Posted on 20.05.2008
Trading update, restoration of trading and firm placing to raise €40 million

20 May 2008

Payzone plc (“Payzone” or the “Company”)

Payzone Group plc (“Payzone”, or the “Company”), today provides a trading update and announces that it is undertaking a capital raising (the “Placing”), to raise gross proceeds of €40.0 million (£31.8m).

Trading update:
The Board recognises that there has been an impact on Payzone resulting from a challenging trading period and the integration of the Cardpoint and alphyra businesses.  At the request of the Company, trading on AIM was temporarily suspended on 17 January 2008 following instigation of court proceedings concerning two executive directors of the Company.  In addition the significant weakening of Sterling against the Euro has impacted the Company’s performance.

Accordingly, the Company has revised its pro-forma1 budgeted earnings before interest, tax, depreciation and amortisation (EBITDA) for the Company for the current financial year ending 30 September 2008 to €47 million.  The revised pro-forma1 profit before tax (PBT) budget for the Company for the year ending 30 September 2008 is a loss of €30 million (after one-off non-recurring costs of €13 million and pre any IFRS impairment charges). The revised pro-forma budgeted financial information is based on the receipt of the net proceeds of approximately €37 million from the Placing. Payzone is currently trading in line with this revised budget for the year. The Company's net debt position as at 31 March 2008 was €276 million and there has been no subsequent material change in net debt.

Banking update:
On the basis of the revised budget the Company has entered into discussions with its banking consortium to agree new covenant levels. These discussions are well progressed and constructive. On the back of this equity raising the Company envisages that these discussions will be concluded satisfactorily within the short term.

Trading resumption:
Payzone’s Ordinary Shares of 1 pence each (ISIN: IE00B282W057), which were temporarily suspended on 17 January 2008, are expected to resume trading on the AIM market of the London Stock Exchange at 07.45 today.

Firm placing:
The Placing to raise aggregate gross proceeds of €40.0 million has been undertaken by way of a firm placing of 137.3 million new Payzone Ordinary Shares of £0.01 each nominal value (the “New Ordinary Shares”) at a price of £0.20 per New Ordinary Share, raising £27.5 million (€34.5 million) and 5.5 million new Euro denominated Payzone Convertible Preference Shares of €0.01 each nominal value, issued at €1.00 each (the “New Convertible Preference Shares”) and convertible into Ordinary Shares for the paid up value at a price of £0.25 per Ordinary Share with the Euro paid up amount convertible into Sterling at the fixed rate of €1.2565 equal to £1.00, raising €5.5 million. 

The New Ordinary Shares will represent 45% of Payzone’s current issued Ordinary share capital and a further 6% ordinary shares of 1 pence each (“Ordinary Shares”) would arise upon immediate conversion of the New Convertible Preference Shares.

Application will be made for the New Ordinary Shares to be admitted to trading on AIM and it is anticipated that dealings will commence on 17 June 2008. The New Convertible Preference Shares will not be admitted to trading.

The Placing is conditional on, among other things, the passing of a shareholders’ resolution to dis-apply pre-emption rights and the receipt of a minimum of £27.5 million and €5.5 million (€40.0 million in aggregate at the current exchange rate of €1.2565:£1.00) of proceeds pursuant to the Placing.  Payzone expects that on 21 May 2008 it will post to shareholders a circular convening an extraordinary general meeting of Payzone for this purpose (the “EGM”), to be held on or around Monday 16 June 2008 at the Gandon Suite North Room, The O'Callaghan Davenport Hotel, Merrion Square, Dublin 2 at 10 a.m.

The net proceeds from the Placing will be used to strengthen the business following its recent operational issues arising from the integration of the Cardpoint and alphyra businesses and allow for investment to support future growth.  The Board believes that the funds to be raised by the Placing are sufficient to allow the Company to fund its immediate working capital requirements and its medium term capital expenditure plans. 

Commenting on the Placing, Mike Maloney, Chief Executive of Payzone, said:
“This fundraising puts Payzone on a firm financial footing from which to take the business forward.  Following a challenging few months operationally for the Company, we are now in a position to invest significantly in the business, to implement a three-year growth plan and to capitalise on Payzone’s strong market positions throughout Europe.  My management team and I look forward to growing this Company and seeing that it fulfils its potential.”

Shareholder Loan Facility:
Pending receipt of the net proceeds of the Placing, which is expected to be shortly after the EGM, and as previously announced on 21 February 2008, certain of Payzone’s shareholders, including Balderton Capital, have provided the Company with a €10 million subordinated loan facility at a 20% annual payment in kind (“PIK”) interest rate (the “Subordinated Loan”).  Payzone anticipates a partial drawdown on this facility between now and the date of the EGM and it is a term of the facility to repay any drawdown out of the proceeds of the Placing.
N M Rothschild & Sons Limited has acted as financial adviser to Payzone in connection with the Placing.  Panmure Gordon (UK) Limited (“Panmure Gordon”) is acting as NOMAD and broker to Payzone and has entered into a Cash Placing Agreement with Payzone pursuant to which it is arranging the Placing.

Details of the Placing:
Payzone has entered into a Cash Placing Agreement with Panmure Gordon pursuant to which, among other things, Panmure Gordon has agreed to despatch placing letters to such prospective placees as it determines in consultation with Payzone.  Pursuant to such placing letters, Balderton Capital I, L.P. and Balderton Capital III, L.P. (“Balderton Capital”) and funds managed by Artemis Investment Management LLP (“Artemis”) have agreed to subscribe for New Ordinary Shares and North Atlantic Value LLP (“Hambro”) has agreed to subscribe for New Convertible Preference Shares which in aggregate comprise the entire Placing. These placing letters provide for the final allocations of New Ordinary Shares and New Convertible Preference Shares as appropriate to each of Balderton Capital, Artemis and Hambro to be reduced pro-rata to the extent the Placing is subscribed by other shareholders of Payzone.

To the extent that New Ordinary Shares are placed with any shareholder whose shareholding in aggregate would, by virtue of its allocation of New Ordinary Shares, exceed the shareholding that may be held by a shareholder under the Irish Takeover Panel Act 1997 Takeover Rules 2007, without requiring a mandatory bid to be made by such shareholder, that shareholder may elect for such Ordinary Shares to be designated “Restricted Voting Ordinary Shares”.  Restricted Voting Ordinary Shares carry no rights to receive notice of or to attend or vote at any general meeting of the Company.

The Placing is conditional on, among other things, the passing of a shareholders’ resolution to dis-apply pre-emption rights at the EGM and the receipt of a minimum of £27.5 million and €5.5 million (€40.0 million in aggregate at the current exchange rate of €1.2565:£1.00) of proceeds pursuant to the Placing.

The New Ordinary Shares will rank pari passu with the existing Ordinary Shares including the right to receive all dividends and other distributions declared, paid or made after the date of their issue, except those New Ordinary Shares designated as Restricted Voting Ordinary Shares which shall have no rights to receive notice of or to attend or vote at any general meeting of the Company, as set out above.

The key terms of the New Convertible Preference Shares are as follows:

Dividend: 7% annual PIK dividend, payable through the issue of 0.07 additional New Convertible Preference Shares on an annual basis for each New Convertible Preference Share then held;

Holder Conversion: a holder may convert their holdings of New Convertible Preference Shares into Ordinary Shares from 40 days following the date of issue of the initial New Convertible Preference Shares and thereafter at any time at the then prevailing conversion price, which is subject to adjustment for anti-dilution;

Payzone Forced Conversion: Payzone has the right to require a holder to convert its New Convertible Preference Shares at any time after the third anniversary plus 14 days of the date of issue of the initial New Convertible Preference Shares into Ordinary Shares if, for a period of 20 out of 30 consecutive active dealing days, the share price of an Ordinary Share converted to Euros at the prevailing exchange rate, equals or exceeds 125% of the prevailing conversion price, as adjusted from time to time for anti-dilution events;

Payzone Optional Redemption: Payzone has the right to redeem all (but not some only) of the New Convertible Preference Shares at any time after the tenth anniversary of the date of issue of the initial New Convertible Preference Shares at the issue price;

Change of Control: a holder may elect to redeem their holding of New Convertible Preference Shares at 125% of their issue price, or convert their holding into Ordinary Shares at the then prevailing conversion ratio.  If a holder of Convertible Preference Shares does not so redeem or convert their Convertible Preference Shares on a change of control, the Company is entitled to redeem the Convertible Preference Shares at 125% of the issue price;

Maturity: the New Convertible Preference Shares are perpetual, subject to the  conversion and redemption rights;

Transferability: the New Convertible Preference Shares are transferable only with the consent of the Company, with consent not to be unreasonably withheld,.  The New Convertible Preference Shares may not be admitted to trading or exchanged for a negotiable instrument;

Winding up: On a return of capital on liquidation, dissolution or winding up holders of New Convertible Preference Shares will be entitled to an amount of the paid up value of each Preference Share, in priority to a repayment to the holders of any other class of share;
Further Entitlements: holders of New Convertible Preference Shares will not otherwise be entitled to any right of participation in the profits of the Company.

Related Party Transaction:
The Placing of the New Ordinary Shares and the provision of the Subordinated Loan is classified as a Related Party Transaction pursuant to Rule 13 of the AIM Rules for Companies as a result of Balderton Capital having agreed with Panmure Gordon pursuant to a placing letter to subscribe for up to 115.4 million New Ordinary Shares and agreeing to provide the Company with up to €5.525 million as part of the Subordinated Loan respectively. Balderton Capital is a related party of Payzone due to its holding of over 10 per cent. of Payzone’s issued Ordinary Shares.

With the exception of Mark Evans who is a Partner of Balderton Capital and has therefore recused himself in this regard, the directors of Payzone consider, having consulted with its nominated adviser, Panmure Gordon, that, in relation to the participation by Balderton Capital, the terms of each of the Placing of New Ordinary Shares and the Subordinated Loan are fair and reasonable insofar as its shareholders are concerned.

Timetable:
The expected timetable for the Placing is as follows:
• Posting of circular – 21 May 2008
• EGM – 16 June 2008

Other EGM Matters:
In addition to considering amendments to the Company’s Articles of Association to incorporate the rights attaching to the Restricted Voting Ordinary Shares and the New Convertible Preference Shares and consequential amendments, the EGM of the Company to be held on or around Monday 16 June 2008 will also consider resolutions seeking shareholder approval relating to:
• the adoption of a long term incentive plan to enable the Company to award incentives for key employees and directors (including non-executive directors) in line with the commercial objectives of the Company; 
• providing the Directors with authority to dis-apply pre-emption rights with respect to certain equity security issues; and
• amending the Articles of Association of the Company in order to remove  certain current restrictions imposed on the proceedings of general meetings and meetings of directors and committees.

Board recommendation and Directors’ intentions:
The Board recommends shareholders to vote in favour of the resolutions to be proposed at the EGM as they intend to do in respect of their own beneficial holdings, amounting to, in aggregate, 0.2 million Payzone Ordinary Shares, representing approximately 0.1% per cent of the current issued share capital of Payzone. 

Enquiries:

Financial advisor to Payzone
N M Rothschild & Sons
Telephone: +44 (0) 20 7280 5000
Ed Welsh
Claire Suddens-Spiers 

Nominated Adviser and Broker to Payzone      
Panmure Gordon    
Telephone: +44 (0) 20 7459 3600
Hugh Morgan
Stuart Gledhill
Mark Lander (Corporate Broking) 

Media Enquiries
Powerscourt
Telephone: + 44 (0) 20 7250 1446
Rory Godson 
Paul Durman

This announcement has been issued by and is the sole responsibility of Payzone. 
N M Rothschild & Sons Limited and Panmure Gordon, each of which is authorised and regulated by the Financial Services Authority, are each acting exclusively for Payzone in connection with the Placing and no-one else and will not be responsible to anyone other than Payzone for providing the protections afforded to their respective clients, or for giving advice in relation to the Placing or any other matter referred to in this press announcement. 

This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any securities or investment advice in any jurisdiction.  This announcement does not constitute an offer to sell or issue or the solicitation of an offer to buy or acquire any securities in the capital of Payzone in the United States, Canada, Australia, Japan or the Republic of Ireland or any jurisdiction in which such an offer or solicitation is unlawful and should not be relied upon in connection with any decision to acquire securities in the capital of Payzone. 

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