Circ re. Proposed Capital Reduction

8 July 2013

Stilo International plc

("Stilo" or the "Company")

Proposed Capital Reduction to enable resumption of dividendsNotice of General Meeting

Stilo International PLC (AIM: STL.L), the provider of XML content processing technology and cloud content conversion services, has today announced that it is seeking Shareholder approval for the Capital Reduction, to then enable the Company to consider the payment of dividends, or to make other forms of distribution to Shareholders.

The Company has sent a Circular and Notice of General Meeting to Shareholders in connection with the proposals to carry out a capital reduction, details of which are set out below.

Purpose of the Capital Reduction

It was pleasing to report a third consecutive year of profitable growth in the year to 31 December 2012. And while the Board considers it highly desirable that the Company has the maximum flexibility to consider the payment of dividends and otherwise return value to its shareholders the Company is unable currently to return profits or cash to Shareholders, either through the payment of dividends or by other means of distribution.

During the Company's early years of development it accumulated considerable losses. The Company has generated cash and profits in four of the last five years, and the prospects for the business continue to look encouraging. However, the Company is generally precluded from the payment of any dividends or other distributions, or the redemption or buy back of its shares, in the absence of sufficient distributable reserves. The deferred share capital and the Share Premium Account can be applied by the Company only for limited purposes.

The Company's issued share capital currently consists of 109,808,470 ordinary shares of 1.0 pence nominal value and 452,056,230 deferred shares of 1.0 pence nominal value. The Company's Share Premium Account currently stands at approximately £5,524,000 and the Company as at 31 December 2012 had a retained earnings deficit of approximately £(9,782,000).

It is proposed that all the Deferred Shares and all of the Share Premium Account be cancelled.

The purpose of the Capital Reduction is to eliminate the deficit on the Company's profit and loss account and to create distributable reserves in the Company to facilitate the future consideration of payment of dividends to shareholders, where justified by the profits of the Company, or to allow the redemption or buy back of the Company's shares. As the Company currently has negative distributable reserves, in order for the Company to have the ability to return money to Shareholders including by way of dividends or carrying out buy backs of the Company's shares it is necessary to effect the Capital Reduction.

If the Capital Reduction is approved by Shareholders at the General Meeting, it will be subject to the scrutiny of, and confirmation by, the High Court and, subject to that confirmation, is expected to take effect in September 2013. Assuming that there is no material change in the financial position or prospects of the Company, and subject to the Court process, the Board anticipates that the Capital Reduction will result in the creation of distributable reserves of approximately £262,562.

Capital Reduction - Deferred Shares

As at the date of this document, the Company's issued share capital included 452,056,230 deferred shares of 1.0 pence each nominal value. The nominal value of the Deferred Shares is part of the capital of the Company and is not distributable.

The Deferred Shares arose as a result of a reorganisation of the Company's share capital in 2004. At an extraordinary general meeting held on 26 March 2004, the Company's shareholders voted in favour of sub-dividing each of the Company's then issued ordinary shares of 10 pence each into one new ordinary share of 1.0 pence each and nine deferred shares of 1.0 pence each.

The Deferred Shares were introduced essentially as a technical device to deal with the consequence of reclassifying the ordinary shares of 10 pence each into ordinary shares of 1.0 pence each. The Deferred Shares carry only very limited rights to participate in the capital of the Company on a winding-up and carry no voting or dividend rights. These rights are such as to make the Deferred Shares effectively worthless in the hands of their holder. However, in the Company's books, the capital paid up on the Deferred Shares represents a capital reserve of £4,520,562.30, being the aggregate nominal value of all of the Deferred Shares. Cancelling the Deferred Shares with the prior approval of Shareholders by way of a special resolution and subsequent confirmation by the High Court will remove them from the Company's balance sheet and permit an amount of £4,520,562.30 to be used to partially offset the accumulated deficit on the Company's profit and loss account.

Article 4.4 of the Articles gives the Company authority (subject to the Act and the Articles) to transfer all of the Deferred Shares to such person(s) as the Company may determine. Prior to the General Meeting it is intended that all of the Deferred Shares will be transferred to the Company's Chief Financial Officer and Company Secretary, Richard Alsept, who has confirmed to the Company that he will give his consent to the cancellation of the Deferred Shares as part of the Capital Reduction.

Capital Reduction - Share Premium Account

Currently the Share Premium Account of the Company stands at a sum of approximately £5,524,000, which arose on the issue of shares at a premium. Share premium is treated as part of the capital of the Company and arises on the issue by the Company of shares at a premium to their nominal value. The premium element is credited to the Share Premium Account.

In accordance with applicable law and accounting standards, the share premium account is a non-distributable capital reserve and, pursuant to relevant provisions of the Act, the Share Premium Account is treated for most purposes as part of the permanent capital of the Company. However, with the approval of its shareholders by way of a special resolution and subsequent confirmation by the High Court, a company may reduce or cancel its share premium account and in certain circumstances credit some or all of such sum arising to its profit and loss account.

To the extent that the release of such a sum from the Share Premium Account creates or increases a credit on the profit and loss account, that sum represents distributable reserves of the Company.

Capital Reduction - Procedure 

In order to effect the Capital Reduction the Company requires the authority of its shareholders by the passing of a special resolution at the General Meeting to be held at the offices of Baker Tilly, 2 Bloomsbury Street, London WC1B 3ST at 11.30a.m. on 31 July 2013. Subject to passing of the first resolution, the General Meeting will then consider a second Special Resolution to amend the Articles as necessary for the purposes of the Capital Reduction.

The Capital Reduction must then be confirmed by the High Court, to which the Company will make an application if the Resolutions are passed at the General Meeting.

The Capital Reduction will take effect when the Order of the High Court confirming it and a statement of capital approved by the High Court have been registered with the Registrar of Companies. The Effective Date of the Capital Reduction is currently expected to be during September 2013. 

The Board reserves the right (where necessary by application to the High Court) to abandon, discontinue or adjourn any application to the High Court for confirmation of the Capital Reduction, and hence the Capital Reduction itself, if the Board believes that the terms required to obtain confirmation are unsatisfactory to the Company or if as the result of a material unforeseen event the Board considers that to continue with the Capital Reduction is inappropriate or inadvisable.

The Capital Reduction does not affect the voting or dividend rights of any Shareholder, or the rights of any Shareholder on a return of capital.

Recommendation

The Board considers that the passing of the Resolutions to be proposed at the General Meeting is in the best interests of the Company and its Shareholders as a whole. Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolutions as the Directors intend to do in respect of their own beneficial shareholdings totalling 16,400,000 Ordinary Shares, representing approximately 14.9 per cent. of the Company's issued Ordinary Share capital as at the date of this announcement.

Enquiries:

Stilo International plc 01793 441444

Leslie Burnham, Chief Executive Officer

Richard Alsept, Chief Financial Officer and Company Secretary

Charles Stanley Securities 020 7149 6000

Nominated Adviser

Russell Cook / Carl Holmes

The Circular is available on the Company's website http://www.stilo.com/investor-news/

Expected timetable of principal events

Definitions

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