TSL.L Regulatory News (TSL)

24 Feb 2005 07:04

Tissue Science Laboratories PLC24 February 2005 NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTOTHE UNITED STATES OF AMERICA, CANADA, AUSTRALIA, THE REPUBLIC OF IRELAND, THEREPUBLIC OF SOUTH AFRICA OR JAPAN. Neither this document nor any copy of it may be taken, transmitted ordistributed, directly or indirectly, in or into the United States, Canada,Australia, the Republic of Ireland, the Republic of South Africa or Japan. Anyfailure to comply with this restriction may constitute a violation of UnitedStates, Canadian, Australian, Republic of South Africa, Republic of Ireland orJapanese securities laws. 24 February 2005 Placing of 4,690,641 New Ordinary Shares at 171 pence per share to raise £8.0 million Tissue Science Laboratories plc (LSE: TSL), the medical devices companyspecialising in human tissue replacement and repair products derived fromporcine dermis, today announces its intention to raise approximately £8.0million (£7.5m net of expenses) by way of a Placing and Open Offer of 4,690,641New Ordinary Shares. The offer price of 171 pence per New Ordinary Sharerepresents a 7 per cent. discount to the closing mid-market price of 184 pencefor Ordinary Shares traded on AIM on 23 February 2005. A prospectus published by the Company and containing details of the Placing andOpen Offer is expected to be posted to Shareholders today together with anApplication Form in respect of the Open Offer. Code Securities is acting asnominated adviser. Highlights • Placing and Open Offer raising approximately £8.0 million before expenses (approximately £7.6 million net of expenses). • The net proceeds will enable the Company to fund further marketing of current products and product line extensions, as well as additional investment in product and pipeline development. The proposed product development expenditure would be primarily targeted in applications where TSL already has market access, and/or where existing core technology can be extended. • Qualifying Shareholders can apply for New Ordinary Shares pursuant to the Open Offer on the basis of 4 New Ordinary Shares for every 21 Ordinary Shares held; • Certain Qualifying Shareholders have undertaken not to take up their entitlement to an aggregate of 1,546,109 New Ordinary Shares under the Open Offer and these have been placed firm with institutional investors. The remaining 3,144,532 New Ordinary Shares (representing 67 per cent of the New Ordinary Shares) are being placed with institutional investors subject to Qualifying Shareholders' rights to take up under the Open Offer; • The Placing and Open Offer has been arranged by Code Securities Limited. Timetable of principal events • Record Date for the Open Offer 21 February, 2005 • Latest time and date for splitting Application Forms 15 March, 2005 (only to satisfy bona fide market claims) • Latest time and date for receipt of Application Forms 17 March, 2005 and payment in full under the Open Offer • Dealings in New Ordinary Shares to commence 22 March, 2005 • Credit CREST accounts 22 March, 2005 • Definitive share certificates for New Ordinary Shares 29 March, 2005 despatched by Commenting on today's announcement, Martin Hunt, CEO of TSL said,"TSL has achieved a substantial amount in a relatively short time, with limitedresources. By raising these funds now, we have the opportunity to accelerate themomentum of the Company to maximise future returns for shareholders." Code Securities Limited (which is regulated in the United Kingdom by theFinancial Services Authority) is acting solely for Tissue Science Laboratoriesplc in connection with the Placing and Open Offer and is not acting for anyperson other than Tissue Science Laboratories plc and will not be responsiblefor any person other than Tissue Science Laboratories plc for providing theprotections afforded to clients of Code Securities Limited or for providingadvice to any person in connection with the matters described in this document. This announcement does not constitute, or form any part of, an offer orsolicitation of an offer to subscribe for the Offer Shares. -Ends- There will be a meeting for analysts this morning at 9:30am at Threadneedles Hotel, 5 Threadneedle Street, London EC2R 8AY. For registration and/orenquiries, please contact Nathalie Barone, Hogarth PR, on tel: 020 7357 9477 or email nbarone@hogarthpr.co.uk. Enquiries:TSL plc Tel: 01252 369603Martin Hunt, Chief ExecutiveDavid Jennings, Finance Director Code Securities Tel: 0207 024 2004Juliet Thompson Fax: 0207 024 2001 Hogarth Partnership Limited Tel: 020 7357 9477Melanie Toyne-Sewell / Kate Catchpole Mob: 07767 66 00 40 To Qualifiying Shareholders and, for information only, to the holders of options under the Share Option Schemes Dear Shareholder, Proposed Placing and Open Offer Introduction The Board of TSL today announced that the Company is intending to raiseapproximately £7.5 million after expenses by way of a Placing and Open Offer of4,690,641 New Ordinary Shares at an issue price of 171 pence per New OrdinaryShare. Qualifying Shareholders can apply for New Ordinary Shares on the basis of4 New Ordinary Shares for every 21 Existing Ordinary Shares held. Onenon-executive director, myself, and certain Qualifying Shareholders haveirrevocably agreed not to make applications under the Open Offer in respect of1,546,109 New Ordinary Shares in aggregate which represent approximately 32.96per cent of the New Ordinary Shares to be issued and their entitlements to suchNew Ordinary Shares are being conditionally placed firm by Code Securities withcertain institutional investors as part of the Placing. The balance of the NewOrdinary Shares are being placed with institutional investors subject to theright of Qualifying Shareholders to take up New Ordinary Shares under the OpenOffer. Martin Hunt and David Jennings intend to take up their rights under theOpen Offer.The purpose of this document is to provide you with details of the Placing andOpen Offer and to explain why your Board considers that the Placing and OpenOffer is in the best interests of TSL and its Shareholders as a whole. This PartI should be read in conjunction with the preliminary results of the Company forthe year ended 31 December 2004 which were released today and which arecontained in Part III of this document. Principal Terms of the Placing and Open Offer The Placing and Open Offer, which will raise approximately £7.5 million afterexpenses, will be used for the purposes set out in "Reasons for the Fundraising"and "Proposed Use of Proceeds" below. In order to give Qualifying Shareholdersthe opportunity to participate in the issue of the New Ordinary Shares, TSL hasarranged for the Code Securities as its agent to invite applications fromQualifying Shareholders to acquire New Ordinary Shares at the Issue Price underthe Open Offer. Qualifying Shareholders may apply for New Ordinary Shares on thebasis of: 4 New Ordinary Shares for every 21 Ordinary Shares held at the Record Date and so in proportion for any other number of OrdinaryShares then held. The New Ordinary Shares will rank pari passu in all respectswith the Existing Ordinary Shares.Individual entitlements will be rounded down to the nearest whole number of NewOrdinary Shares. Fractions of New Ordinary Shares that would otherwise arisewill be aggregated and placed with institutional investors under the Placing forthe benefit of the Company.Irrevocable undertakings have been received by the Company and Code Securitiesfrom certain Qualifying Shareholders, namely Patrick Paul, the Paul Foundation,Vertical Asset Management Limited, Vertical Fund I LP, Vertical Fund II LP,Andrew Sealy and Montrose Management Limited, amounting to an aggregate of8,117,091 New Ordinary Shares (representing approximately 32.96 per cent of theNew Ordinary Shares), not to take up their entitlements under the Open Offer.Accordingly, Code Securities has agreed to use reasonable endeavours to placefirm these New Ordinary Shares (being the Firm Placed Shares) with institutionalinvestors, subject to the Placing Agreement becoming unconditional in allrespects. Code Securities has agreed to use reasonable endeavours to place thebalance of the New Ordinary Shares, amounting to an aggregate of 4,690,641 NewOrdinary Shares (representing approximately 19 per cent of the New OrdinaryShares), with institutional investors, subject to clawback to satisfy validapplications from the Qualifying Shareholders under the Open Offer and subjectto the Placing Agreement becoming unconditional in all respects.The Placing and Open Offer is conditional on, inter alia, (i) Admission takingplace not later than 8.30a.m. on 22 March 2005 or such later time and/or date asthe Company and Code Securities may agree (being not later than 9.30 a.m. on 29March 2005) and (ii) the Placing Agreement becoming unconditional in allrespects. Qualifying Shareholders should note that the Open Offer is not a rights issueand that New Ordinary Shares not applied for under the Open Offer will not besold in the market for the benefit of Qualifying Shareholders who do not applyunder the Open Offer. Entitlements under the Open Offer are not transferableexcept to satisfy a bona fide market claim and the Application Form, not being adocument of title, cannot be traded. Further details of the Open Offer, and the terms and conditions on which it ismade, are set out in the letter from Code Securities in Part II of thisdocument. Overview of the Group TSL is a medical technology company specialising in tissue repair andreplacement. The Company's core technology is used to manufacture a collagen andelastin sheet product, Permacol(R) Surgical Implant ("Permacol(R)"), fromporcine dermis, which, when implanted in the human body, is non-allergenic andlong-lasting. The Company markets and sells premium-priced products allowing itto achieve high margins. The products are designed to address a variety ofsurgical applications in the fields of urology/gynaecology, general surgery,orthopaedics and head and face surgery. Over the past few years, TSL hassuccessfully launched a number of different formulations of Permacol(R) andbuilt a development pipeline that seeks to address the large and fast growingsurgical implant market. Core Technology The core product is derived from porcine dermis from which the non-collagenousmaterial, except elastin, is removed by TSL's manufacturing process. The processcomprises a complex series of 29 separate steps that takes 42 days. Each ofthese steps must be performed within precise parameters and is subject to tightcontrols. The Company protects this process and its core technology throughpatents (detailed below) but also safeguards a significant amount of itpropriety know-how and knowledge through the maintenance of trade secret. Inaddition, the Directors believe that the process would, in any event, beexpensive and time-consuming to replicate.The key steps of the process are: • Solvent extraction which involves removal of fat from the dermis,preventing mineralisation or calcification of tissue once implanted;• Organic extraction of cellular matter (cells, RNA and DNA) to ensure thetissue is non-allergenic and biocompatible with human tissue;• Cross-linking of the collagen to provide resistance to biodegradation bythe body's enzymes and enable the retention of the collagen's originalthree-dimensional structural architecture which provides the importantproperty of strength and support; and• Gamma-irradiation to ensure sterility of the product to the requiredindustry standard. The process has been shown to inactivate and remove cellular material, nuclearmaterial (including DNA and RNA), bacteria and viruses that may be present inthe raw material, thereby resulting in a purified sterile matrix. Validationstudies confirm that the product meets FDA standards for bacteria and viralinactivation. All the properties of Permacol(R) arising from the manufacturingprocess allow it to be accepted by the body and provide long-term support forthe in-growth of new tissue and its associated blood supply. Competition In the implantation market there are currently a range of other materialsavailable including synthetics, other animal-sourced tissues, cadaveric andautograft materials. The Directors believe that Permacol(R) offers significantadvantages over these alternative materials for the following combination ofreasons: • It is natural, strong, flexible and demonstrated to be non-allergenic;• It has an excellent safety record, with over 100,000 pieces of Permacol(R) having been sold since 2001;• Porcine collagen is very similar to human collagen;• There have been no instances of rejection and the material is readilyincorporated into host tissue, supporting cell infiltration and, ultimately,new blood vessel formation;• TSL's manufacturing process retains the stabilised three-dimensionalstructure of the dermal matrix and results in a safe product that isdesigned to be long-lasting;• The manufacturing process inactivates and removes bacteria and viruses;• There are no prion diseases known by the Directors to have occurrednaturally in pigs and there are no known regulatory hurdles specific toporcine tissue in contrast to other animal tissues;• It can be stored at room temperature and does not require specialisthandling or transportation;• The packaged product has a shelf life of at least three years;• There are none of the supply problems, disease transmission risk,cultural reservations or inconsistent quality issues associated withcadaveric tissue; and• It does not require the creation of a second wound site and can beproduced in a variety of sizes to meet surgical needs. TSL's Strategy The aim of the Company has been to commercialise its range of products in avariety of different surgical applications. TSL's primary strategy to achievethis aim has been to form a distribution network through agreements withmarketing partners, each of whom have a strong, focused sales and marketingpresence in their respective fields. As an alternative sales channel, whereappropriate, TSL has used independent specialist manufacturers' representatives(commission-only) to distribute its products directly to surgeons.The Company's business model has progressed to a point where the existingproducts have established a firm foothold in both the urology/gynaecology andgeneral surgery markets, with sales growing strongly year on year. EnduragenTMfor head and face applications has been launched recently through Porex.Following a successful pre-marketing evaluation by its partner, Zimmer, TSL ispositioned to enter the orthopaedic market in February 2005. The Board islooking forward to continuing to deliver on its successful sales growthstrategy.A summary of TSL's target markets, product names and distribution channels islaid out below: Application Market Approx. Brand Name Distribution Channel Market SizeUrology /Gynaecology Global $165m PelvicolTM CR Bard PelviLaceTM PelviSoftTM Hernia US $120m Permacol(R) 'Commission-only' sales Surgical team and distributors Implant Hernia UK/ $70m Permacol(R) TSL/National Europe Surgical distributors Implant Orthopaedic Global $150m Zimmer Collagen Zimmer Repair PatchTM Head and North $65m EnduragenTM PorexFace America Reasons for the Fundraising Since the Company was admitted to AIM, development expenditure has averaged only£1.3m per annum. Despite this limited spend, the development and marketing teamhave established a track record in bringing in products from concept throughdevelopment to launch, which include Permacol(R) Injection (Permacol(R)suspended in solution to form an injectable collagen), PelvisoftTM (a meshedform of Permacol(R) used in vaginal reconstruction) and PelivLaceTM (aself-anchoring urethral sling for the treatment of incontinence). As a result ofthe sales efforts in the current operational channels, revenues have grown at acompound annual growth rate of 72 per cent since admission to AIM in December2001. The Board believes that increased returns should be available in the short tomedium term if further investment is made in marketing of current products andproduct line extensions, as well as additional investment in product andpipeline development. A recent internal review has identified a range of futureproduct and market opportunities. The proposed product development expenditurewould be primarily targeted in applications where TSL already has market access,and/or where existing core technology can be extended. Proposed Use of Proceeds 1. Sales and Marketing - £1.7mGood initial sales in general surgery have been achieved in certain states ofthe US using the commission-only model. TSL has experienced 100 per cent growthin 2004 sales in the US and believes that greater penetration of key accountsand territories could be achieved through recruitment of a direct sales team.TSL aims to build a team of 20 salespersons over the course of 2005 which wouldsupplement the Company's existing commission-only sales representatives, andbelieves that greater control of its sales team should result in faster marketpenetration.In addition, TSL would like to increase its spend on: • clinical studies in hernia applications to support its marketing effort;• opinion leader programmes in the US, including a programme led byProfessor Norman Williams, one of Europe's leading surgeons at St.Bartholomew's and the Royal London School of Medicine and Dentistry; and• regular sales representative training. It is intended that these initiatives would support the sales team in achievingwider and more rapid penetration of the Company's target markets for bothexisting and new products. 2. Product development - £2.5mLine extensions and acceleration of current development programmes:TSL is currently developing a number of line extensions and, with additionalfunding, the Board would like to accelerate the development time and marketingefforts for such programmes. As well as simple line extensions, such as Permacol(R) sheet size or thickness changes, other line extensions requiring furtherdevelopment funding are: (i) Stoma RepairStomas are surgically created openings often referred to as ostomies whereportions of the bowel are redirected through the abdominal wall. Waste materialfrom the bowel is collected in ostomy bags that are secured on the outside ofthe patient's abdomen. A water tight seal has to be made between the bag and thepatients' skin to prevent leakage of waste material. A significant proportion ofstomas (c.47 per cent) are affected by herniation, often requiring correctivesurgery or the re-siting of the stoma. TSL considers that there are threeopportunities in this area:• Therapeutic stoma repair - The Board believes that Permacol(R) should beeffective in the repair of herniated stomas. TSL plans to allocate fundsraised from the Placing and Open Offer to extend clinical studies in the USwhich it believes should support the marketing of the product in thisapplication.• Prophylactic stoma reinforcement - The Board also believes that Permacol(R) could be used at the point of stoma creation to prevent or reduce theoccurrence of subsequent herniation. Some of the proceeds from the Placingand Open Offer will be used in trials to demonstrate the clinical efficacyof Permacol(R) used in this way.• Parastomal wrinkles - The area around the ostomy site (i.e. parastoma)may have wrinkling or guttering of the skin which compromises the sealbetween the ostomy bag and the skin and any leakage between the two maypotentially lead to infection and breakdown of the ostomy site. In suchcircumstances, the application of Permacol(R) Injection to the parastomalsite should smooth out the skin allowing correct positioning and sealing ofthe ostomy bag. (ii) Urethral Bulking Agent (UBA) InjectionOn the basis of a recent report commissioned by TSL on the female stress urinaryincontinence market in the US, the Board considers that the market for UBAs iscapable of producing significant revenues for an effective UBA product. CR Bardrecently acquired certain assets of Genyx Medical for $60 million relating toUryx(R), which is a synthetic implantable bulking agent for stress urinaryincontinence and recently approved by the FDA for sale in the US.TSL has completed a large-scale double blinded clinical study in Europe insupport of European marketing of its UBA product, Permacol(R) Injection. Theresults of this study are expected to be published during the second quarter of2005. The Company now wishes to conduct a PMA study in the US to support anapplication for regulatory approval for Permacol(R) Injection in that market.The Company believes that with additional resources available, patientrecruitment and completion of a PMA study can be accelerated and should enablethe Company to bring forward negotiations with potential marketing partners. (iii) Reconstruction InjectionTSL is currently conducting a clinical study at Glasgow University of itsreconstruction injection, a filler designed to enhance facial dermal contours.The study is an 80 patient trial looking to compare TSL's products with twocompeting products. It is designed to show equivalence or superiority tocompeting products as a dermal filler in reconstructive and facial applications.Interim analysis of the study data is anticipated to be available in the secondquarter of 2005. Part of the proceeds of the fundraising may be used to startclinical trials to support a PMA application whilst progressing discussions witha potential marketing partner. 3. Pipeline Development - £2.1mTSL has performed initial proof of concept work to demonstrate that theCompany's core technology is capable of processing other porcine tissues such asbone, ligament/tendon and blood vessels. The Company wishes to accelerate thesedevelopment projects to establish proof of principle (i.e. the demonstration ofpre-clinical performance). (i) Bone FillerBone fillers are used where the availability of suitable bone for harvesting islimited or where there is insufficient quantity to fill large defects. In thesesituations, the orthopaedic surgeon requires some form of bone filler, either to'bulk out' the available autograft material or to use in isolation as the graft.A substantial number of bone grafts are carried out using cadaveric-derivedmaterial. The Company is targeting this market in order to provide analternative bone filler which is a sterile, acellular, cross-linked bone-derivedcollagen implant capable of providing a scaffold to aid vascularisation andeventual integration and repair of critical and non-critical bone defects.The market size for allograft bone filler is estimated by the Company to be$250m per annum in the US and is estimated to be growing at 20 per cent perannum. The Company estimates that a proof of principle should take approximatelyone year to complete. Market access in the US would be made via a 510(k)clearance. In order to gain similar access to the European markets, a CE Mark isrequired. (ii) Ligament RepairAnterior cruciate ligament (ACL) reconstruction is a surgical procedure torestore full function of a knee post ACL rupture. Current procedures involveremoving the torn, or partially torn ACL, and replacing it either with aligament or tendon harvested from the patient or with a preserved tendon orligament from a cadaveric source. Ligaments or tendons from the patient forthese grafts are generally harvested from the leg and can lead to pain andextended recovery time due to the creation of a second surgical site.The use of donor ligaments from cadaveric sources overcomes this problem, butcan introduce the potential risk of serious infection transmission.Alternatively, synthetic grafts could be used, however their use is limited as aresult of problems associated with such grafts fragmenting over time.In the US alone, there are over 250,000 ACL injuries every year. As such, theBoard believes that there is a significant opportunity in the ligament repairmarket. A regulatory precedent for porcine tissue has recently been establishedby another medical technology company which has obtained permission from the FDAto start a controlled double-blind pivotal study in 2005.TSL hopes to show that removal of non-collagenous proteins and cells fromporcine ligament can be achieved via its core technology without significantlyaltering the inherent strength and elasticity of the tissue. If successful, thiswould yield a natural product which negates the need for additional surgery toharvest replacement tissue and eliminates the associated risk of diseasetransmission from cadaveric tissue.It is estimated by the Board that demonstration of proof of principle will takeapproximately two years from project initiation. The regulatory route to marketwould be via a PMA in the US. (iii) Vascular GraftsBlood vessels contain a high proportion of collagen and elastin and the Boardbelieves that there are potential opportunities for processing porcine vesselsusing TSL's core technology. Vascular grafts are used for the treatment of manyvascular disorders, including coronary artery bypass grafts and arteriovenousaccess grafts. Current synthetic graft materials have performance limitationsand surgeons are looking for alternatives to the products currently available.It is estimated by the Board that demonstration of proof of principle will takeapproximately two years from project initiation. The regulatory route to marketwould be determined by the surgical application targeted.In the US, the market for coronary artery bypass grafts is currently over500,000 patients per annum and 50,000 patients per year require peripheralvascular grafts.The potential products envisaged under these programmes are at a very earlystage, and as such potential issues (such as patentability) have not yet beenaddressed. 4. Manufacturing Development and Capital Expenditure - £1.2mThe costs associated with leasing and fitting out additional manufacturingfacilities are expected to be partly financed from the proceeds of the Placing.In addition, the Board wishes to make investments in manufacturing efficienciesand the scaling-up and modification of TSL's current manufacturing process toprepare for the potential launch of future new products. Intellectual Property The Directors believe that the protection of TSL's intellectual property isfundamental to its commercial strategy. Accordingly, the Company seeks toprotect its intellectual property where appropriate. Although this is doneprincipally by way of patent protection, the Company also relies on theconfidentiality of its manufacturing information and know-how and pursuestrademark and other protection where appropriate. Specifically, patents have been granted for the tissue implant technology. Inthe US, the relevant patent is due to expire in 2012. Patents granted in the UK,Australia, South Africa and Japan are due to expire on 23 May 2005 and on 25September 2006 in Canada. However, the Directors believe that the difficulty inreplicating the complex manufacturing process, and of TSL's clinical data (theinformation in respect of which TSL regards as proprietary and confidential)generated to date, will provide significant barriers to entry for any potentialcompetitor in Europe. The TSL technology was developed over many years ofresearch by the inventors which led to the granting of the UK, US and otherpatents on the technology. Subsequently, TSL has invested significant funds,expertise and know-how into translating the patented technology into acommercial manufacturing process and products. This involved significantinvestment in the fabrication of facilities and equipment, recruitment andretention of experienced staff, commissioning, validation and approval of thefacilities and equipment, pre-clinical testing of the product, obtainingregulatory approvals, generation of clinical data and establishment of saleschannels. Patents have also been granted in respect of TSL's injectable collagenous tissuecompositions in Australia, Europe (validated in Austria, Belgium, Cyprus,Denmark, Finland, France, Germany, Greece, Ireland, Italy, Netherlands,Portugal, Spain, Sweden, Switzerland, Liechtenstein and the UK) and Hong Kong,which are all due to expire in 2019. The US and Japan patent examinations areunderway. Typically, TSL's patent applications are filed with the UK Patent Office inorder to establish a priority date and foreign applications are filed on acountry by country basis, or where appropriate, by using the Patent CooperationTreaty route. Patent submissions on novel features of the Company's technologiesare at different stages of maturity as they progress through the applicationprocess in various jurisdictions. The Company intends to pursue further patentapplications on an ongoing basis, to protect enhancements and new embodiments ofits technologies and techniques. Preliminary Results and Outlook The Company today announced its audited preliminary results for the year ending31 December 2004 which are set out in full at Part III of this document.The Directors remain confident that 2005 will be another year of significantprogress for TSL. Overseas Shareholders The attention of Shareholders who have registered addresses outside the UnitedKingdom, or who are citizens or residents of countries other than the UnitedKingdom, is drawn to paragraph 6 of Part II of this document. Taxation Certain information on United Kingdom taxation of capital gains and dividends,stamp duty and stamp duty reserve tax with regard to the Placing and Open Offeris set out in paragraph 14 of Part VI of this document. Enterprise Investment Scheme (EIS) The Inland Revenue has informally indicated, based on information provided thatthe Company should meet the relevant company conditions under Chapter III PartVII Income and Corporation Taxes Act 1988. The Directors believe the currentstructure and activities of the Company should enable it to meet therequirements of a qualifying company under the EIS legislation, although noundertakings can be given as to the Company's future activities or structure.In order for the shares to be qualifying shares certain detailed conditions mustbe satisfied by the company issuing the shares. In addition, the individualinvestor must qualify as an individual entitled to the relief under the EISrules. The EIS scheme was introduced to encourage investment in companies byproviding for relief from income tax in respect of certain investments at 20 percent of the amount subscribed for in qualifying shares up to the annualsubscription limit, currently £200,000 and relief from capital gains tax on adisposal of the EIS shares held by the investor. Subject to various time limitscapital gains tax deferral is also available where sale proceeds are reinvestedin EIS qualifying investments. The availability of these investment reliefsdepends upon, amongst other things, the circumstances of the investor and theCompany continuing to satisfy the requirements of being a relevant company. TheCompany does not make any representations as to whether any such investment willbe or will continue to be one in respect of which relief under the EISlegislation will be available. Venture Capital Trusts (VCT) The Inland Revenue has informally indicated, based on information provided, thatthe Company should for VCT purposes meet the relevant company conditions underSchedule 28B Income and Corporation Taxes Act 1988. The Directors believe thecurrent structure and activities of the Company should enable it to meet therequirements of a qualifying company under the VCT legislation, although noundertakings can be given as to the Company's future activities or structure.In order for a company to be a relevant company for a VCT qualifying holding,certain detailed conditions must be satisfied by the company issuing the shares.The VCT scheme was introduced to encourage investment in companies by VCTs byproviding for relief from income tax in respect of certain investments in VCTs(at 40 percent of the amount subscribed for in VCT shares up to the annualsubscription limit, currently £200,000) and relief from capital gains tax on adisposal of the VCT shares held by the investor. In addition, subject tocomplying with the applicable legislation, the VCT should not be charged to taxin respect of any gain realised on the disposal of Ordinary Shares.The availability of these investment reliefs depends upon, amongst other things,the circumstances of the investor and the Company continuing to satisfy therequirements of being a relevant company. The Company does not make anyrepresentations as to whether any such investment will be or will continue to beone in respect of which relief under the VCT legislation will be available.If you are in any doubt as to your tax position, or if you are subject to tax ina jurisdiction other than the United Kingdom, you should consult yourprofessional adviser without delay. CREST Qualifying Shareholders with a CREST participant ID and member account ID willbe able to take up New Ordinary Shares in uncertificated form. For QualifyingShareholders who wish to receive New Ordinary Shares in certificated form, it isexpected that definitive share certificates will be despatched by 24 March 2005.Pending receipt of certificates in respect of such New Ordinary Shares,transfers will be certified against the register of members. Action to be takenQualifying Shareholders will find enclosed an Application Form for use inconnection with the Open Offer. Should you wish to apply for any New OrdinaryShares under the Open Offer, you should complete the Application Form inaccordance with the instructions thereon and return it, together with theappropriate remittance, by post or by hand (during normal business hours) toCapita Registrars, Corporate Actions, PO Box 166, The Registry, 34 BeckenhamRoad, Beckenham, Kent, BR3 4TH so as to arrive no later than 3.00 pm on 17 March2005. Further informationYour attention is drawn to the further information set out in Parts II to VI ofthis document. RecommendationYour Directors believe that the Placing and Open Offer are in the best interestsof TSL and its shareholders as a whole. Yours sincerely, Patrick PaulNon-Executive Chairman This information is provided by RNS The company news service from the London Stock Exchange