. Costs in respect of achieving such synergies are estimated to be in the region of £0.5m.

As well as the above cost synergies, the Directors and Proposed Directors believe that a range of operational synergies will accrue to the Enlarged Group in terms of:

· Imposing e-know.net's marketing and pricing disciplines on the Enlarged Group;

· Increased buying power (of, for example, user licenses) arising from the amalgamated higher user numbers;

· Enabling e-know.net to capitalise on smaller opportunities which it may not currently be able to service economically, by using Nasstar's multi-tenanted hosted desktop platform;

· Up-selling e-know.net functionality to Nasstar customers; and

· Pooling of technical know-how and experience.

MARKET OPPORTUNITY AND COMPETITIVE ENVIRONMENT

There are a variety of reasons as to why an organisation might move to a hosted desktop solution, including the following:

· Cost effectiveness: Capital costs of hardware are predominantly borne by the hosted desktop provider; clients can save costs by not having to purchase, maintain and upgrade expensive IT equipment and pay for unused software licenses. Additionally, clients may be able to mitigate their insurance costs by outsourcing their data housing, thereby reducing their risk in respect of data security and compliance.

· Cost control: Outsourcing IT functions to a third party providing a contracted price per user per month should enable an organisation to more accurately budget and control its IT costs, which thereby become profit and loss as opposed to balance sheet items. Adopting hosted desktop means a customer pays for the IT resource it uses based on the quantified variables such as the number of users, software licenses and data storage. This transforms payment of IT into a utility based approach which is more transparent and predictable than a traditional IT function. Paying on a per user per month basis enables companies with large staff turnover or fluctuating demand to 'turn on and off' hosted desktop users and software on a highly flexible basis and avoid being contracted to paying for unused software licenses.

· Ease of management: Large, multi-centered companies can manage their day-to-day IT tasks and multiple users from one central location. The Directors and Proposed Directors believe that hosting eliminates many of the day to day IT related issues for a client's management.

· Specification: hosted desktops are typically run on some of the best and most up to date software and hardware available. To build a hosted desktop business, the provider must continually improve its system architecture to meet the speed, capacity and reliability demands of its customers. These systems will typically be far superior to anything a customer could deliver or afford itself.

· Flexibility of location: A hosted desktop user can access their hosted desktop from any internet enabled device in any location with internet connectivity. This allows the user to access their desktop and all files/applications contained within it from any location using a variety of devices including mobile phones and tablet computers.

· Resilience and security: hosted desktops are highly-resilient compared to even the highest end IT infrastructure with multiple layers of back-up, resilience and defence built in to systems to guard against service disruption, whatever its cause, be it cyber-crime, fires, floods or vandalism.

· 24/7 remote support.

· Scalability. The solutions of e-know.net and Nasstar enable their clients to match accurately their IT needs to the size of their operation. As a client expands, it is usually as simple as notifying e-know.net or Nasstar of the planned expansion and the new users that need to be created.

These market drivers are now contributing to a hosted desktop market which is currently estimated to be growing at a compound annual growth rate of 86 per cent. between 2011 to 2016 (Source: 'Workspace-as-a-Service (''Waas'') 2012-2016 Forecast of the Emerging WaaS Market'; IDC Worldwide, December 2012) with approximately 77 million hosted desktop users expected by 2016 (Source: Forecast: Hosted Virtual Desktops, Worldwide, 2012-2016, 2012 Update; Gartner Inc.; 29 June 2012).

The Directors and Proposed Directors believe that, whilst hosting capabilities are well advanced, the extent to which it has been adopted is still relatively low with recent survey data of 2,000 UK companies ranging in size from 2 to 250 users indicating that just 2 per cent. of such companies use Desktop as a Service (''DaaS'') (Source: EDGE_Microsoft SMB Research - 2012). At the same time, there is clear survey evidence to suggest that businesses are now more cognisant of the benefits of DaaS and as a consequence, their likely propensity to adopt it (Source: Gartner Forecast Hosted Virtual Desktops, Worldwide, 2012-2016, 2012 Update). The Enlarged Group will seek to establish itself as a leading hosted desktop provider, most prominently in the key sectors it has identified, taking advantage of the fragmentation of competition within the market.

The Directors and Proposed Directors have identified three direct routes via which they will seek to gain market share for the Enlarged Group; consultants, authors and governing bodies. It is the Directors' and Proposed Directors' belief that a majority of mid-size companies use consultants to assist them in defining their IT needs and to advise them on appropriate providers. The Enlarged Group intends to broaden and strengthen its relationships with such consultants. e-know.net also holds agreements with a number of software application authors to host their software for their client base (where hosting is more appropriate to a capital software sale). The Directors and Proposed Directors intend to expand these relationships.

The key sectors to which the Enlarged Group will seek to provide hosted desktop solutions are regulated sectors. It is the Directors' and Proposed Directors' belief that companies within these sectors may look to their governing bodies and societies for 'approved' IT outsourcing companies.

The Enlarged Group will seek to capitalise and add to the partnerships e-know.net has already established with certain governing or professional bodies and societies (including the regionalised Law Societies). In addition to the three direct routes, the Enlarged Group will further develop the Nasstar reseller and distribution channel with a new pricing and marketing strategy.

CURRENT TRADING AND PROSPECTS

Nasstar

The Directors have today resolved, conditional upon Admission, to change Nasstar's accounting reference date from 30 September to 31 December in order to bring Nasstar's accounting year end in line with that of e-know.net. Accordingly, Nasstar has today published its second interim results for the six month period to 30 September 2013. The Group's next financial statements will therefore be in respect of the 15 months ending 31 December 2013. Since the start of the current financial year, the number of live users of hosted desktop has risen by approximately 33 per cent. to over 2,400. These hosted desktop subscriber additions came against the loss of a substantial number of users as a result of the end of a fixed term contract with Allied Healthcare in September last year, as previously announced.

For the six months to 30 September 2013 Nasstar reported a turnover for the period of £1m (six months to 31 March 2013: £1m) and an adjusted EBITDA (earnings before interest, taxation, depreciation, amortisation and share-based payments) loss for the period of £241,000 (six months to 31 March 2013: loss of £190,000).

e-know.net

Since 30 June 2013 e-know.net has continued to renew existing contracts and win new business. e-know.net has won three major new contracts adding approximately £30,000 of recurring revenue per month with contract durations ranging from 36 to 60 months, and has renewed contracts with three major customers securing over £20,000 of recurring revenue per month for a further 36 months. Out of these six contracts, five fall within the sectors targeted by e-know.net, as referred to above. These recent contract wins and renewals further support the Directors' and Proposed Directors' opinion that the mid-market of the SME sector is the correct focus for the e-know.net offering. During the economic downturn, the switch to an e-know.net service offered clients fixed cost IT in line with industry specific regulatory requirements. It is the Directors' and Proposed Directors' view that as the economic outlook continues to improve, the switch to a e-know.net service will not only be made for financial reasons, but for reasons of agility and scalability.

Enlarged Group

The Directors and Proposed Directors are encouraged by trading conditions generally across the Enlarged Group's chosen markets and the wider sectors in which their clients operate. The Directors and Proposed Directors expect that the combined sales, technical and operational resources available to the Enlarged Group following Completion will enable it to grow organically and capitalise on the accelerating growth now being experienced in the hosted desktop and managed applications market. The Directors and Proposed Directors would also anticipate using the Enlarged Group as a platform to undertake further consolidation in the sector.

PRINCIPAL TERMS AND CONDITIONS OF THE ACQUISITION

On 17 December 2013, the Company entered into the Acquisition Agreement with (inter alios) the Vendors pursuant to which the Company has conditionally agreed to acquire the entire issued and to be issued share capital of Denara. The consideration for the Acquisition is £13.0m, to be satisfied as to £9.0m in cash and £4.0m in Vendor Consideration Shares at the Issue Price. Based on an expected net cash balance within e-know.net at 31 December 2013 of £0.65m, the Denara purchase price represents an enterprise value of £12.3m.

 Completion of the Acquisition Agreement is conditional, amongst other things, upon:

· Shareholder approval of the Resolutions; and

· Admission.

THE FUNDRAISING

In order to fund the cash element of the Acquisition consideration and related costs of the Proposals and ongoing working capital, the Company is seeking to raise £10.5m (gross) (£9.3m net of expenses) pursuant to the Fundraising through the issue of the Placing Shares at the Issue Price. The Placing Shares will represent approximately 59.4 per cent. of the Enlarged Issued Share Capital immediately following Admission. The Fundraising is not being underwritten. Following Admission the Placing Shares will rank pari passu with the Existing Ordinary Shares. Application will be made for the admission of the Enlarged Issued Share Capital to trading on AIM which is expected to take place on 10 January 2014.

DETAILS ON THE CONSEQUENTIAL PROPOSALS

Proposed New Articles of Association

At the same time as approving the Acquisition the Company is taking advantage of this opportunity to adopt the New Articles. The Directors believe that the Company's Articles should be updated to reflect and take full benefit of some of the new provisions of the Act which have now been brought in to full effect. Accordingly, the Board considers it prudent to replace the Company's existing Articles with new articles of association which take account of those developments. The New Articles are available for review at the Company's website at www.nasstar.com/investors.

Proposed Capital Reduction

In view of the retained deficit on Nasstar's profit and loss account for the year ended 30 September 2012 the Directors are now proposing to implement the Capital Reduction with a view to restoring the Enlarged Group's dividend capacity sooner than might have otherwise been achieved without taking such measure. The deficit as at that date was £2.825m and there was a balance of £3.957m standing to the credit of the Company's share premium account. Shortly after Admission and subject to the passing of Resolution 4, the Company will seek the confirmation of the Court to reduce its capital to create distributable reserves by reducing the relevant balance on the share premium account and the above deficit on the profit and loss account in its entirety. The reserves created by this capital reduction will be available at the discretion of the Directors of the Company following Admission for the purpose of supporting the payment of future dividends. The Court's approval of the Capital Reduction will be sought after Admission. Shareholders will be asked to confirm their approval for the Capital Reduction in a special resolution at the General Meeting. The Capital Reduction will also require the confirmation of the Court. If both are obtained, the Capital Reduction is expected to be effected in January or February 2014. The Capital Reduction should not affect in itself the total market capitalisation of the Company or the value of individual shareholdings.

DIRECTORS AND PROPOSED DIRECTORS

Following Admission the Board will comprise:

Charles Black (current Chief Executive Officer) and Tony Eve (current Finance Director) will both step down with effect from Admission.

Further information on the service contracts or letters or appointment (as the case may be) in respect of the above Proposed Directors is set out in Appendix 1 to this announcement.

INCENTIVISATION ARRANGEMENTS

In connection with the Proposals it has been determined that, conditional on Admission, new Options over Ordinary Shares will be granted at the Issue Price under the terms of the Share Option Scheme (as amended) to the following Directors and Proposed Directors:

The above new Options will be exercisable in tranches of one third each, subject to the share price of Nasstar achieving levels of no less than 10 pence per Ordinary Share, 15 pence per Ordinary Share and 20 pence per Ordinary Share, in each case for a continuous three month period. On Admission and in connection with the terms of the compromise arrangements negotiated between the Company and Charles Black, it is proposed that Mr Black will be issued at Admission with 1,700,000 New Ordinary Shares at the Issue Price, credited as fully paid, partly in lieu of 1,750,000 of the Options he currently holds, with such existing 1,750,000 Options being cancelled. The remaining Options currently held by Mr Black (amounting to 950,000 Options in total) will remain in place on Admission, and will be amended such that they will be subject to no vesting conditions and the period during which they are capable of exercise will be extended to a period of ten years from the date of their original grant (''Charles Black Option Amendments''). Charles Black will also receive a severance payment of £91,000 in cash.

RELATED PARTY TRANSACTIONS

The Charles Black Option Amendments referred to above are deemed to be a related party transaction for the purposes of the AIM Rules. The Directors, excluding Charles Black, having consulted with finnCap, consider that the Charles Black Option Amendments are fair and reasonable insofar as Shareholders are concerned.

The participation of The Kestrel Opportunities Fund in the Placing is also deemed to be a related party transaction for the purposes of the AIM Rules. The Directors, having consulted with finnCap, consider such participation to be fair and reasonable insofar as Shareholders are concerned.

DIVIDEND POLICY

Any future dividends will naturally be proposed or declared taking account of the Enlarged Group's profitability, current cash position and prospects, whilst also having regard to the future cash demands of the business. The Directors and Proposed Directors do not anticipate the proposal or any payment of any dividends during the next full financial year to 31 December 2014, though they will review the Enlarged Group's dividend policy and update shareholders accordingly at the time of the Enlarged Group's preliminary results for the year ending 31 December 2014.

Expected timetable of principal events

Admission statistics

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

 "Acquisition" the Company's proposed acquisition of the entire issued and to be issued share capital of Denara pursuant to the terms of the Acquisition Agreement

"Acquisition Agreement" the conditional agreement between the Company, the Directors (other than Tony Eve and Angus McCaffery) and the Vendors relating to the Acquisition

 "Admission" the admission of the Enlarged Issued Share Capital to trading on AIM becoming effective in accordance with the AIM Rules for Companies

"AIM" the market of that name operated by the London Stock Exchange

"AIM Rules" together, the AIM Rules for Companies and, where the context requires, the AIM Rules for Nominated Advisers

"AIM Rules for Companies" the rules for companies whose securities are admitted to trading on AIM published by the London Stock Exchange

"AIM Rules for Nominated Advisers" the rules for nominated advisers setting out the eligibility, ongoing obligations and certain disciplinary matters in relation to nominated advisers published by the London Stock Exchange

 "Articles" the articles of association of the Company in force as at the date hereof

"Charles Black Exit Shares" 1,700,000 new Ordinary Shares to be issued to Charles Black at the Issue Price on Admission as part of his exit arrangements as chief executive officer of the Company

 "Capital Reduction" the proposed reduction of the Company's share capital pursuant to Resolution 4 set out in the Notice

 "Company" or "Nasstar" Nasstar plc, a company registered in England and Wales with company number 5623736

"Completion" completion of the Acquisition in accordance with the terms of the Acquisition Agreement

"Consequential Proposals" together the proposed adoption of the New Articles and the Capital Reduction

"Court" the High Court of Justice of England and Wales

 "CREST" the electronic system for the holding and transferring of shares and other securities in paperless form operated by Euroclear UK & Ireland Limited

"CREST Regulations" the Uncertificated Securities Regulations 2001 (SI 2001/3755)

"Denara" Denara Holdings Limited, being the parent company of e-know.net

"Denara Group" Denara and its wholly owned subsidiaries e-know.net and Denara Technologies Limited

 "Directors" or "Board" the directors of the Company at the date hereof

 "Enlarged Group" the Company and its subsidiaries on Admission

"Enlarged Issued Share Capital" the issued ordinary share capital of the Company on Admission, being the Existing Issued Share Capital together with the New Ordinary Shares

"equity securities" as defined in section 560 of the Act

 "e-know.net" e-know.net Limited, being the wholly owned operating subsidiary of Denara

"Existing Issued Share Capital" the issued ordinary share capital of the Company as at the date hereof

"Existing Ordinary Shares" the existing 61,960,053 Ordinary Shares in issue

 "finnCap" finnCap Ltd, nominated adviser and broker to the Company

"Form of Proxy" or "Proxy Form" the form of proxy accompanying the Admission Document for use in connection with the General Meeting

"FCA" the Financial Conduct Authority

"FSMA" the Financial Services and Markets Act 2000, as amended

"Fundraising" the Placing

"General Meeting" or "GM" the general meeting of the Company to be held at the offices of Marriott Harrison LLP, 11 Staple Inn, London WC1V 7QH at 9:30 a.m on 9 January 2014

"Group" or "Nasstar Group" the Company and its subsidiary prior to Admission

"ISIN" International Securities Identification Number

"Issue Price" 5 pence per New Ordinary Share

"London Stock Exchange" London Stock Exchange plc

"New Articles" the proposed articles of association of the Company on Admission

 "New Ordinary Shares" together, the Placing Shares, the Charles Black Exit Shares and the Vendor Consideration Shares

 "Notice" the notice convening the General Meeting

 "Option" an option over Ordinary Shares granted by the Company

"Ordinary Shares" ordinary shares of one penny each in the capital of the Company

"Placees" the persons who have confirmed their agreement to participate in the Placing and to subscribe for the Placing Shares

"Placing" the conditional placing by finnCap of the Placing Shares at the Issue Price pursuant to the Placing Agreement

"Placing Agreement" the conditional agreement dated 17 December 2013 between the Company, the Directors (other than Tony Eve), the Proposed Directors and finnCap, relating to inter alia, the Placing

"Placing Shares" the 210,000,000 new Ordinary Shares to be issued by the Company pursuant to the Placing

"Proposals" together, the Acquisition, the Fundraising and the Consequential Proposals

"Proposed Directors" the directors of the Enlarged Group to be appointed at Completion, being David Redwood, Nigel Redwood, Niki Redwood, Nick Bate and Mike Read

 "Resolutions" the resolutions to be proposed at the General Meeting (and each a "Resolution")

"Share Option Scheme" The Nasstar 2005 Unapproved Share Option Scheme approved and adopted by the Nasstar board of directors on 8 December 2005

"Shareholders" holders of Existing Ordinary Shares

"subsidiary" a subsidiary undertaking (as defined by section 1162 of the Act) of the Company and "subsidiaries" shall be construed accordingly

"substantial shareholder" as defined in the AIM Rules for Companies

 "Transaction" together, the Fundraising and the Acquisition

"UK" or "United Kingdom" United Kingdom of Great Britain and Northern Ireland

"Vendors" the sellers of the share capital of Denara under the Acquisition Agreement

"Vendor Consideration Shares" the 80,000,000 new Ordinary Shares to be issued to the Vendors at the Issue Price pursuant to the Acquisition Agreement

"£" or "sterling" UK pounds sterling

APPENDIX 1

On 17 December 2013 Nigel Redwood entered into a service agreement with the Company, conditional on Admission, under the terms of which he agreed to act as chief executive officer of the Company for a salary of £150,000 per annum plus a bonus amounting to up to 30 per cent. of his annual basic salary for the financial year ending 31 December 2014 subject to meeting performance criteria to be decided on and implemented by the Remuneration Committee following Admission plus benefits including car allowance and pension contribution. Reviews of the salary will take place at the discretion of the Board. The appointment is terminable on 12 months' notice by either Mr Redwood or the Company. Under the terms of his service agreement, Mr Redwood is, inter alia, restricted from soliciting the services of any director of, or business away from, the Company during the 6 month period after he ceases to be employed by the Company.

On 17 December 2013 Niki Redwood entered into a service agreement with the Company, conditional on Admission, under the terms of which she agreed to act as executive finance director of the Company for a salary of £120,000 per annum plus a bonus amounting to up to 30 per cent. of her annual basic salary for the financial year ending 31 December 2014 subject to meeting performance criteria to be decided on and implemented by the Remuneration Committee following Admission plus benefits including car allowance and pension contribution. Reviews of the salary will take place at the discretion of the Board. The appointment is terminable on 12 months' notice by either Ms Redwood or the Company. Under the terms of her service agreement, Ms Redwood is, inter alia, restricted from soliciting the services of any director of, or business away from, the Company during the 6 month period after she ceases to be employed by the Company.

On 17 December 2013 David Redwood entered into a letter of appointment with the Company, conditional on Admission, under the terms of which he agreed to act as a non-executive deputy chairman for a fee of £20,000 per annum. Reviews of the fee will take place at the discretion of the Board. The appointment is terminable thereafter on three months' notice by either party. Mr Redwood is currently an employee of e-know.net Limited but will cease to be on Admission, and will be paid one year's salary in lieu of his contractual notice period, to be funded by the Company at cost.

On 17 December 2013 Mike Read entered into a letter of appointment with the Company, conditional on Admission, under the terms of which he agreed to act as non-executive director for a fee of £20,000 per annum. Reviews of the fee will take place at the discretion of the Board. The appointment is terminable thereafter on three months' notice by either party.

On 17 December 2013 Nick Bate entered into a letter of appointment with the Company, conditional on Admission, under the terms of which he agreed to act as non-executive director for a fee of £20,000 per annum. Reviews of the fee will take place at the discretion of the Board. The appointment is terminable thereafter on three months' notice by either party.