Lb-Shell PLC Regulatory News (LBP)

17 May 2016

Intelligent Energy Holdings plc (the "Company")

Issue of convertible loan notes and proposed waiver of Rule 9 of The City Code on Takeovers and Mergers

Further to its announcement on 4 April 2016 of its intention to implement a material restructuring of its business, the Company announces that it has agreed the terms of a £30.0 million gross fundraising through the issue of convertible loan notes ("Convertible Loan Notes") (the "Fundraising").

Under the terms of the Fundraising, the £30.0 million gross financing has been irrevocably secured from the Company's largest shareholder, Meditor. In addition, Meditor has permitted the Company to seek additional qualifying investors to subscribe for up to a maximum of £14,999,999 in aggregate of the Convertible Loan Notes, and to the extent such additional subscribers are found, those subscriptions will reduce the number of Convertible Loan Notes taken up by Meditor, by a corresponding amount. Such additional subscribers shall be sought on the basis of an accelerated timetable (which has been agreed with Meditor) and accordingly there will be a limited timeframe in which qualifying investors can subscribe. The terms negotiated with Meditor, are, in the opinion of the Directors, the best possible in the circumstances.

Subject to the passing by Shareholders of the Resolutions at the General Meeting, the Convertible Loan Notes shall be capable of being converted, at the option of the Convertible Loan Note holder(s), into Ordinary Shares in the Company at a conversion price of 8 pence per New Ordinary Share at any time up until 17 May 2019.

Shareholder approval for Rule 9 Waiver

On the assumptions that all of the Convertible Loan Notes held by Meditor are converted, no other Convertible Loan Note holders exercise their conversion rights and the Reinvestment Shares are issued, Meditor would hold between 58.9 per cent. and 72.2 per cent. of the then issued share capital of the Company (depending on the level of subscriptions for the Convertible Loan Notes by other investors). This would give rise to certain obligations under the Takeover Code, which are further described below. In light of such potential consequences, a Rule 9 Waiver is to be sought in relation to Meditor. Such waiver requires, inter alia, the passing of the Rule 9 Waiver Resolution at the General Meeting.

Implications if the Resolutions are not passed

In the event that the Resolutions are not passed by 30 June 2016, the Company will still retain the £30.0 million gross funding. However, in order to compensate for the inability to convert the Convertible Loan Notes, the principal to be repaid under the Convertible Loan Notes would increase from £30.0 million to £42.0 million and the interest rate would increase (with retrospective effect from the date of issue of the Convertible Loan Notes) from 13.0 per cent. per annum to 18.2 per cent per annum. Should Shareholder approval for the Rule 9 Waiver Resolution not be obtained by this date, but the other Resolutions be approved, then the above increases will apply only to the Convertible Loan Notes issued to Meditor.

Further background

A Circular convening the General Meeting will be published in due course. A further announcement will be made at the appropriate time.

Further details of the Convertible Loan Notes, the Fundraising, the revised strategy of the Company and the Rule 9 Waiver are set out below.

The Board believes that the funding proposal from Meditor is the only credible option which provides the quantum of funding required (in the timescales that were available) to ensure that the Company could continue as a going concern.

Without the Fundraising it is likely that the Company would no longer have been a going concern and that the Board therefore would have had little option other than to place the Company into administration. In such circumstances it is uncertain whether there would have been any material value attributable to Shareholders.

The Company has received irrevocable undertakings from each of Meditor and GIC Private Limited to vote in favour of certain of the Resolutions. For Resolutions, other than in respect of the Rule 9 Waiver, the irrevocable undertakings represent 49,713,744 Ordinary Shares and 26.4 per cent. of the Ordinary Shares as at the close of the last Business Day immediately preceding the date of this announcement. For the Rule 9 Waiver Resolution, where Meditor may not cast its votes, the irrevocable undertakings represent 21,784,928 Ordinary Shares and 13.6 per cent. of the Ordinary Shares which are permitted to vote as at the close of the last Business Day immediately preceding the date of this announcement.

The Directors unanimously recommend that Shareholders vote in favour of all the Resolutions.

There can be no guarantee that the Shareholders will pass the Resolutions. If the Resolutions are not passed, then the Board believes that the Company would not be able to meet the resultant level of increased payments and would therefore no longer be a going concern. In this circumstance, the Board would have little option other than to place the Company into administration immediately.

Conference call

There will be a Conference Call for existing shareholders of Intelligent Energy Holdings plc with the CEO and CFO at 8.30 AM today (17 May 2016). No new information (beyond that included in this announcement) will be made available on that call.

To participate, please either access the live webcast (using the webcast link: http://edge.media-server.com/m/p/fitazh2b) or call the teleconference number below.

Please begin placing your calls at least 5-10 minutes before the conference call commences.

Teleconferencing Number and Access Code

· Confirmation Code: 9673404

· Telephone: +44 (0) 20 3427 1910

Enquiries:

Stifel Nicolaus Europe Limited, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting exclusively for the Company and no one else in connection with the proposals set out in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to clients of Stifel nor for providing advice in relation to the matters referred to herein. No liability whatsoever is accepted by Stifel for the accuracy of any information or opinions contained in this announcement or for the omission of any material information, for which it is not responsible.

Background to and reasons for the Fundraising

As most Shareholders will be aware, towards the end of March 2016, the Company was extremely short of funds. The Company failed to make the expected progress in implementing its strategic plans in 2015 and in the first quarter of 2016 and on 4 April 2016 announced via RIS that it proposed to implement a material restructuring of its business.

Since that announcement, the Company has been exploring multiple options to secure financing to provide it with sufficient working capital to continue as a going concern. As at 30 April 2016, the Company had net consolidated cash resources of approximately £5.4 million which, at its current cash burn rate and including the costs of the announced restructuring, would have provided funding only until early June 2016.

Despite multiple discussions with potential providers of funds, the Board believes that the funding proposal from Meditor is the only credible option which provides the quantum of funding required (in the timescales that were available) to ensure that the Company could continue as a going concern. The terms negotiated with Meditor, in the opinion of the Board, are the best possible in the circumstances and also reflect prevailing market conditions.

Without the Fundraising it is likely that the Company would no longer have been a going concern and that the Board therefore would have had little option other than to place the Company into administration. In such circumstances it is uncertain whether there would have been any material value attributable to Shareholders.

Details of the Fundraising

The Convertible Loan Notes issued pursuant to the Fundraising have the following principal terms:

For leading the Fundraising, Meditor will receive an arrangement fee of £2,250,000 (in cash) immediately following the execution of the Subscription Agreement (the "Arrangement Fee"). In order for the Company to secure the Fundraising, the Arrangement Fee was agreed to as these were the only terms on which Meditor was willing to provide financing.

Subject to Shareholder approval of the Resolutions, Meditor has agreed to reinvest £1,125,000 of the Arrangement Fee by way of a subscription for 14,062,500 New Ordinary Shares at a subscription price of 8.0 pence per New Ordinary Share (being the "Reinvestment Shares"). The Reinvestment Shares will rank pari passu in all respects with the existing Ordinary Shares.

Following the allotment and issuance of the Reinvestment Shares (and prior to any conversion of the Convertible Loan Notes), Meditor would hold 20.75 per cent. of the Company's share capital. Application will be made for the Admission of the Reinvestment Shares.

The Fundraising, assuming full conversion of the Convertible Loan Notes and issue of all of the Reinvestment Shares, will result in dilution of 67.4 per cent. of the holdings of Shareholders not participating in the Fundraising. Due to the time and regulatory constraints in relation to the Fundraising, the Company has not been able to offer the Convertible Loan Notes more widely to its Shareholders.

Terms of the Subscription Agreement

Pursuant to the terms of the Subscription Agreement, Meditor has committed to subscribe for up to £30,000,000 of the Convertible Loan Notes. In the event that other qualifying investors are procured to subscribe for Convertible Loan Notes, Meditor's take up of the Convertible Loan Notes will be correspondingly reduced, save that Meditor shall always take up a minimum of £15,000,001 of the Convertible Loan Notes.

Terms of the Equitable Charge

The security for the Convertible Loan Notes comprises a first fixed charge over the shares held by the Company in Intelligent Energy Limited, granted in favour of The Law Debenture Trust Corporation plc (the "Security Trustee"), acting on behalf of all of the holders of the Convertible Loan Notes.

The Equitable Charge contains standard provisions relating to, amongst other things: (i) the Company's covenant to pay the secured liabilities; (ii) representations and undertakings given by the Company as to, for example, its ownership of the secured assets; (iii) the Company's dealings with the secured assets, including restrictions on further security; and (iv) enforcement.

The Equitable Charge is enforceable at any time after the occurrence of an event of default that is continuing. In summary, the Convertible Loan Note Instrument provides that an event of default will occur if the Company:

· is the subject of any insolvency proceedings or any security-enforcement action, or is deemed insolvent under the Insolvency Act 1986; or

· stops or threatens to stop payment of its obligations generally or to carry on its business; or

· sells any shares in Intelligent Energy Limited, or Intelligent Energy Limited issues any securities to a third party; or

· does not manage its intellectual property portfolio in the manner set out in the Convertible Loan Note Instrument; or

· commits a material breach of the terms of the Convertible Loan Note Instrument which is not remedied within 14 days, or repudiates any of the security documents.

Upon an event of default, the holders of Convertible Loan Notes must consult with one another for 10 Business Days to try to agree how to manage the default. If they fail to agree a solution, any holder of Convertible Loan Notes can accelerate its own Convertible Loan Notes, and a majority by value of holders of holders of Convertible Loan Notes can instruct the Security Trustee to enforce the security.

Enforcement of the Equitable Charge is also governed by the terms of a security trust deed entered into by the Company, the holders of Convertible Loan Notes and the Security Trustee.

Use of Proceeds

The net proceeds of £27.2 million will be used for working capital purposes, including to cover restructuring costs (principally arising as a result of headcount reduction) and the ongoing cash requirements of the business. The proceeds from the Fundraising will not be used for the GTL Transaction (other than in respect of the payment of certain professional fees incurred in connection with the potential consummation of that transaction).

Current trading for Intelligent Energy and prospects for the Group

Overview

Following an extensive review, on 4 April 2016 the Company announced that it proposed to implement a material restructuring of its business. The objective of the restructuring is to focus the business on what the Directors believe to be the Company's material growth opportunities, whilst substantially and sustainably reducing the Company's cost base and cash burn.

Following the restructuring, the Company will focus its activities on its Air Cooled ("AC") technology, as the Directors believe that it is more mature and less costly to commercialise and is applicable to a wider range of applications than the Company's Evaporatively Cooled ("EC") technology. The Directors also believe that the markets currently addressed by the AC technology platform require less enabling infrastructure to be deployed and that the AC technology is much closer to commercial traction and market deployment than the EC technology.

Consistent with this strategy, the proposals include the simplification of the Company's organisational structure, the reduction of the number of jobs across several locations in which the Company operates and the closure of some office locations.

Target markets - a number of near term opportunities and a continuing focus on DP&G

The Company's AC technology platform, with a power range from sub 1W to 20kW, is targeted towards small to medium-sized applications to power a range of off-grid devices where the cost of power is typically high. These include small embedded devices, medium sized auxiliary power units and range extenders (targeted at end markets including drones and motive applications) with a particular emphasis on Distributed Power and Generation ("DP&G") systems.

Over recent years, the Company has actively pursued the introduction of its AC technology into the distributed power sector in emerging markets where the lack of reliable power can be a restriction on economic growth. The Company currently has a small number of pilot hydrogen fuel cell systems in the field which provide primary and back-up power for a number of mobile telecom towers in India, with nearly 19MWh of clean electricity generated to date. Diesel generators are currently the main power source for distributed power in this area but are costly to run and emit high levels of CO2, NOx and harmful particulate emissions. In contrast, hydrogen fuel cells are expected to be more efficient, more economical to use at scale, produce no harmful emissions and emit little noise.

In particular, the Company has focused on working towards a business plan to supply power to the growing telecommunications market in India. The first stage of this is a contract which commenced in late August 2014 to provide, on an interim basis, certain power management services to mobile telecom towers in India (initially for 10,000 towers and, from April 2015, for over 26,000 towers).

On 30 September 2015, the Company announced, but has yet to complete, a transaction to acquire the energy management business of GTL Limited in India (the "GTL Transaction"). The GTL Transaction remains conditional on securing funding as the proceeds of the Fundraising will be retained for the Company's own working capital purposes. The Company continues in its discussions to secure separate financing for the consummation of the GTL Transaction. The initial deadline for satisfying conditions for the GTL Transaction (including securing funding) has passed but the Company remains in discussions with GTL and as at the date of this announcement the Company has not received formal notice of termination of the GTL Transaction. The Company has appointed Hannam & Partners (Advisory) LLP to advise on and explore funding options for the GTL Transaction. There is, however, no guarantee that the GTL Transaction will be completed, either in its previously envisaged form or at all.

In the meantime, operational costs will be incurred separately in respect of the current Indian-based activities of the Company.

In parallel with a new focus on the AC technology platform, the Company plans to review the scope of some existing and target contracts to ensure that they individually (and collectively) align with the Company's revised commercial strategy.

Product development - sequential market approach, standardised AC products

The Company is to focus on short to medium term product development, which will mean a material reduction in efforts targeted at longer term opportunities. In addition, as part of the revised approach, the Company will no longer parallel track multiple technology developments (as it has done in the past) unless there are compelling and fully funded reasons to do so. The focus on a shared AC platform for targeted applications offers the prospect of reducing manpower and capital requirements whilst preserving the ability to develop a number of new market opportunities.

The Company will also restrict the development of highly customised products which can be expensive to develop. The Company will instead focus activities on a series of standardised products based on its core AC technology.

Given its funding requirements, the Company is considering strategic options for its investment in its 50/50 joint venture with Hydro Industries Limited which was set up to provide water purification in India.

Internal organisation - resized for new strategy, efficiency and reduction of cash burn

As part of the proposed restructuring, and to align the business with the revised strategy, it is proposed that a number of organisational changes be made across the Company. These include the simplification of the organisational structure, a reduction of approximately 200 jobs across several locations (mainly in the UK) and the closure of certain of the Company's offices.

To simplify the way the Company operates, it is proposed that the current divisional structure (which is built around customer segments) will be replaced by an organisation built around core functional/skills groups. Broadly, whenever possible, the reshaped technology and product engineering team is expected to be more focused on customer funded programmes. The reshaped sales and marketing/commercial teams are expected to focus on winning nearer-term, scalable and profitable business. The business support functions including operations, finance, HR and the executive management team will be re-shaped and resized to align with the new organisation.

The Board believes that this new organisational structure will be operationally efficient and should result in a rapid and significant decrease in cash burn with monthly operating expenditure targeted to reduce substantially by the end of the calendar year, which is anticipated to be in line with the proportionate headcount reduction.

Production ramp up under licence - commonality of components, building on experience

The AC technology benefits from a relatively small and simple set of components surrounding the core fuel cell stack (the 'balance of plant') and also shares several common components with existing products in some well-established industries. This has benefits in terms of product reliability and, as volumes increase, cost reduction.

In addition, the AC technology has benefited already from historical ramp-up and de-risking of production related activities carried out by the Company and its partners since early 2012. Initially, this was through the transplantation of the Company's AC manufacturing technology into its joint venture with Suzuki and, more recently, through the enablement of a contract manufacturer for the volume manufacturing of handheld charger products for their sale in UK Apple Stores. The Company believes that these relatively recent activities have materially reduced future production and ramp-up related risks for the further development of a standardised platform of products based on its AC technology and to get them to a stage whereby they can be manufactured at scale by third party organisations (as the Company has demonstrated through its transferring of fuel cell technology to other organisations for them to manufacture the Company's systems).

EC technology - development "on hold" until scalable and profitable opportunities arise 

The Company has been developing EC power systems targeted towards, what is still expected to be, a large end market for automotive fuel cells. The Company's demonstration of power densities at stack level creates certain cost efficiencies, as higher power densities can mean lower overall system costs as volumes increase. In addition, with the right degree of cost reduction and technology maturity, the Company believes that its EC technology is also applicable to higher power DP&G applications, which would complement the Company's lower power AC technology offering.

When compared with the AC technology however, the Company believes that its EC technology is resource intensive and requires substantially more effort to integrate into products. It will also require further substantial investment to bring it to the same degree of maturity as the Company's AC technology. Furthermore, higher power fuel cell systems are typically used as the main power supply ('the engine') for vehicles. As a result, car OEMs require a bespoke approach to EC development, driven by the performance and cost specification of their specific vehicles, which results in expensive and manpower intensive development programs.

Accordingly, the Company believes that the development of its EC technology will progress in line with cost reductions driven by increases in overall OEM fuel cell vehicle volumes. Such volumes are expected to grow with increased deployment of vehicle refuelling infrastructure. This means however, that the growth in fuel cell vehicle volumes, and, therefore, deployment of the Company's EC technology, is likely to be slower than in the markets addressed by the Company's AC technology platform (where infrastructure needs are materially lower).

As a result of these factors, the Company has decided that it will retain its core intellectual property, know-how and expertise relating to its EC technologies but will stop the development of this platform until more scalable and profitable opportunities arise.

Review of the carrying value of assets in the light of the restructuring

As a result of (i) the Company's current position, (ii) its planned and ongoing restructuring and (iii) the refocusing of its activities, a review of balance sheet carrying values of assets is being carried out that will result in a material reduction in asset carrying values.

US Securities Laws

Neither the Convertible Loan Notes nor the New Ordinary Shares have been or will be registered under the Securities Act, or under the securities laws of any state or other jurisdiction of the United States and, unless so registered, may not be offered, sold, resold, taken up, delivered or distributed, directly or indirectly, within, into or in the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States.

Outside the United States, neither the Convertible Loan Notes nor the New Ordinary Shares may be offered, taken up, delivered or transferred, except in an "offshore transaction" (as defined in Rule 902(h) under the Securities Act) in accordance with Rule 903 or Rule 904 of Regulation S. Inside the United States, neither the Convertible Loan Notes nor the New Ordinary Shares may be offered, taken up, delivered or transferred except in a private placement transaction not involving any public offering in reliance on the exemption from the registration requirements of Section 5 of the Securities Act provided by Section 4(a)(2) under the Securities Act or another applicable exemption therefrom. There will be no public offer in the United States.

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities, or any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for, any securities in the United States (or in any other jurisdiction).

Resulting interests and Rule 9 Waiver

The Directors believe that Meditor's continued support of the Company and the commitment by Meditor to invest by way of the Convertible Loan Notes and the Reinvestment is necessary to ensure the future of the Company. Without the Fundraising, it is likely that the Company would no longer have been a going concern and that the Board therefore would have had little option other than to place the Company into administration. In such circumstances, it is uncertain whether there would have been any material value attributable to Shareholders.

Meditor is currently interested in 14.8 per cent. of the voting rights of the Company and has agreed to subscribe for 14,062,500 Reinvestment Shares and to invest a minimum of £15,000,001 under the Convertible Loan Note Instrument.

On the assumption that (i) all of the Convertible Loan Notes held by Meditor are converted, (ii) no other Convertible Loan Note holders exercise their conversion rights and (iii) the Reinvestment Shares are issued, Meditor would hold between 58.9 per cent. and 72.2 per cent. of the then issued share capital of the Company (depending on the level of subscriptions for the Convertible Loan Notes by other investors).

In the event that all the Reinvestment Shares are issued and that Meditor chooses to convert its Convertible Loan Notes in full, the interest of Meditor in the voting rights of the Company will increase to above 30.0 per cent. (assuming there is no further alteration to the share capital of the Company) and therefore Meditor would normally be obliged to make a general offer, pursuant to Rule 9 of the Takeover Code, to all other Shareholders to acquire their Ordinary Shares.

Shareholders should note that should the Resolutions be passed and were Meditor to subscribe for sufficient Conversion Shares such that its holding in the Company would exceed 50.0 per cent of the then issued voting rights, Meditor would, for so long as it continues to hold more than 50.0 per cent. of such voting rights, be able to acquire further Ordinary Shares and accordingly increase its aggregate interest in the Company's voting rights without incurring an obligation to make a general offer for the Company under Rule 9 of the Takeover Code.

The Company has applied for a waiver of the requirement for Meditor to make a mandatory offer for the remaining Shares in the Company under Note 1 to the Notes on Dispensations from Rule 9 of the Takeover Code. Note 1 states that, when the issue of new securities in consideration for an acquisition or a cash subscription would otherwise result in an obligation to make a mandatory offer for the Company, the Takeover Panel will normally grant a waiver if, inter alia, the shareholders of a company who are independent of the person who would otherwise be required to make an offer and any person acting in concert with him or her pass an ordinary resolution on a poll at a general meeting approving the proposals giving rise to the obligation to make a mandatory offer for the Company and the Takeover Panel has agreed to such a waiver being sought.

The Company will therefore be seeking the approval of the Independent Shareholders to waive the obligation to make a general offer that would otherwise arise as a result of Meditor subscribing for Conversion Shares, pursuant to Resolution 3 at the General Meeting. To be passed, this Resolution will require the approval of a simple majority of votes cast on that poll. Only Independent Shareholders will be entitled to vote on this Resolution.

There can be no guarantee that the Independent Shareholders will pass the Rule 9 Waiver Resolution or that the Takeover Panel will grant the waiver of the requirement for Meditor to make a mandatory offer for the Company following Meditor's conversion of its Convertible Loan Notes. If the Rule 9 Waiver is not granted or the Resolutions are not passed by 30 June 2016, the Company will still retain the £30.0 million gross funding.

However, in order to compensate for the inability to convert the Convertible Loan Notes, the principal to be repaid under the Convertible Loan Notes would increase from £30.0 million to £42.0 million and the interest rate would increase (with retrospective effect from the date of issue of the Convertible Loan Notes) from 13.0 per cent. per annum to 18.2 per cent per annum. Should Shareholder approval for the Rule 9 Waiver Resolution not be obtained by 30 June 2016, but the other Resolutions are approved, then the above increases will apply to the Convertible Loan Notes held by Meditor.

The Circular convening the General Meeting will contain additional information on the Takeover Code matters relevant to the Fundraising.

Ongoing relationship with Meditor

Meditor has confirmed to the Company that, should it elect to receive its Conversion Shares at the earliest possible opportunity, such that it secured effective control of the Company, Meditor's intention would be to run the Company as it is currently operated.

Meditor's investment manager believes that the Company has positive long term business prospects based on the strength of its proton exchange membrane fuel cell technology across a range of applications. However, in order for the Company to continue operations and maximise its future potential, further investment is required. Meditor believes such investment will enable the Company to reorganise as necessary, prioritise strategic development and continue its path towards commercialisation of its substantial technology and intellectual property portfolio.

Notice of General Meeting

The conversion rights of the Convertible Loan Notes, the Rule 9 Waiver and the issue of the Reinvestment Shares require Shareholder approval of the following resolutions:

Resolutions relating to the conversion rights for the Convertible Loan Notes

· Resolution 1 will be to authorise the Directors, pursuant to section 551 of the Act, to grant rights to subscribe for or to convert any security into Ordinary Shares up to and including an aggregate nominal amount of £18,750,000 (equal to 375,000,000 Ordinary Shares) by way of the issue of the Convertible Loan Notes.

· Resolution 2 will be to dis-apply the pre-emption rights conferred by the Act in respect of the issue of the Convertible Loan Notes to the subscribers for the Convertible Loan Notes.

Resolution relating to the Rule 9 Waiver

· Resolution 3 will be to approve the waiver to be granted by the Takeover Panel of any requirement on Meditor to make a general offer to the shareholders of the Company in accordance with Rule 9 of the Takeover Code.

Resolutions relating to the Reinvestment Shares

· Resolution 4 will be to authorise the Directors, pursuant to section 551 of the Act, to allot the Reinvestment Shares to Meditor.

· Resolution 5 will be to dis-apply the pre-emption rights conferred by the Act in respect of the issue of the Reinvestment Shares to Meditor pursuant to the authority granted by Resolution 4.

The authorities set out in Resolutions 1, 2, 4 and 5 will be in addition to the Existing Authorities conferred on the Directors by Shareholders at the annual general meeting of the Company held on 26 February 2016.

Resolutions 1, 3 and 4 will be ordinary resolutions and will require a simple majority of those voting to vote in favour of those Resolutions. Resolutions 2 and 5 will be special resolutions and will require not less than 75 per cent. of those voting to vote in favour of those Resolutions.

As described above, only Independent Shareholders will be permitted to vote on Resolution 3. In accordance with the requirements of the Takeover Panel, voting on Resolution 3 will be conducted by way of poll.

A Circular setting out further details on the Fundraising, the Rule 9 Waiver and the Resolutions will be published and posted to Shareholders in due course. Shareholders will also receive a form of proxy to vote on the Resolutions.

Irrevocable Undertakings

Irrevocable undertakings have been entered into between the Company and each of Meditor and GIC Private Limited, pursuant to which each of such Shareholders has agreed, inter alia, to vote in favour of certain of the Resolutions in respect of the Ordinary Shares held by them. Meditor cannot vote on Resolution 3, being the Rule 9 Waiver Resolution. Given this, the irrevocable undertakings represent, in aggregate, the following:

· in relation to Resolutions 1, 2, 4 and 5, the irrevocable undertakings represent 26.4 per cent. of the Ordinary Shares; and

· in relation to Resolution 3, the irrevocable undertakings represent 13.6 per cent. of those Ordinary Shares which are capable of being voted in respect of Resolution 3.

Indication of additional Shareholder support

The Company has also received an indication of support for the Fundraising from Evolution Placements Corporation, representing the following:

· in relation to Resolutions 1, 2, 4 and 5, the indication of support represents 11.4 per cent. of the Ordinary Shares; and

· in relation to Resolution 3, the indication of support represents 13.3 per cent. of those Ordinary Shares which are capable of being voted in respect of Resolution 3.

Directors' recommendation and importance of the vote

The Directors, who have been so advised by Stifel, believe that the Fundraising, the Rule 9 Waiver and the Resolutions are fair and reasonable as far as the Shareholders are concerned and are in the best interests of the Company and the Shareholders as a whole. In providing such advice to the Board, Stifel has taken into account the Directors' commercial assessments.

In making its recommendation, the Board has taken into account various factors including the following:

· the precarious financial position in which the Company finds itself;

· the need to secure sizeable funding quickly in order to stabilise the Company and to seek to preserve value;

· the lack of credible alternative financing solutions of sufficient quantum that the Board believe are capable of being secured on acceptable timescales; and

· the level of support for the Resolutions provided by Shareholders.

While the Fundraising is not conditional upon the passing of the Resolutions, Shareholders should be aware that, if the Resolutions are not approved at the General Meeting by the Shareholders or the Independent Shareholders (as applicable), the additional interest and repayment obligations which would arise under the Convertible Loan Notes would be triggered. If the Resolutions are not passed, the Board believes that the Company would not be able to meet the level of increased payments and would therefore no longer be a going concern. In these circumstances, the Board would have little option other than to place the Company into administration immediately.

Accordingly, the Directors unanimously recommend that Shareholders vote in favour of Resolutions 1, 2, 4 and 5 to be proposed at the General Meeting and that Independent Shareholders vote in favour of Resolution 3 to be proposed at the General Meeting, as they intend to do so in respect of their own holdings of Ordinary Shares.

DEFINITIONS