Thalassa (di) Regulatory News (THAL)

8 May 2012 15:19



 ROCK SOLID IMAGES plc

OFFEREE BOARD RESPONSE TO OFFER

On 23 April 2012 Thalassa Holdings Ltd ("Thalassa") posted a Partial Cash Offer to RSI Shareholders pursuant to which Thalassa offered to acquire up to 40,952,521 RSI Shares, representing approximately 25.89 per cent. of the entire issued ordinary share capital of RSI. If the Partial Offer is accepted in full, Thalassa, together with its existing shareholding of 6,342,322 RSI Shares, will hold 47,295,496 RSI Shares, representing approximately 29.90 per cent. of the entire issued ordinary share capital of RSI.

After evaluating various factors in relation to the Offer, the Directors make no recommendation to RSI Shareholders to accept or decline the Offer. In assessing whether or not to accept the Partial Offer, the Directors suggest that RSI Shareholders take the following issues into account.

·; The Cash Offer price appears opportunistic given that it represents a discount of approximately 52.0 per cent to 1.0 pence, being the closing price on AIM on 30 March 2012 (being the last Business Day prior to the commencement of the Offer Period). As previously stated, in the Directors' opinion, the trading price of the Ordinary Shares on AIM did not reflect the true value of the Company and its business.

·; The Cash Offer of 0.48 pence values the entire RSI Group at approximately £760,000, which is significantly less than the consideration of approximately £12.0 million paid by the Company when it acquired Rock Solid Images, Inc. on 22 August 2007. Rock Solid Images, Inc. is the Company's principal trading subsidiary and since it joined the RSI Group over four years ago it has strengthened its technology portfolio and made no significant asset disposals.

·; The Directors have concluded that RSI needs to raise further capital to continue to build on the significant progress made, however, they have yet to conclude on how much capital will be required and consequently terms have not been agreed with potential providers of this capital. These terms, once agreed and approved would determine the extent of any future dilution of the interests of existing RSI shareholders.

·; The delisting from AIM has resulted in limited liquidity for RSI Shares. RSI Shares can no longer be traded on a recognised stock exchange although a matched bargain platform for RSI shares is provided by BritDAQ on its website at www.britdaq.com.

·; The Partial Offer states that Thalassa has no intention of proposing any changes to the board of RSI or Thalassa or the existing employment rights of management and employees of RSI or Thalassa. Furthermore the Partial Offer states that Thalassa has no intention to propose changes to the location of any of RSI's or Thalassa's operations, nor to propose the redeployment of any of the fixed assets of RSI or Thalassa. Thalassa have also stated that they have no intention to propose changes to the existing trading facilities of Thalassa or RSI Shares. Accordingly the Board is indifferent to the Partial Offer in so far is relates to the offeror's plans for the Group and its employees.

RECENT FINANCIAL PERFORMANCE AND CURRENT TRADING

The following is an extract from the announcement made on 12 March 2012:

"Since 18 January 2012, when the Company reported its results for the 12 months ending 31 August 2011, it has continued to move forward with developing its business. Sales revenues in January and February were less than anticipated due to operational delays in processing client data, however management has now resolved the issue and the processing team is working hard to catch up.

Revenues in the second half are anticipated to be significantly above those of the first half and will benefit from the large contract awards announced in November, December and January. Consequently the second half is expected to also be significantly more profitable than the first half at the pre-tax level. Total revenues for the full year to 31st August 2012 are expected to be in the £5.5 to £7 million range, which compares favourably with revenues of £4.0 million for the year ended 31st August 2011.

Although the Company's backlog and prospective pipeline are at record levels the aforementioned production delays and larger contracts require the Company to have a stronger working capital base and in order to address this short term requirement the Board has agreed, subject to finalising legally binding documentation, with EuroTrans Skips AS ("EuroTrans") and East Hill Venture Fund, LLP (an affiliate of East Hill Hedge Fund, LLC ("East Hill")) two of the Company's largest shareholders, to put in place a secured Credit Facility of up to $1 million. To the extent that it is drawn upon (and an initial advance of $250,000 has already been made) the Credit Line facility will carry an annual interest charge of 10.75% above US prime and will expire on 30 September 2012. Due to their respective holdings of 24.82% and 12.13% in the ordinary share capital of the Company, EuroTrans and East Hill are classified as related parties for the purposes of the Credit Facility. The directors of the Company have consulted with its nominated adviser, Fox-Davies Capital Limited, and consider that the terms of the Credit Facility are fair and reasonable insofar as the Company's shareholders are concerned."

Since this announcement was made on 12 March 2012, the Company has added to its backlog, though not at the rate that was anticipated earlier, and although revenues are expected to be higher in the second half of the year, total revenues for the full year to 31 August 2012 are expected to be in the £5.0 to £5.5 million range, which still compares favourably with revenues of £4.0 million for the year ended 31 August 2011.

CONCLUSION

The Directors, who have been so advised by Fox-Davies, make no recommendation whether to accept or reject the Partial Offer. In providing advice to the Directors, Fox-Davies has taken into account the commercial assessments of the Directors.

The employee representative's opinion can be found in Appendix 2.

As previously stated, the Directors do not intend to accept the Partial Offer in respect of their own shareholdings.

A response circular has been posted to shareholders in response to the Thalassa Offer Document dated 23 April 2012. The wording in this announcement has been extracted from the response circular, a copy of which can be found at the Company's website, www.rocksolidimages.com.

CONTACT: 

Richard Cooper - Chief Executive Officer +1 713 723 2566

Bob Auckland - Chief Financial Officer +44 (0) 7919 490911

Appendix 1

1. Responsibility statement

The Directors, whose names are set out in paragraph 2 below, accept responsibility for the information contained in this document, except that the only responsibility accepted by them in respect of the information contained in this document relating to the Thalassa Group and the Thalassa Directors, which has been compiled from published sources, is to ensure that such information has been correctly and fairly reproduced and presented. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case) the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.

2. Directors

The names of the Directors, and their respective positions, are set out below:

Each of the Directors has a business address at c/o Pinsent Masons LLP, 30 Crown Street, London, EC2A 4ES, which is the registered office of RSI.

3. Interests and dealings

3.1 For the purposes of this paragraph 3 and paragraph 4 below:

(a) "acting in concert" has the meaning given to it in the City Code;

(b) "arrangement" includes indemnity or option arrangements, and any agreement or understanding, formal or informal, of whatever nature, relating to securities which may be an inducement to deal or refrain from dealing (but does not include an irrevocable undertaking or letter of intent to accept or not accept the Partial Offer, or to vote in favour of or against a resolution of Thalassa or RSI in the context of the Partial Offer or, in either case, to procure another person to do so);

(c) "associate" of any company means, unless otherwise stated:

(i) its parent, subsidiaries and fellow subsidiaries, and their associated companies, and companies of which such companies are associated companies (for this purpose ownership or control of 20% or more of the equity share capital of a company is regarded as the test of associated company status);

(ii) connected advisers and persons controlling, controlled by or under the same control as such connected advisers;

(iii) the directors (together with their close relatives and related trusts) of the company or any company covered in sub-paragraph (i);

(iv) the pension fund of the company or any company covered in sub-paragraph (i);

(v) any investment company, unit trust or other person whose investments an associate manages on a discretionary basis, in respect of the relevant investment accounts;

(vi) an employee benefit trust of the company or any company covered in subparagraph (i); and

(vii) a company having a material trading arrangement with a company;

(d) "connected adviser" includes (i) in relation to RSI, an organisation which is advising RSI in relation to the Offer, and a corporate broker to RSI; (ii) in relation to a person who is acting in concert with RSI, an organisation which is advising that person either in relation to the Partial Offer or in relation to the matter which is the reason for that person being a member of the relevant concert party; and (iii) in relation to a person who is an associate of RSI by virtue of sub-paragraph (i) of paragraph 3.1(c), an organisation which is advising that person in relation to the Partial Offer (save that a corporate broker which is unable to act in connection with the Partial Offer because of a conflict of interest will not normally be treated as a connected adviser);

(e) "control" means an interest, or interests, in shares carrying 30 per cent. or more of the voting rights attributable to the share capital of a company which are currently exercisable at a general meeting, irrespective of whether the holding or holdings give(s) de facto control;

(f) "dealing" includes:

(i) the acquisition or disposal of securities, of the right (whether conditional or absolute) to exercise or direct the exercise of the voting rights attaching to securities, or of general control of securities;

(ii) the taking, granting, acquisition, disposal, entering into, closing out, termination, exercise (by either party) or variation of an option (including a traded option contract) in respect of any securities;

(iii) subscribing or agreeing to subscribe for securities;

(iv) the exercise or conversion, whether in respect of new or existing securities, of any securities carrying conversion or subscription rights;

(v) the acquisition of, disposal of, entering into, closing out, exercise (by either party) of any rights under, or variation of, a derivative referenced, directly or indirectly, to securities;

(vi) entering into, terminating or varying the terms of any agreement to purchase or sell securities; and

(vii) any other action resulting, or which may result, in an increase or decrease in the number of securities in which a person is interested or in respect of which he has a short position.

(g) "derivative" includes any financial product whose value in whole or in part is determined directly or indirectly by reference to the price of an underlying security;

(h) "disclosure period" means the period beginning on 2 April 2012 and ending on 4 May 2012 (being the latest practicable date prior to the posting of this document);

(i) "exempt fund manager" has the meaning given to it in the City Code;

(j) "exempt principal trader" has the meaning given to it in the City Code;

(k) a person has an "interest", or is "interested", in relevant securities if he has long economic exposure, whether absolute or conditional, to changes in the price of securities. In particular, a person will be treated as having an interest in securities if:

(i) he owns them;

(ii) he has the right (whether conditional or absolute) to exercise or direct the exercise of the voting rights attaching to them or has general control of them;

(iii) by virtue of any agreement to purchase, option or derivative he:

(A) has the right or option to acquire them or call for their delivery; or

(B) is under an obligation to take delivery of them,

whether the right, option or obligation is conditional or absolute and whether it is in the money or otherwise; or

iv) he is party to any derivative:

(A) whose value is determined by reference to their price; and

(B) which results, or may result, in his having a long position in them,

and references to interests of a Director in relevant securities shall include all interests of any other person whose interests in shares are attributed to that Director, pursuant to Part 22 of the Companies Act 2006;

(l) "relevant Thalassa securities" mean relevant securities (such term having the meaning given to it in the City Code in relation to an offeror) of Thalassa including Thalassa Consideration Shares and other equity share capital in Thalassa (or derivatives referenced thereto) and securities convertible into, rights to subscribe for and options (including traded options) in respect thereof;

(m) "relevant RSI securities" mean relevant securities (such term having the meaning given to it in the City Code in relation to an offeree) of RSI including RSI Shares and other equity share capital of RSI (or derivatives referenced thereto) and securities convertible into, rights to subscribe for and options (including traded options) in respect thereof; and

(n) "short position" means any short position (whether conditional or absolute and whether in the money or otherwise), including any short position under a derivative, any agreement to sell or any delivery obligation or right to require another person to purchase or take deliver.

References to a pension fund of RSI or of any company that is an associate of RSI by virtue of sub-paragraph (i) of paragraph 3.1(c) do not include any such pension fund whose assets are managed under an agreement or arrangement with an independent third party which gives the third party absolute discretion regarding dealing, voting and offer acceptance conditions relating to the fund.

Interests in RSI Shares

3.2 As at 4 May 2012 (being the latest practicable date prior to the posting of this document), the Directors (and those persons who have recently resigned as directors of the Company) held the following interest in, or rights to subscribe in respect of, relevant RSI securities:

Issued Share Capital:

Share options and share awards:

Richard Cooper has the following share options and share awards:

(i) A share award of 570,859 Shares at an award price of 1 pence, subject to performance conditions which are required to be met by 30 November 2012

(ii) Options over 2,750,000 Shares at an exercise price of 6 pence with an earliest exercise date of 28 February 2012 and an expiry date of 28 February 2021

Lucy MacGregor has the following share options and share awards:

(i) Options over 141,031 Shares at an exercise price of 29.81 pence with an earliest exercise date of 1 December 2004 and an expiry date of 30 November 2013.

(ii) A share award of 339,030 Shares at an award price of 1 pence, subject to performance conditions which are required to be met by 30 November 2012

(iii) Options over 1,750,000 Shares at an exercise price of 6 pence with an earliest exercise date of 28 February 2012 and an expiry date of 28 February 2021

Bob Auckland has the following share options and share awards:

(i) A share award of 354,519 Shares at an award price of 1 pence, subject to performance conditions which are required to be met by 30 November 2012

(ii) Options over 1,750,000 Shares at an exercise price of 6 pence with an earliest exercise date of 28 February 2012 and an expiry date of 28 February 2021

4. Interests and dealings - General

4.1 Save as disclosed in paragraph 3 above, as at 4 May 2012 (being the latest practicable date prior to the posting of this document):

(a) no member of the RSI Group nor any person acting in concert with RSI or with whom RSI or any person acting in concert with RSI has an arrangement had any interest in, right to subscribe in respect of or any short position in relation to relevant RSI securities or relevant Thalassa securities nor has any such person dealt for value in any relevant RSI securities or relevant Thalassa securities during the Offer Period;

(b) none of the Directors had any interest in, right to subscribe in respect of, or any short position in relation to relevant RSI securities, or relevant Thalassa securities nor has any such person dealt for value in any relevant RSI securities or any relevant Thalassa securities during the Offer Period;

(c) no companies which are associates of RSI by virtue of sub-paragraph (i) of paragraph 3.1(c) had any interest, right to subscribe in respect of or any short position in relation to relevant RSI securities or relevant Thalassa securities nor has any such person dealt for value in any relevant RSI securities or relevant Thalassa securities during the Offer Period;

(d) no pension funds of RSI or of any company which is an associate of RSI by virtue of sub-paragraph (i) of paragraph 3.1(c) had any interest, right to subscribe in respect of or any short position in relation to relevant RSI securities or relevant Thalassa securities nor has any such person dealt for value in any relevant RSI securities or relevant Thalassa securities during the Offer Period;

(e) no employee benefit trusts of RSI or of any company which is an associate of RSI by virtue of sub-paragraph (i) of paragraph 3.1(c) had any interest, right to subscribe in respect of or any short position in relation to relevant RSI securities or relevant Thalassa securities nor has any such person dealt for value in any relevant RSI securities or relevant Thalassa securities during the Offer Period;

(f) no connected advisers (including any person controlling, controlled by or under the same control as any connected adviser (except for an exempt principal trader or an exempt fund manager)) to RSI, or to any company which is an associate of RSI by virtue of sub-paragraph (i) of paragraph 3.1(c) had any interest, right to subscribe in respect of or any short position in relation to relevant RSI securities or relevant Thalassa securities nor has any such person dealt for value in any relevant RSI Securities or relevant Thalassa securities during the Offer Period;

(g) no persons who have an arrangement with RSI, or with any company which is an associate of RSI by virtue of sub-paragraphs (i) to (iv) of paragraph 3.1(c) had any interest, right to subscribe in respect of or any short position in relation to relevant RSI securities or relevant Thalassa securities nor has any such person dealt for value in any relevant RSI Securities or relevant Thalassa securities during the Offer Period; and

(h) neither RSI, nor any person acting in concert with RSI has borrowed or lent any relevant RSI securities or any relevant Thalassa securities save for any borrowed shares which have been either on-lent or sold.

4.2 Save as disclosed in paragraph 7 below, neither RSI nor any of its associates has procured that any other person give any irrevocable or other commitment in relation to relevant RSI securities.

4.3 Save as disclosed herein, neither RSI nor any associate of RSI has any arrangement in relation to relevant securities.

4.4 No relevant RSI securities have been redeemed or purchased by RSI during the disclosure period.

5. Directors' service contracts and letters of appointment

Executive Directors:

Dr. MacGregor entered into a service agreement with the Company on 1 February 2003 as amended on 1 November 2003 and 27 October 2010 and further amended on 11 September 2011, the principal terms of which are that she is entitled to a salary of £140,625 per annum and her service agreement is terminable on twelve months' notice by either party. There is no entitlement to permanent health insurance but she receives contributions to her personal pension plan, life insurance cover and private medical insurance.

Mr. Cooper entered into a service agreement with the Company on 23 August 2008, the principal terms of which are that he is entitled to a salary of £186,737 per annum and his service agreement is terminable on twelve months' notice by either party. There is no entitlement to permanent health insurance but he receives life insurance cover and private medical insurance.

Mr. Auckland entered into a service agreement with the Company on 1 January 2006 as amended on 27 October 2010, the principal terms of which are that he is entitled to a salary of £135,955 per annum and his service agreement is terminable on nine months' notice by either party. There is no entitlement to permanent health insurance but he receives contributions to his personal pension plan, life insurance cover and private medical insurance.

Non-executive Director:

Mr. Lough received a letter of appointment from the Company on 11 August 2004, the principal terms of which are that he is entitled to a salary of £45,000 per annum and his service agreement is terminable on three months' notice by either party. There is no entitlement to permanent health insurance, life insurance cover or private medical insurance.

Save as disclosed above, there are no service contracts in force between any Director of RSI and RSI or any of its subsidiaries and no such contract has been entered into or amended during the last six months preceding the date of this document.

6. Material contracts

6.1 Save as disclosed in paragraphs 6.2, 6.3, 6.4, 6.5 and 6.6 below, there have been no contracts entered into by RSI or any of its subsidiaries during the period commencing on 2 April 2010 (being the date two years before commencement of the Offer Period) and ending on 4 May 2012 (being the latest practicable date prior to posting of this document) which are outside the ordinary course of business and which are or may be considered material.

6.2 OHM Disposal - November 2010

The Company entered into a conditional sale agreement on 13 October 2010 (the "Sale Agreement") pursuant to which it conditionally agreed to sell OHM Ltd and OHM Surveys Sdn Bhd ("OHM Malaysia") to a company controlled by Sector Asset Management and its affiliates ("Sector") and Euro Trans Skips AS ("ETS") for a consideration of $150,000 (the "Disposals"). The sale and purchase was conditional inter alia upon the Asset Transfer Agreement being entered into and the Company writing off the inter-company debt due from OHM Ltd to the Company (excluding any sum outstanding on inter-company trading account), ETS and Sector committing to OHM Ltd to provide $7 million of funding and ETS entering into arrangements pursuant to which it agreed to defer payments due from OHM Ltd of up to $3 million until 20 December 2010. The Company provided a limited number of warranties to the buyer and an indemnity against any tax liability that OHM Ltd might suffer by reason of the writing off of the inter-company loan account.

Prior to the Disposals being completed the Company entered into an asset transfer agreement (the "Asset Transfer Agreement") pursuant to which the employment contracts for certain key personnel (including Robert Auckland and Dr. Lucy MacGregor), patents, software and computer hardware and contracts were transferred from OHM Ltd to the Company and certain patents tranferred from the Company to OHM Ltd. The agreement was entered into so that those assets and employees relating to the data acquisition business which were then owned/employed by the Company were transferred to OHM Ltd and any assets/employees within OHM Ltd relating to the geophysical consulting business carried on by the RSI Group were transferred to the Company.

By an agreement entered into on 13 October 2010 (the "Subscription Agreement") Sector and ETS conditionally subscribed for 9,000,000 Shares in aggregate at 10 pence per share representing a premium of 60 per cent. to the closing mid-market price on 12 October 2010 (the "First Placing") and had also conditionally agreed to subscribe for a further 11,000,000 Shares at the same price (the "Placing"). In aggregate, the First Placing and the Placing raised £2.0 million (£1.8 million after expenses) for the Company. The First Placing was conditional only upon admission of the First Placing Shares to trading on AIM and the First Placing Shares were admitted to trading on AIM on 19 October 2010. Following admission of the First Placing Shares to AIM, the Concert Party held 51.11 per cent. of the Company's issued share capital (including the First Placing Shares). The members of the Concert Party were deemed to be acting in concert by the Panel. In order to complete the First Placing and the Placing, the Panel agreed to a waiver of the requirement for the Concert Party to make a general offer for the Company for the purposes of Rule 9 of the City Code following written confirmations consenting to such waiver from independent Shareholders who held in excess of 50 per cent. of the Company's voting rights, excluding those of the Concert Party.

The Disposals and the Placing (together the "Proposals") were conditional, inter alia, upon Shareholder approval being obtained. Due to the size of the Disposals in relation to the Company, the Directors were required to seek Shareholder consent to the Disposals for the purposes of AIM Rule 15. In addition, in order to effect the Placing the Directors sought the required authorities under the Companies Act 2006. Accordingly, the Company dispatched a circular to Shareholders convening a general meeting of the Company held on 1 November 2010 (the "Circular"). The Circular (which is available to view on the Company's website, www.rocksolidimages.com) contained further details of the background to and reasons for the Disposals and the Placing and set out in further detail why the Board considered the Proposals to be in the best interests of Shareholders as a whole. The Disposals were completed on 2 November 2010 and the Placing Shares were admitted to trading on AIM on 2 November 2010.

On completion of the Sale Agreement on 2 November 2010 the Company entered into an agreement with OHM Ltd, OHM Malaysia and Rock Solid Images, Inc (the "Services Agreement") pursuant to which the parties agreed to provide services to each other in order for the parties to continue to provide a seamless integrated CSEM service to the oil industry and with a view to developing a marketing strategy to progress and capitalise on joint opportunities to utilise their respective services. Under the terms of the Services Agreement OHM Ltd and OHM Malaysia agreed to prepay $3 million (the "Advance Payment") to secure 2,033 man-days of WISE services at a rate of $2,200 per day of which $1,475 per day was prepaid by way of the Advance Payment with a balance of $725 per day payable as the man-days are utilised. WISE services are those services relating to the advanced combination of CSEM data and seismic information to provide analysis of rock and fluid properties. Under the Services Agreement the parties also agreed to provide certain administrative and management function services to each other at contracted rates agreed on an arm's length basis to reflect the cost to the service provider. Under the Services Agreement the unutilised balance of the Advance Payment (currently $2.5 million) is repayable on 30 June 2012.

With a view to preserving the independence of the Company from its majority shareholders the Company entered into a relationship agreement (the "Relationship Agreement") with ETS and Sector pursuant to which each of them agreed that, for so long as it controlled 25 per cent. or more of the voting rights of the Company, it would use its reasonable endeavours to ensure that the majority of the members of the Board will be independent of ETS and Sector and their respective associates.

In connection with the Proposals, the Company entered into the Subscription Agreement and the Sale Agreement and also entered into the Asset Transfer Agreement, the Services Agreement and the Relationship Agreement. Further details of these agreements are set out in the Circular. The Concert Party was deemed to be a related party for the purposes of the AIM Rules and accordingly the entering into of the Subscription Agreement, the Sale Agreement, the Services Agreement and the Relationship Agreement (together the "Related Party Agreements") were all deemed to be related party agreements for the purposes of the AIM Rules.

6.3 Change of Nomad and Broker - April 2011

Pursuant to the Nominated Advisor and Broker Agreement dated 8 April 2011 between the Company (1) and Fox-Davies (2) the Company appointed Fox-Davies to act as Nominated Advisor and Broker to the Company for the purposes of the AIM Rules. The agreement contains certain undertakings and indemnities given by the Company in respect of, inter alia, compliance with all applicable laws and regulations. The agreement continues for a fixed period of one year from the date of the agreement and, thereafter, is subject to termination on the giving of three month's notice.

6.4 Placing - June 2011

Pursuant to a placing agreement dated 9 June 2011 between the Company (1), the Directors (and Fox-Davies agreed to use its reasonable endeavours, as agent for the Company, to procure subscribers for 47,342,700 Shares at 4 pence per Share. The placing agreement contained warranties and indemnities from the Company in favour of Fox-Davies together with provisions which enabled Fox-Davies to terminate the placing agreement in certain circumstances prior to Admission, including circumstances where any warranties were found to be untrue or inaccurate in any material respect.

6.5 Simmons - October 2011

The Board was keen to capitalise on the industry's renewed focus on RSI's services and value proposition and therefore engaged Simmons & Company International Limited ('Simmons') on 9 September 2011 to assist in reviewing the strategic options available to RSI and its operating divisions, WSS and WISE. The engagement with Simmons was terminated on 13 March 2012.

6.6 Credit Facility Agreement

By an agreement dated 4 April 2012 (the "Credit Facility Agreement") between (1) the Company and (2) ETS and East Hill Venture Fund, L.P. - Series 08A (an associate of East Hill Venture Fund LLP, one of the largest shareholders in the Company) ("East Hill"), ETS and East Hill (together the "Lenders") agreed to provide the Company with a credit facility of up to $1 million. The principal terms of the facility are:

(a) the Lenders agreed to provide up to $1 million equally;

(b) interest is payable at 14% per annum payable monthly in arrears commencing on 31 March 2012

(c) security cover is a floating charge over all of the assets of the Company and Rock Solid Images, Inc, the Company's main trading subsidiary

(d) the facility ceases to be available on 30 September 2012 and is repayable on or before such date unless the Lenders agree otherwise.

7. Non acceptance of the Partial Offer

Each of the Directors do not intend to accept the Offer in respect of their own beneficial holdings of RSI Shares, as set out in paragraph 3.2 above, amounting to, in aggregate, 2,262,992 RSI Shares, representing approximately 1.43% of RSI's current issued share capital.

8. Consent

Fox-Davies has given and not withdrawn its consent to the issue of this document with the inclusion of the references to its recommendation and to its name in the form and context in which they appear.

9. Material changes

Save as disclosed in this document there have been no known material changes in the financial or trading position of RSI subsequent to 31 August 2011 (being the date to which the last published audited accounts of RSI were prepared).

10. Fees and expenses

The aggregate fees and expenses which are expected to be incurred by RSI in connection with the Partial Offer are estimated to amount to between £40,000 and £50,000 (excluding applicable VAT). This aggregate number consists of the following categories:

(i) Financial and corporate broking advice: £25,000 (excluding VAT);

(ii) Legal advice: between £10,000 and £15,000 (excluding applicable VAT);

(iii) Other professional services: between £3,000 and £5,000 (excluding applicable VAT); and

(iv) Other costs and expenses (including printing costs): between £2,000 and £5,000 (excluding VAT).

11. Documents available for inspection

11.1 Copies of the following documents may be inspected at the offices of Pinsent Masons LLP during the usual business hours of any weekday (Saturdays and public holidays excepted) from the date of this document up to the end of the Offer Period:

(a) memorandum and articles of association of RSI;

(b) audited consolidated accounts of RSI for each of the financial years ended 31 August 2011 and 31 August 2010;

(c) the service contracts of the Directors referred to in paragraph 5 above;

(d) the letter of consent referred to in paragraph 8; and

(e) the material contracts referred to in paragraph 6.

Appendix 2

EMPLOYEE REPRESENTATIVE'S OPINION

The employee representative, Stan Warren (Financial Controller), has noted the comment in the Partial Offer on the "Employees, locations and existing trading facilities of RSI and Thalassa". Accordingly the Partial Offer states that Thalassa has no intention of proposing any changes to the board of RSI or Thalassa or the existing employment rights of management and employees of RSI or Thalassa. Furthermore the Partial Offer states that Thalassa has no intention to propose changes to the location of any of RSI's or Thalassa's operations, nor to propose the redeployment of any of the fixed assets of RSI or Thalassa. Thalassa have also stated that they have no intention to propose changes to the existing trading facilities of Thalassa or RSI Shares.

The matters noted in the paragraph above, will therefore, continue to be managed by the RSI Board and in light of this the employee representative is indifferent to the Partial Offer.

Appendix 3