2nd Nov 2006 07:02
Innovation Group PLC02 November 2006 Embargoed for release at 7.00 a.m 2 November 2006 FOR PUBLICATION IN THE UNITED KINGDOM ONLY. NOT FOR RELEASE, PUBLICATION ORDISTRIBUTION INTO ANY OTHER JURISDICTION INCLUDING THE UNITED STATES, AUSTRALIA,CANADA, JAPAN, NEW ZEALAND OR SOUTH AFRICA, OR IN OR INTO ANY OTHER JURISDICTIONWHERE THE EXTENSION OR AVAILABILITY OF THE RIGHTS ISSUE WOULD BREACH ANYAPPLICABLE LAW OR REGULATION. The Innovation Group plc Proposed acquisition of First Notice Systems, Inc. and Fully underwritten rights issue to raise £37.9 million The Innovation Group plc ("The Innovation Group" or the "Company"), whichprovides outsourcing services and software solutions to the world's insurancemarkets, announces the proposed acquisition of First Notice Systems, Inc.("FNS") for US$51.55 million (£27.1 million) in cash, comprising considerationof US$50 million (£26.3 million) and related payments to certain key managementof US$1.55 million (£0.8 million). The Board intends to fund the Acquisitionthrough the proceeds of a fully underwritten Rights Issue to raise approximately£37.9 million (before expenses). Acquisition highlights • FNS is a leading provider of claim-reporting outsourcing services to the US property and casualty insurance market • The Company's objective is to be a global solution provider to the risk carrier market and the FNS acquisition provides the Company with an outsourcing platform in the US, the world's largest insurance market • FNS brings over 100 insurance clients and 2 million claims per annum to the Enlarged Group • Approximately 85 per cent of FNS' total revenue in the year ended 31 December 2005 was derived from recurring sources • While the Directors expect the Acquisition to be earnings neutral initially they believe it will enhance earnings in the year ending 30 September 2008 • Acquisition conditional on Rights Issue • Directors estimate that for the year ended 30 September 2006, total adjusted profit will be not less than £10.7 million(1) Rights Issue highlights • Rights Issue to raise proceeds of approximately £37.9 million (before expenses) • Additional proceeds of £8.3 million (net of expenses) not required for the Acquisition will enable bolt-on acquisitions whilst retaining a net cash position on the Group's balance sheet • 2 New Ordinary Shares for every 5 existing Ordinary Shares held on the Record Date at 21 pence per New Ordinary Share • The Rights Issue has been fully underwritten by Hoare Govett Limited • Prospectus relating to Acquisition and Rights Issue expected to be posted to Shareholders on 3 November 2006 Commenting on the proposed Acquisition and Rights Issue, Hassan Sadiq, ChiefExecutive Officer, The Innovation Group plc said: "The acquisition of FNS gives The Innovation Group critical mass in the US andis complementary to our recently announced acquisition of SurePlan. Thisstrategic US presence, underpinned by a strong global performance, leaves theEnlarged Group well placed for future growth." (1) Adjusted profit is profit before tax, goodwill amortisation, loss ondisposal of continuing operations, share based payments and impairment ofgoodwill following utilisation of previously unrecognised acquired tax losses. This summary should be read in conjunction with the full text of thisannouncement. Unless stated otherwise in this announcement, the exchange rate of £1.00 :US$1.90 prevailing at the close of business on 31 October 2006 has been used. Appendix I sets out the expected timetable of principal events. Appendix II sets out the definitions of terms used in this announcement. An analyst meeting will be held today at 9.30 a.m. at the offices of Smithfield,10 Aldersgate Street, London EC1A 4HJ. Enquiries: The Innovation Group plcHassan Sadiq, Group Chief Executive Tel: 01489 898300Paul Smolinski, Group Finance Director Hoare Govett Limited (financial adviser, sponsor, broker and lead manager)Justin Jones Tel: 020 7678 8000Alexander GartonJohn Garrad-Cole Smithfield (public relations)Sara Musgrave Tel: 020 7360 4900Tania Wild Information on The Innovation Group The Group provides outsourcing services and software solutions to insurers andother risk carriers through its international network of offices. The Group hasassembled a portfolio of important assets comprising a set of software-ledbusiness processes for the handling of the breadth of the administrativeprocesses of insurers and risk carriers, including back office functions such asclaims management and sales, as well as software technology for both policy andclaims administration that can be both utilised in connection with the Group'soutsourcing operations and implemented on a stand-alone basis. The Groupprovides its services on a non-branded basis and does not perform underwritingfunctions. The Group has offices in the United Kingdom, Continental Europe, South Africa,Japan, Australia and North America, and delivers services for some of thelargest insurance businesses in the world, including Aviva, Auto Club ofSouthern California, Ford Motor Company of South Africa, Toyota (South Africa),Halifax General Insurance, The Insurance Australia Group, Jaguar Drive Plan(South Africa), AXA Insurance, Sonpo 24 Insurance (Japan) and Zurich (UK). Information on FNS FNS is a leading provider of claim-reporting outsourcing services and softwareto the property and casualty insurance market in the US. FNS' principal focus ison handling, on behalf of its clients, the first notice of loss made by aninsurance company customer of a claim or potential claim. FNS currentlyprocesses approximately 2 million claims a year and makes 10 million outbounddistributions on behalf of its client base, which comprises over 100 insuranceclients, including carriers, third party administrators and self insuredbusinesses. General This announcement has been issued by, and is the sole responsibility of, theCompany. Hoare Govett Limited, which is authorised and regulated in the United Kingdom bythe Financial Services Authority, is acting as sole financial adviser, sponsor,broker and lead manager to the Company and no one else in connection with theAcquisition and the Rights Issue, and will not be responsible to anyone otherthan the Company for providing the protections afforded to its clients or forproviding advice in relation to the Acquisition, the Rights Issue or any othermatters referred to in this announcement. THIS ANNOUNCEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANOFFER TO ACQUIRE NEW ORDINARY SHARES, NIL PAID RIGHTS, FULLY PAID RIGHTS OR PALSOR TO TAKE UP ENTITLEMENTS TO NIL PAID RIGHTS IN ANY JURISDICTION IN WHICH SUCHAN OFFER OR SOLICITATION IS UNLAWFUL AND THE RIGHTS ISSUE IS NOT BEING MADE TOSHAREHOLDERS IN THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND ORSOUTH AFRICA. The distribution of this announcement and/or the Prospectus and/or theProvisional Allotment Letter and/or the transfer of Nil Paid Rights, Fully PaidRights and/or New Ordinary Shares and/or existing Ordinary Shares may berestricted by law and therefore persons into whose possession this announcementand/or any accompanying announcements comes should inform themselves about andobserve any such restrictions. Any failure to comply with any such restrictionsmay constitute a violation of the securities laws of any such jurisdictions. Inparticular, subject to certain exceptions, this announcement should not bedistributed, forwarded to or transmitted in or into the United States,Australia, Canada, Japan, New Zealand or South Africa, or in or into any otherjurisdiction where the extension or availability of the Rights Issue wouldbreach any applicable law or regulation. A combined circular to Shareholders relating to the Acquisition and prospectusrelating to the Rights Issue is expected to be despatched on Friday, 3 November2006 and the Provisional Allotment Letters are expected to be despatched on 20November 2006. The Prospectus will give further details of the Acquisition andof the New Ordinary Shares, the Nil Paid Rights and the Fully Paid Rights to beoffered pursuant to the Rights Issue, the Company's business, the industry inwhich the Company operates and an indication of the size of the Enlarged Group.The Prospectus will also contain a notice of an Extraordinary General Meeting ofthe Company to approve the Acquisition, certain matters relating to theimplementation of the Rights Issue and an increase in the maximum amount ofremuneration payable to Non-executive Directors, which is expected to be held at10.00 a.m. on 20 November 2006 at the offices of the Company, Yarmouth House,1300 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire PO15 7AE. TheProspectus will be available for inspection during usual business hours on anyweekday (Saturdays, Sundays and public holidays excepted) from the date of itspublication until Admission at the offices of the Company, Yarmouth House, 1300Parkway, Solent Business Park, Whiteley, Fareham, Hampshire PO15 7AE. This announcement is not a prospectus but an advertisement and investors shouldnot subscribe for any Nil Paid Rights, Fully Paid Rights or New Ordinary Sharesreferred to in this announcement except on the basis of information in theProspectus. No offer, invitation or inducement to acquire shares or other securities in theCompany pursuant to the proposed Rights Issue is being made by or in connectionwith this announcement in any jurisdiction whatsoever (including, withoutlimitation, the United States). Any offer, invitation or inducement to acquireshares or other securities in the Company pursuant to the proposed Rights Issuewill be made solely by means of the Prospectus, as updated by any supplementaryprospectuses, and any decision to keep, buy or sell shares or other securitiesin the Company should be made solely on the basis of the information containedin such document(s). This announcement contains forward-looking statements, which are based on theBoard's current expectations and assumptions and involve known and unknown risksand uncertainties that could cause actual results, performance or events todiffer materially from those expressed or implied in such statements. It isbelieved that the expectations reflected in these statements are reasonable, butthey may be affected by a number of variables which could cause actual resultsor trends to differ materially. Each forward-looking statement speaks only as ofthe date of the particular statement. Except as required by the Listing Rules,the Disclosure Rules, the Prospectus Rules, the London Stock Exchange orotherwise by law, the Company expressly disclaims any obligation or undertakingto release publicly any updates or revisions to any forward-looking statementscontained herein to reflect any change in the Company's expectations with regardthereto or any change in events, conditions or circumstances on which any suchstatement is based. The New Ordinary Shares, the existing Ordinary Shares, the Nil Paid Rights, theFully Paid Rights and the Provisional Allotment Letters have not been and willnot be registered under the Securities Act or under any relevant securities lawsof any state or other jurisdiction of the United States and may not be offered,sold, taken up, exercised, resold, renounced, transferred or delivered, directlyor indirectly, within the United States absent registration or an applicableexemption from the registration requirements of the Securities Act and incompliance with United States state securities laws and any public offer of suchsecurities in the United States will be made by means of a prospectus containingdetailed information about the Company and its management and financial accountsthat may be obtained from the issuer or a selling Shareholder in the event ofsuch public offer. The New Ordinary Shares, the existing Ordinary Shares, theNil Paid Rights, the Fully Paid Rights and the Provisional Allotment Lettershave not been approved or disapproved by the SEC, any state securitiescommission in the United States or any US regulatory authority, nor have any ofthe foregoing authorities passed upon or endorsed the merits of the offering ofthe New Ordinary Shares, the existing Ordinary Shares, the Nil Paid Rights, theFully Paid Rights and the Provisional Allotment Letters or the accuracy oradequacy of this announcement. Any representation to the contrary is a criminaloffence in the United States. In addition, none of the New Ordinary Shares, theexisting Ordinary Shares, the Nil Paid Rights, the Fully Paid Rights or theProvisional Allotment Letters will qualify for distribution under any of therelevant securities laws of Australia, Canada, Japan, New Zealand or SouthAfrica. Accordingly, the New Ordinary Shares, the Nil Paid Rights, the FullyPaid Rights and the Provisional Allotment Letters may not be offered, sold,taken up, exercised, resold, renounced, transferred or delivered, directly orindirectly, within Australia, Canada, Japan, New Zealand or South Africa. No statement in this announcement is intended to be a profit forecast or toimply that the earnings of the Company for the current year or future years willnecessarily match or exceed the historical or published earnings of the Companyor FNS. Embargoed for release at 7.00 a.m. 2 November 2006 FOR PUBLICATION IN THE UNITED KINGDOM ONLY. NOT FOR RELEASE, PUBLICATION ORDISTRIBUTION INTO ANY OTHER JURISDICTION INCLUDING THE UNITED STATES, AUSTRALIA,CANADA, JAPAN, NEW ZEALAND OR SOUTH AFRICA, OR IN OR INTO ANY OTHER JURISDICTIONWHERE THE EXTENSION OR AVAILABILITY OF THE RIGHTS ISSUE WOULD BREACH ANYAPPLICABLE LAW OR REGULATION. The Innovation Group plc Proposed acquisition of First Notice Systems, Inc. and Fully underwritten rights issue to raise £37.9 million Introduction The Board announces today, that TiG Acquisition Co., a wholly owned subsidiaryof The Innovation Group plc, has entered into a conditional agreement to acquireFirst Notice Systems, Inc. from Concentra Integrated Services for US$51.55million (£27 million) in cash, comprising consideration of US$50 million (£26.3million) and related payments to certain key management of US$1.55 million (£0.8million). FNS is a leading provider of claim-reporting outsourcing services and softwareto the property and casualty insurance market in the US. The Acquisition iscomplementary to the Company's acquisition of SurePlan, announced on 25 October2006, and represents an important strategic step in providing a platform for theCompany to grow its insurance outsourcing business in the US. The Board also announced today that the Company proposes to raise approximately£37.9 million (before expenses) by way of a 2 for 5 Rights Issue of up to180,600,771 New Ordinary Shares at 21 pence per share, of which £27.1 million ofthe net proceeds will be used to fund the Acquisition. The Board believes thatthe Rights Issue will provide the Group with a flexible capital structure,enabling it to finance additional bolt-on acquisitions whilst retaining a netcash position on its balance sheet so as to address the preferences of certainsoftware clients. The Rights Issue has been fully underwritten by Hoare Govett. Due to its size, the Acquisition is conditional upon the approval ofShareholders at the EGM which is expected to be held on 20 November 2006 and,assuming such approval is obtained, is expected to complete on 22 December 2006.Shareholder approval will be sought at the EGM to implement the Rights Issue. Adocument comprising a combined prospectus and circular will be posted toShareholders on Friday 3 November 2006. A notice convening the EGM to approvethe Acquisition and the Rights Issue will be set out in the Prospectus. In addition, in anticipation of the possible appointment of an additionalNon-executive Director, Shareholder approval is also being sought at the EGM topermit an increase in the aggregate remuneration payable to Non-executiveDirectors. Information on FNS FNS is a leading provider of claim-reporting outsourcing services and softwareto the property and casualty insurance market in the US. FNS' principal focus ison handling, on behalf of its clients, the first notice of loss made by aninsurance company's customer of a claim or potential claim. FNS currentlyprocesses approximately 2 million claims a year and makes 10 million outbounddistributions on behalf of its client base, which comprises over 100 insuranceclients, including carriers, third party administrators and self insuredbusinesses. FNS has its head office in Charlestown, northeast Boston, Massachusetts, US,where it also maintains a small call centre. FNS' principal call centre islocated in Springfield, Massachusetts. FNS also utilises outsourced call centreservices for additional capacity in Nova Scotia, Canada, and data processing offaxes in India. FNS currently employs 325 individuals (63 of whom are part-time)across its offices and call centres in the US. In addition, FNS utilisesapproximately 50 full time equivalent staff in the third party Nova Scotia callcentre. Summary financial information on FNS The selected financial information set out below, as at and for the years ended31 December 2003, 2004 and 2005, is presented in accordance with UK GAAP. UK GAAP Year ended 31 Year ended 31 Year ended 31 December 2003 $m December 2004 $m December 2005 $mProfit and losshighlightsTurnover 19.9 21.3 22.2Operating loss (5.3) (2.4) (2.0)Adjustedprofit(1) 1.4 3.8 3.1Loss beforetaxation (8.4) (5.6) (5.1)Total assets 13.0 9.9 6.0 (1) Adjusted profit is profit before tax after adding back intra-groupmanagement fees, intra-group allocations and interest payable. The Directorsbelieve this figure more fully reflects the results of FNS on a stand-alonebasis. The Directors expect a proportion of the intra-group allocations will bereplaced by allocations from the Company following the Acquisition. Reasons for the Acquisition and the Rights Issue The Group's objective is to be a global solution provider to the risk carriermarket. A key component of the Group's strategy for achieving this objective isthe building of an outsourcing business in the US. The Directors believe thatthe Acquisition will serve as an entry point for the Group's outsourcingbusiness in the US. The Directors also believe that the Acquisition will providethe Group with the infrastructure and access to market to leverage itscapabilities, which have been proven in other markets, in the US, withparticular focus on supply chain management and full claims management. TheDirectors believe that the Acquisition of FNS will provide the Group withcritical mass in the US insurance outsourcing market and with the followingpotential benefits: • Exposure to the US insurance outsourcing market The US is the largest insurance market in the world, with approximately 120million claims across property and casualty lines in the US in 2002, of whichapproximately 5 per cent were outsourced (Source: IDC, "U.S. Insurance ClaimsProcess outsourcing 2004-2008: Forecast and Analysis", April 2004). Theremainder are handled in-house by insurance companies. Claims processing formsthe single largest element of the cost base for insurance companies, and theDirectors believe that the insurance industry's pursuit of additionalefficiencies and cost savings in an increasingly competitive market is likely tobenefit insurance outsourcing companies. • Scale in the US market The Directors believe that FNS is a US market leader in outsourced first noticeof loss (excluding claims for automotive glass), handling over 2 million claimsa year. The Directors believe that the business has a strong brand and a goodreputation in the US outsourcing market with the infrastructure and client basefrom which to further increase market share. • Broad insurance client base The Group presently has approximately ten major insurance clients in the US. Bycomparison, FNS has existing relationships with over 100 insurance companyclients, providing geographic coverage of the majority of the US. The Directorsbelieve that this exposure to an expanded client base in the US will provide theGroup with significant opportunities to market and sell its existing products inthe US and to broaden its reputation and brand in the US insurance market. • Opportunity to further develop FNS' markets and service offering The Directors believe that the Acquisition provides a significant opportunity toestablish a US platform from which to launch a broad insurance outsourcingoffering. The Group's expertise is across a broad spectrum of the insuranceclaims process. The Directors believe that the Company has two majoropportunities to grow the business of FNS. Firstly, the Company intends tomarket FNS' first notice of loss offering more aggressively to new potentialclients addressing commercial and personal insurance lines and workers'compensation. Secondly, following the Group's existing business model, theCompany intends to extend FNS' service offering to existing clients beyond firstnotice of loss in an effort to capture more of the claims process and thereforegenerate more revenue per claim. • Recurring revenue In the year ended 31 December 2005, approximately 85 per cent of FNS' revenuewas derived from recurring sources. This high level of recurring revenue is inline with the Board's strategy of increasing the proportion of the Group'srevenues from the provision of outsourcing services. • Cost synergies The Directors anticipate that the combination of FNS with the Group's existingUS business will provide the Enlarged Group with the opportunity to extractcertain cost savings, principally from removing duplication in informationtechnology departments. Approximately £27.1 million of the net proceeds of the Rights Issue will be usedto finance the Acquisition. The remaining net proceeds of approximately £8.3million will be maintained in cash and cash equivalents to provide funding forbolt-on acquisitions whilst ensuring that the Group retains a net cash positionon its balance sheet so as to address the preferences of certain softwareclients. Financial effects of the Acquisition on the Company FNS is a well managed company operating in the US. The Directors intend tomaintain FNS' business at its current location and for it to continue to bemanaged by its existing strong management team. The Directors expect thatcertain costs will be incurred in connection with the integration of FNS intothe Enlarged Group. Whilst the Acquisition is expected to be earnings neutral initially, theDirectors believe that, taking into account the impact of the Rights Issue, theAcquisition will be earnings enhancing to the Enlarged Group for the year ending30 September 2008(2). (2) This statement is not intended to constitute a profit forecast for thefinancial year ended 30 September 2008 or any other year, nor should thisstatement be interpreted to mean that earnings or earnings per share willnecessarily be greater or less than those for the relevant financial period foreither the Company or the Company and FNS combined. Principal terms and conditions of the Acquisition Under the terms of the Stock Purchase Agreement, TiG Acquisition Co. has agreedto acquire FNS by purchasing all of the issued and outstanding capital stock ofFNS from Concentra Integrated Services for a total cash consideration of US$50million (£26.3 million) payable at Closing. The Stock Purchase Agreement doesnot provide for any purchase price adjustments. At Closing, the Company willfund payments to key employees totalling US$1.55 million (£0.8 million) asconsideration for their entry into non-competition covenants. The total cost tothe Company of the Acquistion will therefore be US$51.55 million (£27.1million). The obligations of Concentra Integrated Services and TiG AcquisitionCo. under the Stock Purchase Agreement have been guaranteed by ConcentraOperating Corporation and the Company respectively. Closing is conditional upon, inter alia: (i) the approval of the Acquisition bythe Shareholders at the Extraordinary General Meeting; and (ii) receipt by theCompany of the net proceeds of not less than US$50 million pursuant to theRights Issue. Either TiG Acquisition Co. or Concentra Integrated Services may, prior toClosing and notwithstanding that Admission has occurred, terminate the StockPurchase Agreement if, inter alia: (i) there exist certain material breaches ofrepresentations given at the time of signing of the Stock Purchase Agreement byvirtue of circumstances existing at such time or material breaches of any of thecovenants in that agreement; or (ii) the Acquisition has not been completed by31 December 2006; or (iii) there is mutual agreement to terminate between TiGAcquisition Co. and Concentra Integrated Services. The Stock Purchase Agreement is governed by the laws of the State of Delawareand contains customary indemnities given by Concentra Integrated Services forthe benefit of TiG Acquisition Co. and the Company as well as limitations (withrespect both to time and amount) on Concentra Integrated Services potentialliability under such indemnities that are customary for an agreement of thisnature. In particular, the maximum liability of Concentra Integrated Services inrespect of the warranties (excluding warranties given in relation to taxationmatters), may not exceed US$20 million in the first year following Closing andUS$10 million in respect of periods thereafter. On or prior to Closing, certain of the parties will be required to enter intovarious ancillary agreements including an agreement between FNS and ConcentraOperating Corporation for the provision of call services (the "Call Agreement").Under the Call Agreement, Concentra Operating Corporation will agree to payguaranteed monthly payments (which reduce over a three year term from US$200,000per month to US$75,000 per month) to FNS. In the event that FNS enters into aguaranteed minimum transaction commitment with an established third party whilethe Call Agreement is in place, the guaranteed monthly payments will cease to bepayable and Concentra Integrated Services will pay for the call servicesprovided to it by FNS on a transaction fee basis. The Board currently expects that completion of the Acquisition will take placeby 22 December 2006. Information on the Rights Issue The Company is proposing to raise approximately £37.9 million (before expenses)by the issue of up to 180,600,771 New Ordinary Shares in connection with theRights Issue. The Rights Issue has been fully underwritten by Hoare Govett. TheBoard intends to offer New Ordinary Shares by way of rights to all QualifyingShareholders on the following basis: 2 New Ordinary Shares at 21 pence per New Ordinary Share for every 5 existingOrdinary Shares held and registered in their name at 5.00 p.m. on the Record Date and so inproportion for any other number of existing Ordinary Shares then held. Fractionsof New Ordinary Shares will not be allotted to any Qualifying Shareholders andentitlements will be rounded down to the nearest whole number of New OrdinaryShares. Any Shareholder with less than five existing Ordinary Shares will not beentitled to any New Ordinary Shares. The Nil Paid Rights or Fully Paid Rights represented by a Provisional AllotmentLetter may be converted into uncertificated form, that is, deposited into CREST(whether such conversion arises as a result of a renunciation of those rights orotherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST may beconverted into certificated form, that is, withdrawn from CREST. The Rights Issue Price of 21 pence per New Ordinary Share represents a 31.1 percent discount to the closing middle market price on the London Stock Exchange of30.5 pence per existing Ordinary Share on 1 November 2006, the latestpracticable date prior to the publication of this announcement. Applications have been made to the UK Listing Authority and to the London StockExchange for the admission of all the New Ordinary Shares (nil and fully paid)to (i) listing on the Official List and (ii) trading on the London StockExchange's markets for listed securities, respectively. It is expected thatAdmission will take place, and that dealings in the New Ordinary Shares willcommence on the London Stock Exchange (nil paid), at 8.00 a.m. on 21 November2006. The Company has arranged for the Rights Issue to be fully underwritten by HoareGovett in order to provide certainty as to the amount of capital to be raised. The Rights Issue is conditional upon, inter alia: (a) the passing of the First Resolution at the Extraordinary General Meeting or,with the written consent of Hoare Govett, at any adjournment thereof; (b) Admission becoming effective by not later than 8.00 a.m. on 21 November 2006(or such later time and/or date as Hoare Govett and the Company may agree (beingnot later than 3.00 p.m. on 15 December 2006)); (c) the Stock Purchase Agreement remaining in full force and effect and EscrowCompletion having taken place in accordance with the terms thereof, the StockPurchase Agreement not being terminated, varied or rescinded (and no rights toterminate, vary or rescind the Stock Purchase Agreement arising); and noconditions thereto being waived by the Company, in each case, prior toAdmission; and (d) the Underwriting Agreement having become unconditional in all respects andnot having been terminated in accordance with its terms prior to Admission. Prior to Admission, Hoare Govett may terminate the Underwriting Agreement incertain circumstances. If this occurs, the Rights Issue will not proceed. The Rights Issue is not conditional on the Acquisition. After Admission, theRights Issue will proceed even if the Acquisition does not. In the event thatClosing does not take place, the Directors' current intention is that the netproceeds of the Rights Issue will be put on deposit or invested in short termsecurities while the Directors consider how best to return surplus capital toshareholders. Any such return of capital may have adverse tax consequences forShareholders. In considering how any such proceeds might be returned toShareholders, the Directors will take into account, amongst other things, thetax implications for Shareholders. The Rights Issue will result in the issue of up to 180,600,771 New OrdinaryShares (representing approximately 28.6 per cent of the issued Ordinary Sharecapital of the Company, as enlarged by the Rights Issue, and 40 per cent of theissued Ordinary Share Capital of the Company as at 1 November 2006). The NewOrdinary Shares will, when issued and fully paid, rank equally in all respectswith the existing Ordinary Shares including the right to receive all furtherdividends or distributions made, paid or declared after the date of their issue. The latest time for acceptance and payment in full of entitlements under theRights Issue is expected to be 11.00 a.m. on 13 December 2006. Current trading and prospects The Group On 4 October 2006, the Company made the following statement in relation to itscurrent trading and prospects: "The Board is pleased to report that it expects Group results for the year ended30 September 2006 to be consistent with its overall expectations. The Groupexperienced strong organic growth in both adjusted profits and revenue, withrecurring revenues growing significantly in line with our strategy. Outsourcinghad an excellent year, demonstrating significant organic growth as salesincreased to both existing and new clients. Software also performed well,delivering solid organic growth, underpinned by the signing of new contracts andthe successful execution of key milestones." Since the date of that announcement, the Group's trading has continued in linewith the Board's expectation and the Board remains confident of the Group'sprospects for the current financial year. In addition, on 4 October 2006, the Company announced the following: "Paul Smolinski, Group Finance Director, has agreed with the Board that duringthe early part of calendar year 2007 he will leave the Company to pursue anopportunity which better fits with his future personal ambitions. Paul will workclosely with the Board to find a suitable replacement to ensure a smoothtransition and this process is already under way." On 25 October 2006, the Company announced the acquisition of SurePlanInternational Pty Limited for a cash consideration of US$6.5 million(approximately £3.5 million). SurePlan International, an Australian basedholding company, owns a 51 per cent controlling interest in SurePlan USA, Inc.,a leading supplier of outsourced claims management services to the vehicleleasing industry in the US. Agreement was reached on a deferred consideration,which is capped at a maximum value of US$7.5 million (approximately £4 million),based upon a percentage of net profit before tax for the year ending 30September 2009. The Directors anticipate that this acquisition will enable theGroup to establish an outsourcing capability for motor insurance in the US,thereby extending its presence beyond the Group's existing provision of policyand claims software. On 1 November 2006, the Company announced the acquisition of an effective 61.86per cent of Holmwoods and Back and Manson (South Africa) (Pty) Ltd ("HBM"), asupplier of travel insurance administration and insurance consulting services inSouth Africa, for a cash consideration of ZAR 63.84 million (approximately £4.5million), to be met from the Group's existing cash resources. In addition, thereexists a put option, exercisable at the discretion of a minority shareholder byno later than 1 November 2009, for the Group to acquire an additional 30.58 percent of HBM from such minority shareholder on the same valuation basis as thepresent transaction, limited to a maximum additional consideration of ZAR 66.15million (approximately £4.6 million). On 1 November 2006, the Company announced a software contract with a new clientfor the use of the Group's policy software anticipated to lead to revenues of atleast £2.9 million, most of which is expected to be recognised in the yearending 30 September 2007. FNS The majority of FNS' revenues are of a recurring nature from existing clients.This allows the Directors to be confident of FNS' prospects for the currentfinancial year. The Directors are not presently aware of any known trends, uncertainties,demands, commitments or events that are reasonably likely to have a materialeffect on FNS' prospects for the year ending 30 September 2007. The Enlarged Group The Directors remain confident in the underlying financial and trading prospectsof the Group for the financial year ending 30 September 2007 and have confidencein the prospects of the Enlarged Group for the same period. Profit estimate Under the Prospectus Rules, the following statement, contained in theannouncement of 4 October 2006, constitutes a profit estimate: "The Board is pleased to report that it expects Group results for the year ended30 September 2006 to be consistent with its overall expectations. The Groupexperienced strong organic growth in both adjusted profits and revenues, withrecurring revenues growing significantly in line with our strategy." Therefore, in accordance with the Prospectus Rules, the Company will provide areport on this profit estimate in the Prospectus, as summarised below: Adjusted profit is profit before tax, goodwill amortisation, loss on disposal ofcontinuing operations, share based payments and impairment of goodwill followingutilisation of previously unrecognised acquired tax losses. The Directors have used adjusted profit as a measure as they believe this is animportant measure for their own and Shareholders' assessment of the Group'sunderlying performance. The Directors of the Company estimate that for the year ended 30 September 2006,adjusted profit will demonstrate strong organic growth and therefore will not beless than £9.5 million. For the purpose of this profit estimate, the Directors define organic growth asexcluding the trading of any subsidiaries or associate undertakings acquiredduring the year ended 30 September 2006. The Directors of the Company also estimate that for the year ended 30 September2006 total adjusted profit (that is, including the trading performance ofacquisitions made in the year ended 30 September 2006) will not be less than£10.7 million. Dividend policy Whilst recognising the shift in business over the last two years towardsoutsourcing, the Directors do not believe it is yet appropriate to recommencethe payments of dividends. Therefore, the Company currently expects to retainfuture earnings to finance the growth and development of the business and doesnot anticipate paying cash or other dividends in the foreseeable future. TheBoard will keep the matter under review and any decision to recommend thepayment of a dividend in the future will reflect the Group's cash flow anddesired capital structure, as well as its future growth opportunities. Overseas Shareholders New Ordinary Shares will be provisionally allotted to all QualifyingShareholders, including Overseas Shareholders. However, subject to certainexceptions, Provisional Allotment Letters will not be sent to Qualifyingnon-CREST Shareholders with registered addresses in the United States or anyExcluded Territory nor will the CREST stock account of Qualifying CRESTShareholders with a registered address in the United States or any ExcludedTerritory be credited. Notwithstanding the foregoing, if a Qualifying Shareholder with a registeredaddress, or resident in any of the Excluded Territories can demonstrate to thesatisfaction of the Company and Hoare Govett that receipt, or acceptance, of theoffer in such jurisdiction will not breach local securities law then the Companyin its absolute discretion may either arrange for him or her to be sent aProvisional Allotment Letter if he or she is a Qualifying non-CREST Shareholderor, if he is a Qualifying CREST Shareholder, arrange for Nil Paid Rights to becredited to the relevant CREST stock account. Any Shareholder who believes thathe or she may be able to take advantage of the exception outlined above shouldcontact the Company Secretary (Jane Hall) in writing at The Innovation Groupplc, Yarmouth House, 1300 Parkway, Solent Business Park, Whiteley, HampshirePO15 7AE. Share Incentive Schemes To take account of the Rights Issue, the Remuneration Committee proposes toadjust options granted under the Share Incentive Schemes by increasing thenumber of Ordinary Shares under such options and reducing the price per share atwhich Ordinary Shares may be acquired on the exercise of options granted underthe Share Incentive Schemes. These adjustments, which will be made in accordancewith the rules of the Share Incentive Schemes, will be determined by theRemuneration Committee by reference to the theoretical ex-rights price ofOrdinary Shares and will not affect the aggregate amount payable by optionholders upon the exercise of options under the Share Incentive Schemes. If the Remuneration Committee considers it appropriate, the performanceconditions applicable to options granted under the Share Incentive Schemes willalso be adjusted to take account of the Rights Issue. The Remuneration Committeeintends that any adjusted performance targets will be no less demanding thanthose applicable prior to the Rights Issue. Any such change would be made inaccordance with the rules of the relevant Share Incentive Scheme. Details of any adjusted performance targets will be disclosed in the Directors'remuneration report for the financial year ended 30 September 2006. Prospectus and Extraordinary General Meeting A combined circular to Shareholders relating to the Acquisition and prospectusrelating to the Rights Issue is expected to be despatched on Friday 3 November2006. The Prospectus will give further details of the Acquisition and the RightsIssue and will contain a notice of the Extraordinary General Meeting of theCompany, expected to be held at the offices of the Company, Yarmouth House, 1300Parkway, Solent Business Park, Whiteley, Fareham, Hampshire PO15 7AE at 10.00a.m. on 20 November 2006 to seek Shareholders' approval of the Resolutions, setout in the notice of the Extraordinary General Meeting. If passed, the First Resolution will: (a) approve the Acquisition; and (b) in addition and without prejudice to any existing authority to allotOrdinary Shares, grant the Directors authority to allot relevant securities upto a maximum aggregate nominal amount equal to £3,614,000 million in connectionwith the Rights Issue, being 180,600,771 New Ordinary Shares, representing 40per cent of the Company's total issued ordinary share capital on 31 October2006, the latest practicable date prior to the publication of this announcement.This authority shall expire on the earlier of 15 months from the date of passingthe First Resolution and the conclusion of the next annual general meeting ofthe Company (unless previously revoked, varied or extended by the Company ingeneral meeting). The new authority to allot Ordinary Shares proposed to be granted to theDirectors will only be used for the Rights Issue and, to the extent unused, willlapse at the conclusion of the 2007 annual general meeting of the Company. If passed, the Second Resolution will increase the maximum remuneration payableto Non-executive Directors from £150,000 per annum in aggregate to £300,000 perannum in aggregate. The Second Resolution is being proposed pursuant to theauthority conferred by Article 109 of the Articles of Association of theCompany. Recommendation and Directors' intentions The Board considers the Acquisition to be in the best interests of the Companyand its Shareholders as a whole. The Board also considers the Rights Issue andall proposals in connection therewith that are to be considered in the FirstResolution to be in the best interests of the Company and its Shareholders as awhole. The Board has been advised by Hoare Govett in connection with theAcquisition and the Rights Issue. In advising the Board, Hoare Govett has placedreliance on the Board's commercial assessment of the Acquisition. The Board also considers the increase of Non-executive Director compensation tobe considered in the Second Resolution, by way of ordinary resolution pursuantto the authority conferred by Article 109 of the Articles of Association of theCompany, to be in the best interests of the Company and its Shareholders as awhole. Accordingly, in the Prospectus to be sent to Shareholders, the Board willunanimously recommend that Shareholders vote in favour of the Resolutions to beproposed at the EGM as the Directors have irrevocably undertaken to do inrespect of their own beneficial shareholdings of, in aggregate, 10,557,920Ordinary Shares, representing approximately 2.34 per cent of the issued sharecapital of the Company. Each of the Directors, other than Paul Smolinski, intends to take up in full hisrights to subscribe for New Ordinary Shares under the Rights Issue. PaulSmolinski intends to sell sufficient of his Nil Paid Rights during the nil paiddealing period to meet the costs of taking up the balance of his entitlement toNew Ordinary Shares. Appendix I EXPECTED TIMETABLE OF PRINCIPAL EVENTS 2006 Despatch of the Prospectus Friday 3 November Record Date for the entitlements under the Rights Issue 5.00 p.m. on Thursday 16 November Latest time and date for receipt of Forms of Proxy for 10.00 a.m. on Saturdayuse at Extraordinary General Meeting of The Innovation 18 NovemberGroup plc Latest time and date for receipt of electronic proxy 10.00 a.m. on Saturdayappointments via the CREST system1 18 November Extraordinary General Meeting 10.00 a.m. on Monday 20 November Despatch of Provisional Allotment Letters (to Qualifying Monday 20 Novembernon-CREST Shareholders only2) Dealings in New Ordinary Shares, nil paid, commence on 8.00 a.m. on Tuesdaythe London Stock Exchange 21 November Existing Ordinary Shares marked ''ex-rights'' by the 8.00 a.m. on TuesdayLondon Stock Exchange 21 November Nil Paid Rights credited to stock accounts in CREST as soon as practicable(Qualifying CREST Shareholders only2) after 8.00 a.m. on Tuesday 21 November Nil Paid Rights and Fully Paid Rights enabled in CREST as soon as practicable after 8.00 a.m. on Tuesday 21 November Recommended latest time for requesting withdrawal of Nil 4.30 p.m. on Tuesday 5Paid Rights or Fully Paid Rights from CREST (i.e. if your DecemberNil Paid Rights or Fully Paid Rights are in CREST and youwish to convert them into certificated form) Latest time and date for depositing renounced Provisional 3.00 p.m. on Friday 8Allotment Letters, nil paid or fully paid, into CREST or Decemberfor dematerialising Nil Paid Rights or Fully Paid Rightsinto a CREST stock account Latest time and date for splitting Provisional Allotment 3.00 p.m. on Monday 11Letters, nil paid or fully paid December Latest time and date for acceptance and payment in full 11.00 a.m. onand registration of renounced Provisional Allotment Wednesday 13Letters December Dealings in New Ordinary Shares, fully paid, commence on 8.00 a.m. on Thursdaythe London Stock Exchange and New Ordinary Shares 14 Decembercredited to CREST stock accounts (uncertificated holdersonly2) Despatch of definitive share certificates for New By Wednesday 20Ordinary Shares in certificated form (certificate holders Decemberonly2) Closing of the Acquisition By Friday 22 December Notes: (1) CREST Shareholders should inform themselves of CREST's requirementsin relation to electronic proxy appointments. (2) Subject to certainrestrictions relating to Shareholders with registered addresses outside the UK(details of which will be set out in the Prospectus) (3) The dates set out inthe expected timetable of principal events above and mentioned throughout thisannouncement may be adjusted by the Company (with the agreement of HoareGovett), in which event details of the new dates will be notified to the UKListing Authority and to the London Stock Exchange and, where appropriate, toShareholders. (4) References to times in this announcement are to London time. Appendix IIDEFINITIONS The following definitions apply throughout this announcement, unless the contextotherwise requires: ''Acquisition'' the proposed acquisition of FNS ''Admission'' the admission of the New Ordinary Shares, nil paid, to the Official List becoming effective in accordance with the Listing Rules and to trading on the market for listed securities of the London Stock Exchange becoming effective in accordance with the requirements contained in the publication ''Admission and Disclosure Standards'' dated November 2004, outlined by the London Stock Exchange and as amended from time to time containing amongst other things the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange's market for listed securities ''Board'' the Board of Directors from time to time ''business day'' a day (other than a Saturday or Sunday and public holidays) on which banks are open for general business in the City of London ''CCSS'' the CREST Courier and Sorting Service, established by CREST to facilitate, inter alia, the deposit and withdrawal of certificate securities ''certificated'' a share or other security which is not in uncertificated formor ''in (that is, not in CREST)certificatedform'' ''Closing'' the completion of the Acquisition pursuant to the terms of the Stock Purchase Agreement ''Company'' or The Innovation Group plc''The InnovationGroup" ''Concentra Concentra Integrated Services, Inc., a corporation organisedIntegrated under the laws of the State of Massachusetts, USServices" "Concentra Concentra Operating Corporation, a corporation organizedOperating under the laws of Nevada, USCorporation" ''CREST'' the relevant system (as defined in the CREST Regulations) in respect of which CRESTCo is the Operator (as defined in the CREST Regulations) ''CRESTCo'' CRESTCo Limited ''CREST Manual'' the rules governing the operation of CREST, consisting of the CREST Reference Manual, CREST International Manual, CREST Central Counterparty Service Manual, CREST Rules, Registrars Service Standards, Settlement Discipline Rules, CCSS Operations Manual, Daily Timetable, CREST Application Procedure and CREST Glossary of Terms (all as defined in the CREST Glossary of Terms promulgated by CRESTCo on 15 July 1996 and as amended since) ''CREST member'' a person who has been admitted by CRESTCo as a system member (as defined in the CREST Regulations) ''CREST the Uncertificated Securities Regulations 2001 (SI 2001 No.Regulations'' 3755) as amended from time to time ''CREST a CREST participant admitted to CREST as a CREST sponsorsponsor'' ''CREST sponsored a CREST member admitted to CREST as a sponsored membermember'' ''Director'' a director of the Company for the time being ''Disclosure the Disclosure Rules of the Financial Services AuthorityRules" ''Enlarged the Group as enlarged following ClosingGroup" "Escrow the delivery of the Escrow Documents (as defined in the StockCompletion" Purchase Agreement) by Concentra Integrated Services to TiG Acquisition Co.'s attorneys to hold in accordance with the provisions of the Stock Purchase Agreement ''EU" the European Union ''Executive a Director holding executive office for his servicesDirector" ''Excluded Australia, Canada, Japan, South Africa and New ZealandTerritories'' ''Extraordinary the extraordinary general meeting of the Company, notice forGeneral Meeting'' which is contained in the Prospectus, convened for 10.00 a.m.or "EGM" on 20 November 2006 at the office of the Company, Yarmouth House, 1300 Parkway, Solent Business Park, Whiteley, Fareham, Hampshire PO15 7AE and any adjournment thereof at which the Resolutions will be proposed ''FNS" First Notice Systems, Inc. ''Financial the UK Financial Services AuthorityServicesAuthority'' ''Financial the Financial Services and Markets Act 2000 (as amended fromServices and time to time)Markets Act'' or''FSMA'' ''First the first resolution to be proposed at the EGM, in respect ofResolution'' the Acquisition, a share capital increase and the allotment of New Ordinary Shares, as set out in the notice of EGM ''Fully Paid rights to acquire New Ordinary Shares, fully paidRights'' ''Group'' or the Company and its subsidiaries''The InnovationGroup'' ''Hoare Govett'' Hoare Govett Limited ''Listing the listing rules of the UK Listing Authority (as amendedRules'' from time to time ) made pursuant to section 74 of the Financial Services and Markets Act ''London Stock London Stock Exchange plcExchange'' ''New Ordinary the new Ordinary Shares which the Company is proposing toShares'' allot and issue pursuant to the Rights Issue ''Nil Paid rights to acquire New Ordinary Shares, nil paidRights'' ''Non-executive a Director who does not hold executive office for hisDirector'' services ''Official the official list of the UK Listing AuthorityList'' ''Ordinary ordinary shares of 2 pence each in the capital of theShares'' or Company''Shares'' ''Overseas shareholders with registered addresses in, or who areShareholders'' citizens, residents or nationals of, jurisdictions outside the United Kingdom ''Prospectus'' the combined circular to Shareholders relating to the Acquisition and prospectus relating to the Rights Issue expected to be despatched on 3 November 2006, together with any supplements or amendments thereto ''Prospectus the rules made for the purposes of Part VI of FSMA inRules'' relation to the offers of transferable securities to the public and admissions of transferable securities to trading on a regulated market and brought into effect on 1 July 2005 pursuant to Commission Regulation (EC) No. 809/2004 ''Provisional the renounceable provisional allotment letter representingAllotment Letter'' Nil Paid Rights or Fully Paid Rights to be issued toor ''PAL" Qualifying non-CREST shareholders (other than, subject to certain exceptions, Qualifying Shareholders with a registered address in the United States or the Excluded Territories) ''Qualifying CREST Qualifying Shareholders holding Ordinary Shares inShareholders'' uncertificated form ''Qualifying Qualifying Shareholders holding Ordinary Shares innon-CREST certificated formShareholders'' "Qualifying Shareholders on the register of members of the Company atShareholders" 5.00 p.m. on the Record Date ''Record Date'' 16 November 2006 ''Registrars'' and Capita IRG plc"ReceivingAgent" ''Regulation S'' Regulation S under the Securities Act ''Resolutions'' the First Resolution and the Second Resolution ''Rights Issue'' the proposed issue by way of rights of up to 180,600,771 New Ordinary Shares to Qualifying Shareholders, on the terms and subject to the conditions to be set out in the Prospectus and, in the case of Qualifying non-CREST Shareholders only, in the Provisional Allotment Letter ''Rights Issue 21 pence per New Ordinary SharePrice'' ''SEC'' United States Securities and Exchange Commission ''Second the second resolution to be proposed at the EGM, in respectResolution'' of an increase in the amount of remuneration that may be payable to Non-executive Directors, as set out in the Notice of EGM ''Securities the United States Securities Act of 1933, as amendedAct'' ''Shareholder'' a holder of Ordinary Shares ''Share Incentive the Approved Company Share Option Scheme (''CA Scheme''), theSchemes'' Unapproved Company Share Option Scheme (''CU Scheme''), the Global Share Option and Incentive plan (''Global Scheme'') and the Performance Share Plan (''LTIP'') ''Stock Purchase the Stock Purchase Agreement, dated 2 November 2006 betweenAgreement'' the Company, TiG Acquisition Co., Concentra Integrated Services, Concentra Operating Corporation and FNS "SurePlan" SurePlan International Pty Limited, an Australian based holding company which owns a 51 per cent controlling interest in SurePlan USA, Inc ''TiG Acquisition TiG Acquisition Co., an indirectly wholly owned subsidiary ofCo.'' the Company organised under the laws of the State of Delaware, US ''UK GAAP'' generally accepted accounting principles in the United Kingdom ''UK Listing the Financial Services Authority acting in its capacity asAuthority'' the competent authority for the purposes of Part VI of the Financial Services and Markets Act including where the context so permits, any committee, employee, officer or servant to whom any function of the UK Listing Authority may for the time being be delegated ''uncertificated'' recorded on the relevant register of the share or securityor ''in concerned as being held in uncertificated form in CREST, theuncertificated title to which, by virtue of the CREST Regulations may beform'' transferred by means of CREST ''Underwriting the conditional underwriting agreement dated 2 November 2006Agreement'' between the Company and Hoare Govett relating to the Rights Issue ''United Kingdom'' the United Kingdom of Great Britain and Northern Irelandor ''UK'' ''United States'' the United States of America, its territories andor ''US'' possessions, any State of the United States and the District of Columbia Terms defined in the CREST Manual shall, unless the context otherwise requires,bear the same meanings where used in this announcement. 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