Progility Regulatory News (PGY)

10 September 2013

ILX GROUP PLC

(AIM: ILX)

PROPOSED ACQUISITION OF PROGILITY PTY LTD FOR £15.97 MILLION

· Proposed acquisition of Progility Pty Ltd

· Proposed approval of a waiver of the obligations under Rule 9 of the City Code

· Proposed change of name to Progility plc

· Notice of General Meeting

· Admission of the Enlarged Share Capital to trading on AIM

ILX, the training, consultancy and recruitment group, proposes to transform the scope and scale of the Group's activities in project management, consulting and implementation and capitalise on its knowledge and experience in this sector through the acquisition of Progility Pty Ltd, a communications solutions services provider.

Highlights:

· Progility Pty Ltd operates a communication systems integration business which designs, implements and maintains solutions for medium and large enterprises with a focus on the rail, port, oil and gas, power and water and healthcare industries in Australia and on the mining industry globally.

· Total consideration for the proposed acquisition of Progility Pty Ltd is £15.97 million, to be satisfied by the issue of 159,733,504 new Ordinary Shares in the Company. In the year ended 30 June 2013, Progility Pty Ltd reported revenue of A$41.2m (2012: A$31.6m).

· The proposed acquisition strengthens the Group by:- adding systems integration capability as well as consulting skills and solutions in the communications sector;

- providing opportunities for the existing training, consulting and recruitment businesses; and

- reducing dependence on training, where revenues have been under pressure for some time.

· The Enlarged Group would have four pillars of revenue: Consulting, Training, Recruitment and Technology Solutions, providing an integrated range of value added services to customers at different stages of the project management life cycle.

· Proposed change of name of the Company to Progility plc reflects the significant changes (both recent and proposed) to the management and strategic direction of the Enlarged Group.

· The proposed acquisition constitutes a related party transaction and reverse takeover under the AIM Rules.

· Wayne Bos is a director of both ILX and Progility Pty Ltd and has not taken part in the Board's deliberations concerning the acquisition. The Independent Directors are seeking Shareholders' approval at the General Meeting on 3 October 2013 to approve the Proposals

· Waiver of obligations on the Concert Party under Rule 9 of the City Code, is being sought subject to approval at the General Meeting

· As the proposed acquisition will constitute a reverse takeover under the AIM Rules, an Admission Document containing details of the acquisition, other proposals detailed below and a notice of General Meeting will be posted to Shareholders today and available to view on the Company's website www.ilxgroup.com shortly

· Admission of the Enlarged Share Capital to trading on AIM will become effective on or around 4 October 2013, subject to approval of the Proposals at the General Meeting

The Independent Directors of ILX said: 

"We are very pleased to recommend the proposed acquisition of Progility Pty Ltd because it will transform the scope and scale of ILX, adding further consulting, systems integration skills and solutions in the communications and technology sectors, and providing new opportunities for our existing training, consulting and recruitment businesses. In addition it should reduce the Group's dependence on its training business, whose revenues have been under pressure for some time.

"We believe the Enlarged Group will provide the executive team with a strong platform from which to connect with our customers at different stages in the project management life cycle to deliver growth and shareholder value."

Wayne Bos, Executive Chairman and Interim CEO of ILX and Chairman of Progility Pty Ltd, said:

"Both of these companies have energetic, motivated management and combining the two will create a dynamic project management eco-system with scale and flexibility, which is important to new and existing customers. From this new platform, we intend to grow the Group both organically and by selective acquisition using our AIM listing to expand and access capital where appropriate."

Enquiries:

On behalf of the Independent Directors of ILX Group plc +44 (0) 20 7371 4444

Donald Stewart / John McIntosh

Wayne Bos +44 (0) 7837 798 258

Executive Chairman and Interim CEO of ILX and Chairman of Progility

Spark Advisory Partners (Nomad) +44 (0) 20 3368 3551

Mark Brady / Sean Wyndham-Quin

WH Ireland (Broker) +44 (0) 20 7220 1666

Adrian Hadden / Nicholas Field

Tavistock Communications +44 (0) 20 7920 3150

Matt Ridsdale / Niall Walsh

Introduction

The Company has today announced that it has entered into an Acquisition Agreement conditional, inter alia, on Admission, to acquire the entire issued share capital of Progility Pty Limited.

The consideration will be satisfied by the issue of the Consideration Shares credited as fully paid. Based on the Issue Price, the Acquisition values Progility's equity at £15.97 million. Further details of the terms and conditions of the Acquisition are set out below under the heading "Principal terms of the Acquisition".

The Acquisition will constitute both a related party transaction and a reverse takeover under the AIM Rules.

Wayne Bos is a director of both ILX and Progility. In addition Praxis, as trustee of the DNY Trust, a trust of which Wayne Bos is a discretionary beneficiary, is a significant shareholder in both ILX and Progility.

Accordingly Wayne Bos has not taken part in any of the Board's deliberations concerning the Acquisition and the Independent Directors are seeking Shareholders' approval for the Acquisition at the General Meeting.

Following completion of the Acquisition and the issue of the Consideration Shares, certain Shareholders of the Enlarged Group who are deemed to be acting in concert (the "Concert Party") will hold 171,673,504 Ordinary Shares, representing 85.98 per cent. of the Enlarged Share Capital and will have the potential to hold a further 8,000,000 New Ordinary Shares pursuant to (a) the exercise by DNY Investments Limited of its conversion rights under the Convertible Loan Notes; and (b) the exercise by DNY Investments Limited of the Warrants, making a total maximum shareholding of the Concert Party of 179,673,504 Ordinary Shares representing 86.52 per cent. of the Enlarged Share Capital should no other New Ordinary Shares have been issued in the intervening period. Therefore, following Admission and implementation of the Proposals, the Concert Party will hold interests in excess of 50 per cent. of the Enlarged Share Capital. Further details in relation to the Concert Party are set out in Part VI of this document.

Under Rule 9 of the Takeover Code the issue of the Consideration Shares would normally result in the Concert Party being obliged to make an offer to all Shareholders (other than the Concert Party) to acquire their shares. Following an application by the Concert Party, the Takeover Panel has agreed to waive this obligation subject to the approval of the Independent Shareholders at the General Meeting of the Proposals. Your attention is drawn to the Rule 9 Waiver section contained in Part I of this document.

The Directors believe that it is appropriate, should the Acquisition be approved by Shareholders at the General Meeting, that the name of the Company should be changed to Progility plc. Whilst the Directors believe that the ILX name has excellent recognition in the area of training, it does not now reflect the recent (and proposed) significant changes in the management and strategic direction of the Enlarged Group.

The purpose of this document is to give you further information regarding the matters described above and to seek your approval of the Resolutions, which include the Rule 9 Waiver, at the General Meeting. The notice of General Meeting is set out at the end of this document.

The Proposals are conditional, inter alia, on the passing of the Resolutions and Admission. If the Resolutions are approved by Shareholders, it is expected that Admission will become effective and dealings in the Enlarged Share Capital will commence on AIM on or around 4 October 2013.

Background to and reasons for the Acquisition

For some time the Group's training business has been under pressure from external price competition and industry related macro factors. Following the appointment of Wayne Bos as Executive Chairman of the Company in August 2012 and a thorough internal review of the business, the Group has taken action to reduce operating costs and improve the efficiency of its product delivery.

The Directors believe that the Group's knowledge and experience of the project management sector through its training business and range of digital products, provides an opportunity to offer more comprehensive services to both corporate and individual project managers, creating a platform to connect with the Group's customers at different stages in the project management life cycle. The Group commenced that strategy through the creation of a new consultancy division with a view to capitalising on the contacts and experience available to the Group. That strategy was further pursued through the recent small, but strategic, acquisition of TFPL with its recruitment sector skills to complement the Group's training and consultancy activities.

The Directors believe there are opportunities to increase the scope and scale of the Group through further selective acquisitions. The proposed acquisition of Progility represents a significant step by adding further consulting, systems integration skills and solutions in the communications sector to the Group's capabilities. The Directors believe this strategy will ultimately allow the Group to source, train and supply project managers for both internally generated projects and projects for third parties.

Progility, with its offices across Australia, including in Melbourne, Sydney, Brisbane and Perth will also complement the Group's existing operations in Australia.

Information on the Company

History and overview

Tracing its roots back to 1988, the Company has provided training to thousands of corporate clients in many different countries including local and national governments, the public sector and commercial businesses across a wide variety of sectors. The Company has offices in the UK, Middle East and Australia.

The Company was admitted to trading on AIM on 12 December 2000 as Time2Learn plc and, in November 2001, acquired Intellexis International Limited by way of a reverse takeover under the AIM Rules and changed its name to Intellexis plc.

In 2004, following the acquisition of Key Skills Limited, a provider of computer-based project management training courses, including training in PRINCE2, the Company changed its name to ILX Group PLC. Over the following two years, in order to expand the Company made a number of bolt-on acquisitions including acquiring The Corporate Training Group Limited, which provided financial training to the UK investment banking sector, in July 2006 for £12 million.

Following a period of consolidation and growth the global financial crisis led to revenues from financial training falling significantly while the provision of PRINCE2 and other project management training outperformed other revenue streams. In 2010 the financial training business was closed, but an office in Sydney was established to service the Australian and New Zealand markets for project management training and the Company raised £0.9m through a placing of Ordinary Shares with Octopus Capital for Enterprise Fund.

However the Company continued to face challenging market conditions with falling revenues and, on 1 August 2012, the Company announced a subscription by Praxis Trustees of £1.2m in exchange for new Ordinary Shares amounting to 29.9 per cent. of the Company's issued share capital. The purpose of the investment was to reduce the Company's indebtedness and to provide working capital headroom. On completion of the investment, Wayne Bos was appointed Executive Chairman, and subsequently (in addition) Interim Chief Executive.

Between December 2012 and February 2013 the Company established a new consulting division through the acquisition of Obrar in the UK and the creation of ILX Consulting in Australia.

In February 2013, the Company took an option to acquire 100 per cent. of CareShield Limited and Careshield Training Limited, a UK provider of digital learning solutions in the health and social care sectors.

In July 2013 the Company acquired TFPL Limited, a recruitment, training and consulting business specialising in the knowledge, information and data management industries.

Operations

The Group's current business comprises three divisions: Training, Consulting and Recruitment.

Training

The Company's training division provides a blend of on-line learning, games and simulations, traditional classroom training, practical workshops and coaching. The division delivers training in the UK Cabinet Office's best management practice products, primarily in PRINCE2, MSP and ITIL. Its training materials and quality systems are accredited by the appropriate accrediting body, including, the APM Group, the Association for Project Management and the Project Management Institute.

The training division's business covers:

Consulting

The Group's consulting division comprises Obrar in the UK and ILX Consulting in Australia.

Established in 2010, Obrar is a consulting and project management services company focused on multimedia contact centres, corporate technology infrastructure and associated operational change and has extensive experience in delivering contact centre outsourcing on a global basis.

Obrar provides a wide range of capabilities to the fixed telecommunications and mobile telecommunications, retail, printing and management information, television, cable, broadband internet, financial services, travel and transport, utilities and outsourcing sectors.

ILX Consulting, located in Sydney, Australia, is an organisational improvement and project management services company specialising in information technology, service and supply chain improvement and overall project and programme management. Since its formation in February 2013 it has implemented several operational projects primarily for clients in the Australian public sector.

Recruitment

In July 2013 the Group acquired TFPL, a recruitment, training and consulting business specialising in the knowledge, information and data management industries. TFPL provides executive search, managed services and the placement of permanent, interim and contract personnel into the public and private sectors.

Strategy

The Directors believe that expanding the Group's product offering will facilitate it to make the most of its extensive project management customer base. Providing more comprehensive services for both corporate and individual project managers will provide opportunities for cooperation and cross-selling which have not been available to the Group up to now and will allow the Group to connect with its customers at different stages in the project management life cycle. Not only is the Group able to train project managers and provide them with a recruitment link, the Directors believe the Group can also create project management opportunities through offering consulting services across relevant sectors to third parties and on internally generated projects providing further opportunities to the Group's growing list of trained project manager clients.

The Independent Directors regard the acquisition of Progility as the first substantial step towards creating a business capable of generating relevant project management opportunities, which may benefit from the Group's existing product offering. Not only is Progility currently working on many substantial international projects, it will also introduce a number of new multinational customers and suppliers to the Group, so potentially creating further revenue opportunities for its consulting, recruitment and training divisions.

The Directors also believe that the provision of these complementary services will provide an excellent platform for further growth through further selective acquisitions, should suitable opportunities be identified.

The Market

The market for the Group's services is highly fragmented and the Directors believe that the re-focussing of the business should create opportunities for further growth from the existing businesses, whether working separately or together, whilst allowing management to use the Company's public quotation to facilitate consolidation with other complementary businesses where appropriate.

Current trading and prospects

The Group has carried out an in-depth business review and restructure during the 15 months to 30 June 2013. The business processes and related staffing levels have been analysed and positive action has been taken to bring costs into line with businesses objectives. Although restructuring costs during the period have been greater than was initially anticipated, these actions have delivered significant operating cost reductions during the period. However the full benefit of the resulting reductions in operating costs are not expected to be reflected until the new financial year.

In addition, the Board has been restructured with Ken Scott, CEO, Jon Pickles, CFO, Eddie Kilkelly, COO, and Paul Virik and Damien Lane, both non-executive directors, having all stepped down. In their place Donald Stewart and John McIntosh have joined the Board. Donald Stewart joined the Board originally as a non-executive director in April 2013 and, on 3 June, joined the executive team as General Counsel while, on 6 June 2013, John McIntosh was appointed Finance Director.

Alongside these new directors a new executive management team has been introduced made up of highly capable change managers within sales, finance, legal and operations. Their combined experience covers training, consulting, business development, sales, digital transformation, cost control and the public company environment. Each executive is experienced in mergers and acquisitions and business integration.

Continuing pressure remains on revenues from the training division due to external price competition and industry macro factors. The new consultancy division has made a positive contribution and kept overall revenues steady. The Directors believe that the acquisition of TFPL gives sound foundations to the Group's new recruitment division and it will continue to aim to increase the scope and scale of the business through capitalising on the contacts and experience available to the Group.

The Group has undertaken a complete review of its online sales and marketing performance. This has enabled management to get a deeper insight into the Group's performance across its consumer and corporate sales channels, to identify trends and put in place activities which the Directors believe will increase sales.

The Group also continues to work on operational improvements and the development of a broader digital and classroom product portfolio. In August 2013 the Group launched its PMP product, which will serve as an alternative to PRINCE2 for its clients in the North American market.

The Group is now headquartered at Strand Bridge House, 138-142 The Strand, London. This central London location was chosen as it better suits the Group's overall needs and the new offices can accommodate training courses with marginal incremental costs to the business. The Group's former offices at Hammersmith have been sublet for the remainder of the term at the prevailing market rate.

Information on Progility

History and overview

Progility operates a communication systems integration business that designs, implements and maintains solutions for medium and large enterprises with a focus on the rail, port, oil and gas, power and water and healthcare industries in Australia and on the mining industry globally.

Progility is headquartered in Melbourne, Australia with offices in Castlemaine, Perth, Sydney, Latrobe Valley, Mackay and Brisbane. Progility employs approximately 120 full time staff across Australia.

Progility's business was founded in Perth, Western Australia in 1994 as a reseller of telephony based systems to small and medium sized business in the local market. Over the years it evolved to deliver more sophisticated telephony services and was acquired by Praxis Trustees and Mmilt Pty Limited, both members of the Concert Party, in 2008.

In 2009, the enterprise business of Commander Communications, a large listed Australian telecommunications and IT services company which had collapsed in 2008, was acquired from its administrators. The enterprise business focused on telephony equipment sales and services to mid-market and enterprise customers.

In 2010, Progility started a division to service the communications needs of mining and oil and gas customers.

In 2012, Progility acquired the Bearcom business, from TR Pty Ltd, which was the largest reseller of two-way radio based systems in Australia.

Progility's customers include Virgin Australia Airlines, Qantas, Department of Correctional Services in Queensland and New South Wales, Westfield, Rio Tinto, Healthscope and Melbourne Museum.

Progility operates through three operating divisions supported by four shared service divisions.

Unified Communications

Progility's Unified Communications division focuses on communications systems integration, specialising in unified communications backed by significant voice and systems technology experience across multiple industries. It designs voice and IP communications solutions to meet the needs of specific customers' operating environments which can be hosted either on the customers premises or by Progility. The solutions include combining voice, audio conferencing, video conferencing, web conferencing, instant messaging and rich presence into single unified systems. Unified Communications is the major provider of enterprise based Siemens unified communication systems in Australia.

Products and services include:

CA Bearcom

CA Bearcom is Australia's largest distributor of two-way radio communications products. Its primary supplier is Motorola Australasia and the Directors believe that it is Motorola Australasia's largest and preferred radio communications partner. CA Bearcom operates from offices in Melbourne, Sydney and Brisbane with resellers located throughout regional Australia. The assets of CA Bearcom were acquired by Progility in 2012, from TR Pty Ltd.

Bearcom's activities include:

Minerals & Energy ("M&E")

M&E designs, implements and manages an array of integrated communications solutions for specific mining, oil and gas, rail and port applications including:

Strategy for Progility

Since Craig Cameron joined Progility in January 2012, Progility has begun to focus on higher value-added projects, supported, where appropriate by niche products whilst at the same time increasing efficiency in the existing business of selling more commoditised products.

Unified Communications

The Directors believe that there are growth opportunities, not only through seeking new customers, but also through transitioning existing customers to cloud-based voice and VOIP systems, or a combination of customer premise-based and cloud-based systems as appropriate.

Unified Communications is also looking to build on its existing experience and expertise in the healthcare market to increase its market share.

CA Bearcom

The management team of CA Bearcom is focussed on growth through delivering value-added wireless solutions to medium and large businesses whilst maintaining the current level of transactional sales to smaller enterprises. To enable this strategic change, the management has implemented a number of changes in the business:

M&E

The management of the M&E division has actively sought to expand the division beyond selling wireless communications services to open pit miners and oil and gas companies to being a provider of customised solutions to underground mining businesses, particularly addressing their business needs in the areas of safety and productivity improvement.

In support of this strategy, Progility has developed a new product, CA-TAP which enables miners to locate people and machines in an underground mine with high precision. The Directors believe that this product will help enable miners to measure and improve productivity in their mines and could become a critical component in their quest to enable automated mining.

Furthermore, the M&E division has secured the rights to a leading proximity detection system called Intellizone. It is designed to help personnel understand when they may be in a dangerous situation around mobile equipment and have both personnel and equipment be responsive to potentially dangerous situations. The technology is currently used in coal mines in the US. Progility plans to sell this product to major global mining corporations.

The Australian telecommunications market

The Australian telecommunications market is expected to change dramatically over the next ten years and to double in size to around A$80 billion by 2020. Accelerated by government policies these changes will be driven by a total overhaul of the industry.

While Telstra continues to dominate the overall Australian telecommunications market, its estimated market share, at just under 60 per cent. by revenues for 2013, is continuing to decline. The mobile broadband market is becoming a major revenue stream for the mobile network operators, mobile data usage having increased by nearly 80 per cent. year-on-year to mid-2012. But increased usage has caused data traffic jams on the 3G networks as the infrastructure was not designed for such rates of traffic expansion. It has been estimated that mobile capacity in Australia needs to grow a thousand fold over the next decade to cope with customer demand.

With the emergence of all-IP networks fuelled by increasingly widespread broadband delivery of video and audio content, telecommunications services appear to be moving to new business models to which the traditional Australian telecommunications companies appear to be unable to react competitively. It is likely that the major Australian telecommunications companies will continue to provide access and wholesale services to a growing number of users relying on the digital economy including data centres, cloud computing, data storage, content delivery and other value added infrastructure services.

Following considerable political and industry debate, Australia is currently constructing the National Broadband Network (NBN), a wholesale-only, open-access data network which is planned to reach approximately 93 per cent of premises in Australia by June 2021. The network will gradually replace the current copper network used for most telephony and data services, which is owned by Telstra. NBN Co, a government-owned corporation, was established to design, build and operate the NBN and will sell fibre broadband connections to retail service providers, who will then sell internet access and other services to consumers.

As it becomes the predominant infrastructure the NBN is expected to cause the industry to develop new business models around infrastructure and unified communications with an anticipated sizeable demand for value-added infrastructure services.

Barriers to entry and competition

There are competitors in every market addressed by Progility. Management has worked to identify material areas in the each business unit where Progility can compete effectively.

Unified Communications

Cisco is the market leader in most unified communication market segments. However, Siemens claims that it is the largest provider of such systems to the global healthcare market. As a Siemens' premier enterprise reseller of unified communications systems in Australia, the Directors' believe that this market is a growth opportunity.

Furthermore, by providing customers with a choice of customer premise based or Progility hosted telephony solutions, Progility can further differentiate itself in multiple markets from those providers who only provide one type of technology to their customers.

CA Bearcom

The Directors believe that being the largest reseller of two way radios in Australia and the only reseller with a national footprint enables CA Bearcom to offer nation-wide solutions to major customers. The Directors believe that no other reseller in Australia has the reach or the same depth of engineering skill as Progility and that this is likely to be difficult for others to replicate.

M&E

The M&E division has focused on developing and securing intellectual property rights to address

underground mining needs for safety and productivity improvement. The Directors believe that by being early to market, Progility will secure long term relationships with major miners and become their technology partner of choice in these important business areas.

Current trading and prospects

Progility has undertaken some significant restructuring during the 12 months to 30 June 2013, particularly in the second half. As a result Progility, now has three customer facing divisions supported by four business units providing services to each of the divisions. Over the 12 month period, the M&E division has applied resources towards selling underground communications systems to international miners; CA Bearcom has created a call centre business to address the needs of smaller customers and had its direct sales team start engaging larger national customers; and the Unified Communications division has applied more attention towards the healthcare market and to providing cloud based services. While these changes were commenced in the second half of 2012, the Directors believe that their benefits will be more fully realised in the 2013/14 financial year.

Since the beginning of 2013, there has been a slowing in investment in the mining sector in Australia and a number of large mining projects have been deferred which has impacted the timing of some projects for the M&E division, International mining has not been affected as much as the domestic Australian market and consequently Progility is focusing increasingly on international opportunities. In the past four months senior executives from the M&E division have visited major miners in South Africa, Central Asia and Brazil with positive feedback from potential customers. As a result, a number of projects have been identified where Progility is being engaged by international miners as an exclusive communications partner.

Overall market conditions in Australia have been softening for a number of months, significantly impacted by the slowdown in the mining market. This has resulted in increased competitive pressure across all market segments. In May 2013, Progility undertook a restructuring of its operations and reduced overall headcount by approximately 10 per cent.

In July 2013, CA Bearcom commenced sales of a lower end two-way radio to address a market segment it has not been able to address with Motorola branded products. This expands the size of its available market. CA Bearcom's strategy of providing two-way radio services to larger customers in Australia is continuing to develop.

In June 2013 the Unified Communications division became the preferred voice systems and support provider to Healthscope, Australia's largest integrated healthcare provider with more than 40 hospitals. Healthscope contracted Progility to become the exclusive telephony support services provider to all of its hospitals more than 30 of which do not currently have systems supplied by Progility.

Reasons for Admission

The Directors believe that the Acquisition and Admission should:

Principal terms of the Acquisition

On 10 September 2013, ILX entered into the Acquisition Agreement pursuant to which it has conditionally agreed to acquire the entire issued share capital of Progility, for a total consideration to be satisfied by the issue of the Consideration Shares (representing 80 per cent. of the Enlarged Share Capital).

The Acquisition Agreement contains warranties from the Sellers in relation to their title to the shares of Progility, the business, assets and liabilities of Progility and warranties by the Company in relation to its authority to issue the Consideration Shares and certain indemnities from the Sellers and by the Company.

The Acquisition is conditional upon, inter alia:

Further details of the Acquisition Agreement are set out in paragraph 9.1.8 of Part VII of this document.

Takeover Code and Whitewash Resolution

The Takeover Code governs, inter alia, transactions which may result in a change of control of a company to which the Takeover Code applies. Under Rule 9 of the Takeover Code any person who acquires, whether by a series of transactions over a period of time or not, an interest (as defined in the Takeover Code) in shares which, taken together with shares in which he is already interested or in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, that person is normally required to make a general offer to all the remaining shareholders to acquire their shares. Similarly, Rule 9 of the Takeover Code also provides that when any person, together with persons acting in concert with him, is interested in shares which, in aggregate, carry more than 30 per cent. of the voting rights of such company, but does not hold shares carrying 50 per cent. or more of such voting rights, a general offer will normally be required if any further interest in shares is acquired by any such person.

Rule 9 of the Takeover Code further provides, among other things, that where any person who, together with persons acting in concert with him holds over 50 per cent. of the voting rights of a company, then they will not generally be required to make a general offer to the other shareholders to acquire the balance of their shares.

An offer under Rule 9 must be in cash and must be at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interest in shares of the company in question during the 12 months prior to the announcement of the offer.

Persons acting in concert include persons who, pursuant to an agreement or understanding (whether formal or informal), co-operate, to obtain or consolidate control of that company.

Waiver

Relationship between members of the Concert Party

The members of the Concert Party are the Sellers and Mr Stephen Arrowsmith, Finance Director of Progility. Wayne Bos and Mario Vecchio have worked and co-invested together in a variety of businesses over many years including Sausage Software and Progility. Wayne Bos and Craig Cameron have worked together in a number of businesses over several years including Natrol Inc., Minergy Corporation Limited and Progility.

As set out above, Praxis and Mmilt purchased the business of Progility in 2008. Praxis is trustee of the DNYTrust of which Wayne Bos, together with his wife and family members are discretionary beneficiaries. Mmilt is the trustee of the Vecchio Family Trust, a trust of which Mario Vecchio, together with his wife and family are discretionary beneficiaries. The Cameron Investment Trust became a shareholder in Progility following Craig Cameron being appointed Chief Executive Officer of Progility. Craig Cameron, along with his wife and family are discretionary beneficiaries of this trust.

Further information on individual members of the Concert Party and their relationships are given in paragraph 1.2 Part VI of this document.

Effects of Proposals and requirement for the Waiver

Immediately following Admission, the members of the Concert Party will between them own 171,673,504 Ordinary Shares (representing 85.98 per cent. of the Enlarged Share Capital). Furthermore, DNY Investments Limited, a company held by Praxis as an asset of the DNY Trust, will have the right to subscribe for up to 8,000,000 Ordinary Shares pursuant to the Convertible Loan Notes and Warrants issued by the Company in December 2012 which, on full conversion into Ordinary Shares, would represent a maximum controlling position of 86.52 per cent. of the Enlarged Issued Share Capital assuming (a) the exercise by DNY Investments Limited of its conversion rights under the Convertible Loan Notes in full (details of the Convertible Loan Notes are set out in paragraph 9.1.3 of Part VII) (b) the exercise by DNY Investments Limited of all of the Warrants (details of the Warrants are set out in paragraph 9.1.4 of Part VII) and (c) the Company has not issued any more Ordinary Shares in the intervening period. A table showing the respective individual holdings of the members of the Concert Party following Admission and following the implementation of the Proposals in full is set out in Part VI of this document.

The Takeover Panel has agreed, however, to waive the obligation to make a general offer that would otherwise be required as a result of the allotment and issue of the Consideration Shares. Accordingly, the Whitewash Resolution seeks to waive the requirement under Rule 9 of the City Code that the Concert Party, having acquired a shareholding and percentage of voting rights exceeding 30 per cent., must make a general cash offer to all the remaining Shareholders to acquire their shares. In accordance with the City Code, the Whitewash Resolution is being proposed at the General Meeting and will be taken on a poll. The Concert Party will not be entitled to vote on the Whitewash Resolution. To be passed, the Whitewash Resolution will require a simple majority of votes entitled to be cast to vote in favour.

Following Completion, the Concert Party will have acquired, in aggregate, interests in shares carrying approximately 85.98 per cent. of the voting rights of the Company. The Concert Party will have a maximum interest of approximately 86.52 per cent. of the voting rights of the Company, assuming the exercise of all the conversion and subscription rights arising pursuant to the Convertible Loan Notes and Warrants by Praxis and assuming that no other New Ordinary Shares have been issued in the intervening period, which, without a waiver of the obligations under Rule 9, would oblige the Concert Party to make a general offer to Shareholders under Rule 9. Further details concerning members of the Concert Party are set out in Part VI of this document.

Shareholders should note that, following the completion of the Acquisition and Admission, the Concert Party will together hold over 50 per cent. of the voting rights of the Company and will therefore be entitled to increase their interest in the voting rights of the Company without incurring a further obligation under Rule 9 of the Code to make a general offer. However, should any individual member of the Concert Party acquire an interest in shares of the Company such that they are interested in 30 per cent. or more of the voting rights in the Company or, if he is already interested in 30 per cent or more, acquire a further interest in the shares of the Company, the Panel may regard this as giving rise to an obligation upon that member of the Concert Party to make an offer for the entire issued share capital of the Company at a price no less than the highest price paid by the individual member of the Concert Party or any other member of the Concert Party in the previous 12 months.

Application for Admission

Application will be made to the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on AIM. Subject to, among other things, the Resolutions being passed, it is expected that Admission will become effective at 8.00 a.m. on 4 October 2013 and that dealings for normal settlement in the New Ordinary Shares will commence at 8.00 a.m. on the same day. No temporary documents of title will be issued.

The Consideration Shares to be issued pursuant to the Acquisition Agreement will, following Admission, rank pari passu in all respects with the Existing Ordinary Shares in issue at the date of this document and will carry the right to receive all dividends and distributions declared, made or paid on or in respect of the New Ordinary Shares after Admission.

In connection with the application for Admission, the Company has entered into the Nominated Adviser Agreement with SPARK. For more information on the Nominated Adviser Agreement, see paragraph 9.1.7 of Part VII.

Consideration Shares

The Consideration Shares will be issued pursuant to authorities to be sought at the General Meeting. Following the issue of the Consideration Shares an existing Shareholder will suffer a dilution of approximately 80 per cent. to his economic interests in the Company.

Board of Directors

The existing Directors will remain on the board of the Company following Admission.

Brief details on the Board are set out below:

Wayne Bos (aged 47), Executive Chairman and Interim Chief Executive

Wayne joined the Board on 21 August 2012. Wayne has over 20 years' experience managing and investing in business over a wide range of sectors, with particular expertise in the software and technology sector. His career includes three years as Chief Executive of Sausage Software, an Australian public company, which he grew to a market capitalisation of A$2.5bn in 2001, and President and CEO of Natrol, a Nasdaq listed Nutraceutical company, sold to Plethico, an Indian public company, in 2008. In the last five years, he has made several public and private company investments.

John McIntosh CA (aged 44), Finance Director

John joined the board on 6 June 2013. John qualified as a Chartered Accountant with Deloitte & Touche in 1994. He held Controller roles within corporations including Sony and D'Arcy, Masius Benton & Bowles and the BBC's corporate finance team before joining an internet start-up team. He has since concentrated on the online/multi-media sector working with private equity owned and quoted businesses. He was instrumental in the development and growth of the multi-media group DCD Media plc holding the positions of Chief Financial and Chief Operating Officer. Mr McIntosh has held Main Board Director roles in AIM listed companies since 2003 and joined ILX Group in November 2012. John is also Company Secretary.

Donald Stewart (aged 50), General Counsel

Donald joined the board as a non-executive director on 18 April 2013 and subsequently joined the Company full time as General Counsel on 3 June 2013. With almost 25 years practising commercial law as a qualified solicitor in England, Wales, and Scotland, Donald's expertise is focused on corporate finance, takeovers, mergers and acquisitions, and UK publicly listed companies. He has extensive experience working with companies in the technology and communications sectors. Donald is also a director (and past Chairman) of the Quoted Companies Alliance, and is the UK's representative on the Policy Committee of European Issuers based in Brussels.

Paul Lever (aged 72), Non-executive Director

Paul joined the board as non-executive Chairman on 6 January 2003 and remained an independent nonexecutive director following the appointment of Wayne Bos as Executive Chairman in August 2012. Paul is currently senior partner of Marylebone Associates LLP, and was Chairman of Datong Plc until June 2013. Paul was formerly the chairman of the National Criminal Intelligence Service (NCIS) and the National Crime Squad (NCS), non-executive chairman of BSM Group plc and Oxford Aviation Holdings Ltd and chief executive of Lionheart plc. Previously at Tube Investments he was chief executive of the Steel Stockholding Division and, subsequently, of the Small Appliance Division which included Russell Hobbs. Paul was appointed chief executive of Crown Paints by Reed International and, following the acquisition of Berger Paints for £135 million, he merged the two operations with considerable savings and combined annual sales of £400 million.

Summary financial information on the Company and Progility

The financial information set out in the tables below has been extracted from the historical financial information of the Company, included in Part III of this document, and the historical financial information of Progility included in Part IV of this document. Shareholders should read the full historical financial information in Part III and Part IV of this document and not rely solely upon the summary below.

Convertible Loan Notes and Warrants

On 17 December 2012 ILX announced that it had issued £400,000 principal of convertible loan notes to Praxis. The Convertible Loan Notes attract interest at a rate of 12 per cent. per annum and are repayable (together with accrued interest) on the earlier of (a) a request by Noteholders following a material breach; (b) the occurrence of an insolvency event; or (c) 31 December 2017. Praxis was also issued with Warrants to subscribe for up to 400,000 Ordinary Shares at a subscription price of 10p per share. On 29 April 2013 Praxis Trustees transferred the Convertible Loan Notes and the Warrants to DNY Investments Limited, a company incorporated in Guernsey and held by Praxis Trustees as an asset within the DNY Trust, for no consideration.

Further details of the Loan Notes and the Warrants are set out in paragraphs 9.1.3 and 9.1.4 of Part VII of this document. It is expected that the number of Ordinary Shares following conversion of the Loan Notes and exercise of the Warrants will be 207,666,880.

Share Options

The Board believes that the recruitment, motivation and retention of key employees is vital for the successful growth of the Enlarged Group. The Board considers that an important element in achieving these objectives is the ability to incentivise and reward staff (including executive directors) by reference to the market performance of the Company in a manner which aligns the interests of those staff with the interest of shareholders generally. The Company intends to utilise its existing employee share incentive scheme to grant Options to acquire Ordinary Shares to directors and UK based employees of the Enlarged Group. The Company is also considering adopting an additional share option scheme to permit employees based in Australia to receive options over the Ordinary Shares. It is expected that the total number of Ordinary Shares that may be subject to such Options, if granted, will represent a maximum of 10 per cent. of the Enlarged Group's issued ordinary share capital from time to time. The Remuneration Committee will consider the grant of Options after the publication of this document. Further details of the Share Option Scheme are set out in paragraph 9 of Part VII of this document.

Corporate Governance

The Board recognises the importance of sound corporate governance and the new Board intends to ensure that, following Admission, the Company adopts policies and procedures which reflect the Corporate Governance Code for Small and Mid-Size Quoted Companies published by the Quoted Companies Alliance.

Following the implementation of the Proposals, the Board will meet monthly to review key operational issues and the strategic development of the Enlarged Group. The financial performance of the Enlarged Group will be reported and monitored. All matters of a significant nature will continue to be discussed in the forum of a board meeting. The Board will be responsible for internal controls to minimise the risk of financial or operational loss or material misstatement. The controls established will be designed to meet the particular needs of the Company having regard to the nature of its business.

The Company has also established an Audit Committee and a Remuneration Committee with formally delegated duties and responsibilities. Each committee will consist of Paul Lever and Donald Stewart, with Paul Lever chairing both the Audit Committee and the Remuneration Committee.

The Audit Committee will determine the terms of engagement of the Enlarged Group's auditors and will determine, in consultation with the auditors, the scope of the audit. The Audit Committee will receive and review reports from management and the Enlarged Group's auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Enlarged Group. The Audit Committee will have unrestricted access to the Enlarged Group's auditors.

The Remuneration Committee will review the scale and structure of the executive directors' and senior employees' remuneration and the terms of their service or employment contracts, including share option schemes and other bonus arrangements. The remuneration and terms and conditions of the non-executive directors will be set by the entire board.

The Enlarged Group will ensure, in accordance with Rule 21 of the AIM Rules, that the New Board and applicable employees do not deal in any New Ordinary Shares during a close period (as defined in the AIM Rules) and will take all reasonable steps to ensure compliance by the Directors and applicable employees.

The Directors believe that the Company has sufficient experience in accounting systems and controls which will provide a reasonable basis for them to make proper judgements as to the financial position and prospects of the Enlarged Group.

Dividend Policy

The Board's objective is to grow the Enlarged Group's business. Future income generated by the Enlarged Group will be re-invested to implement its growth strategy. In view of this it is very unlikely that the Board will recommend a dividend in the foreseeable future.

Taxation

Information regarding UK taxation with relation to the Ordinary Shares, is set out in paragraph 13 of Part VII of this document. These details are intended as a general guide only to the position under current UK taxation law as at the date of this document. If a Shareholder is in any doubt as to his or her tax position he or she should consult his or her own independent financial adviser immediately.

CREST

The Existing Ordinary Shares are eligible for CREST settlement. Accordingly, following Admission, settlement of transactions in the New Ordinary Shares may take place within the CREST system if the relevant shareholder so wishes.

CREST is a voluntary system and Shareholders who wish to receive and retain share certificates will be able to do so.

General Meeting

The notice convening the General Meeting is set out at the end of this document. A General Meeting has been convened for 10.30 a.m. on 3 October 2013 at the offices of ILX, 2nd Floor, Strand Bridge House, 138-142 The Strand, London, WC2R 1HH for the purpose of considering and, if thought fit, passing the following resolutions:

Ordinary resolutions to:

(1) approve the Acquisition;

(2) approve the Waiver; and

(3) authorise the Directors to allot relevant equity securities under Section 551 of the Act; and

Special resolutions to:

(4) approve the change of the Company's name; and

(5) dis-apply statutory pre-emption rights.

To be passed, Resolutions 1 to 3 require a majority of not less than 50 per cent. and Resolutions 4 and 5 will require a majority of not less than 75 per cent. of the Shareholders voting in person or by proxy in favour of each Resolution. In addition, in accordance with the requirements of the Panel, Resolution 2 will be taken on a poll of Shareholders, other than the Concert Party.

Irrevocable undertakings to approve the Proposals

Paul Lever has irrevocably undertaken to the Company to vote in favour of the Resolutions to be proposed at the General Meeting, in respect of his beneficial holding totalling 148,021 Existing Ordinary Shares, representing approximately 0.37 per cent. of the Existing Ordinary Shares. There are no circumstances under which this irrevocable undertaking can be withdrawn.

Admission and dealings

Application will be made to the London Stock Exchange for the Enlarged Share Capital to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Enlarged Share Capital will commence on or about 4 October 2013.

Action to be taken

General Meeting

You will find enclosed with this document a Form of Proxy. Whether you intend to be present at the General Meeting or not, you are asked to complete the Form of Proxy in accordance with the instructions printed thereon and to return it by post or by hand (during normal business hours only) to the Registrar at PXS, 34 Beckenham Road, Beckenham BR3 4TU using the accompanying pre-paid Form of Proxy (for use in the UK only) as soon as possible and, in any event, so as to be received by no later than 10.30 a.m. on 1 October 2013. If you hold Shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to the Registrar (CREST participant ID RA 10), so that it is received by no later than 10.30 a.m. on 1 October 2013. The completion and return of a CREST Proxy Instruction will not preclude you from attending and voting in person at the General Meeting or any adjournment thereof, if you so wish and are so entitled.

If the Form of Proxy is not returned, or the CREST Proxy Instruction submitted, by 10.30 a.m. on 1 October 2013, your vote will not count.

If you are in any doubt as to the action you should take, you should immediately seek your own personal financial advice from an appropriately qualified independent professional adviser.

Recommendation

The Independent Directors, having been so advised by SPARK, consider the Proposals to be fair and reasonable and in the best interests of the Company and its Shareholders as a whole. In providing advice to the Board, SPARK has taken into account the Independent Directors' commercial assessments.

Wayne Bos is a discretionary beneficiary of the DNY Trust and is a director of both ILX and Progility and, as a result, has been declared to have a conflict of interest for the purpose of Rule 25.2 (Note 4) of the City Code and therefore has taken no part in the deliberations of the Board and is to be excluded from the recommendation of the Board. Praxis, the only member of the Concert Party that is a Shareholder in the Company, is not able to vote on the Rule 9 Waiver.

Accordingly, the Independent Directors unanimously recommend that Shareholders vote in favour of the Resolutions, as Paul Lever undertaken to do in respect of his holding of 148,021 Ordinary Shares representing approximately 0.37 per cent. of the Existing Ordinary Shares, by signing and returning the Form of Proxy to the Company's Registrars.

Yours faithfully

The Independent Directors

In this document references to time are to London time.

Words importing the singular shall include the plural and vice versa, and words importing the masculine shall include the feminine or neutral gender.