Subscription to raise £3.95 million & Refinancing

Eleco plc

(“Eleco” or the “Company”)

Subscription to raise up to £3.95 million at 20.75p per share; new Bank Refinancing facilities of up to £5 million and Notice of General Meeting

The Company announces proposals to raise up to £3.95 million through a Subscription of New Ordinary Shares at 20.75p per share and that it has also entered into a Bank Refinancing agreement with Barclays of up to £5 million, comprising a £3 million term loan repayable by quarterly instalments over 4 years and an overdraft facility for up to £2 million renewable in June 2015.

Approximately £3.32 million of the Subscription of up £3.95 million is conditional, inter alia, on the passing by Shareholders of a special resolution to be proposed at a General Meeting convened for 10.00 a.m. on 9 July 2014 2014. Firm subscription applications have already been received for approximately £2.3 million of new Ordinary Shares at 20.75p per share. Shareholders holding 25,517,699 shares, representing 42.07 per cent. of the Existing Ordinary Shares, have irrevocably undertaken to vote in favour of the special resolution.

The First Subscription Shares, consisting of 3,028,405 new ordinary shares have been issued and allotted by the Company and the relevant application has been made to AIM for these shares to be admitted to trading on AIM, which is expected to occur at 08.00 a.m. on 24 June 2014.

A circular containing the details of the Subscription, Bank Refinancing and Re-Banking(the “Circular”) has today been posted to Shareholders of Eleco and will be available to view shortly on the Company’s website at: eleco.com

The same definitions apply throughout this announcement as are applied in the Circular.

Commenting, John Ketteley, Executive Chairman of Eleco said,

“Eleco’s profitable software interests in the UK, Germany and Sweden are leading providers of innovative state of the art software solutions and tools to the construction industries they serve in the UK, Sweden and Germany and, increasingly, in other markets worldwide.

I would like to say on behalf of the Board of Eleco and of all our highly skilled and creative employees, that we are truly delighted to be able to announce the Subscription to raise new equity, and the Bank Refinancing arrangements that we have entered into with Barclays today, which we are confident will provide a sound financial base for Eleco’s further expansion. “

Enquiries:

Introduction

On 4 June 2014, the Company released its preliminary announcement of results for the year ended 31 December 2013 and Shareholders have either been sent the Annual Report and Accounts for the year ended 31 December 2013, together with the notice of the Company’s annual general meeting, or have been notified that they are available on the Company’s website. These report a pre-tax profit of £1 million attributable to the Group’s continuing operations (being its Software Businesses) and a loss of £11.1 million attributable to the Group’s discontinued operations (being its ElecoBuild and ElecoPrecast Businesses).

As a consequence, the net assets of the Company as at 31 December 2013 had been reduced to £1.3 million, being less than half of its paid-up share capital. The Directors are therefore convening a General Meeting of the Company pursuant to section 656 of the Act, to consider whether any, and if so what, steps should be taken to remedy the situation.

The actions that have already been taken to deal with this situation thus far, together with the actions referred to in the accompanying Resolution, are steps that are intended to remedy this situation and, the Directors consider that conditional upon Shareholders approving the Resolution, no further action will be necessary to do so. Shareholders have today been sent a Notice of General Meeting to be held at 10.00 am on 9 July 2014 at the offices of Bates Wells & Braithwaite, London LLP, Scandinavian House, 2-6 Cannon Street, London, EC4M 6YH.

The Company today announces that it intends to raise up to approximately £3.95 million (before fees and expenses) through the issue and allotment of the First Subscription Shares and the Second Subscription Shares.  The Second Subscription Shares comprise 8,069,844 Second Firm Subscription Shares to be subscribed by the Subscribers at a subscription price of 20.75 pence per Ordinary Share and up to 7,937,891 Excess Subscription Shares in respect of which the Company is also prepared to receive expressions of interest from Shareholders. Accordingly, any Shareholder wishing to express an interest in subscribing for any Excess Subscription Shares should contact the Company Secretary at ivor.barton@eleco.com by no later than 10 am on 7 July 2014. The Company has set out in its latest Annual Report and Accounts the background and reasons for the refinancing of Eleco by way of the Subscription for new ordinary shares and the proposals for re-banking with Barclays Bank. The First Subscription Shares were allotted and issued today, conditional on their Admission, which is expected to occur on 24 June 2014.  A General Meeting of the company will be held at 10.00 a.m. on 9 July 2014, at which a Resolution will be proposed and, if approved, would enable the Second Subscription to be completed. It should be noted that the First Subscription and the Second Subscription are not inter-conditional.

General Meeting pursuant to section 656 of the Act

The substantial loss of capital incurred by Eleco in the year ended 31 December 2013 was due to the substantial impairment of its investment in its Building Products and Precast Concrete subsidiaries as a consequence of the substantial losses sustained by those subsidiaries during 2013 together with the effect of enforced sale by those subsidiaries of their of their assets and businesses during the year. Accordingly, a loss of £ 21.7 million was sustained by the Eleco, which was reflected in its profit and loss account and had the effect of reducing the capital employed by Eleco from £23.0 million at 1 January  2013 to £1.3 million at 31 December 2013.

As a consequence of the necessary disposals by Eleco of its loss making UK Building Products and Precast Concrete interests in 2013, the Eleco Group’s operations now solely comprise its profitable  construction Software Businesses, the prospects for which the Board considers would be excellent and would also be enhanced following the implementation of the proposed equity raising by way of Subscription and also following the implementation of the new banking arrangements with Barclays, which the Company believes will encourage the profitable expansion of its international software interests as well as those in the UK.

Accordingly, the Directors consider that no further action will be necessary to deal with the situation, which the directors have drawn to shareholders attention pursuant to Section 656 of the Act.

The Re-Banking and Bank Refinancing

Eleco is pleased to report that the Company has reached an agreement with Barclays for the New Facilities, comprising a £3 million term loan repayable by quarterly instalments over four years and an overdraft facility for up to £2 million.

The New Facilities, when drawn down, which the Board anticipates will take place immediately following Second Admission, will be used to repay the outstanding borrowings from the Company’s existing bankers.

Eleco is most gratified to have secured the new arrangements with Barclays with whom it looks forward to having a lasting and constructive relationship. It became apparent during its discussions with Barclays that it had a clear understanding of the dynamics and potential of the Group’s continuing operations, which now comprise only its Software Businesses, which operate principally in the UK, Sweden and Germany but also in other international markets, and have historically been consistently profitable and cash generative.

Eleco agreed with Barclays during its initial discussions that it would be desirable for the Company to raise additional equity capital at the same time as the New Facilities were put into place.  Accordingly, Barclays specified a minimum amount of additional funding that it required to be raised when the New Facilities were to be utilised. It was also a requirement of Barclays that the new equity funding should be raised in a manner which provided clarity as to the minimum amount and timing of the equity to be raised in order to facilitate repayment of the Company’s existing bank borrowings as soon as practicable. Accordingly, the Company and the Subscribers have entered into the Subscription arrangements detailed below with a view to achieving these objectives with certainty.

The Subscription

On 23 June 2014, the Company entered into a Subscription Letter with each of the Subscribers, pursuant to which they will subscribe for the First Subscription Shares and, conditional on the Resolution being passed, the Second Firm Subscription Shares. The Subscribers’ commitments under the Subscription Letters are irrevocable, save in circumstances where a material adverse change to the Group’s business occurs.

The Company is proposing to raise up to approximately £3.95 million (before fees and expenses) by way of a Subscription of up to 19,036,143 new Ordinary Shares at the Subscription Price. The First Subscription Shares represent approximately 3.80 per cent.  of  the  Enlarged Share  Capital   and   the  Subscription   Shares (comprising  the  First Subscription  Shares  and  the  Second  Subscription  Shares, assuming all Excess Subscription Shares are issued) will represent  approximately 23.88 per cent. of the Enlarged Share Capital. The Subscription Price was the Closing Price of the Existing Ordinary Shares at the closing date before the application forms for the Subscription were entered into.

The Subscription is in three parts:

·     the First Subscription Shares (raising gross proceeds of £628,394), have  been  allotted and issued to the Subscribers using existing Shareholder authorities, conditional only on First Admission;

·     on the passing of the Resolution:

o  the Second Firm Subscription Shares (raising gross proceeds of £1,674,493) will be allotted and issued to the Subscribers, conditional only on Second Admission; and

o  any Excess Subscription Shares (raising gross proceeds of up to £1,647,112), for which the Company is seeking expressions of interest from Shareholders, may be allotted and issued conditional only on Second Admission. The allotment and issue of any Excess Subscription Shares is at the discretion of the Directors.

As explained above, the raising of new equity by the allotment and issue of the First Subscription Shares and the Second Firm Subscription Shares will enable the Company to (i) to repay its outstanding liabilities to its existing bankers and (ii) re-bank with Barclays.  In the opinion of the Directors, the proceeds of the allotment and issue of any Excess Subscription Shares will strengthen the Company’s cash resources which would facilitate the implementation of its future growth plan.

The Subscription Shares will be issued credited as fully  paid and will rank in full for all dividends  and other distributions  declared, made  or paid  after their respective Admissions,  and will otherwise  rank on Admission  pari passu in all respects  with the Existing Ordinary  Shares. The Subscription Shares are not, and will not, be offered or sold in any jurisdiction where it would be unlawful to do so.

Shareholders are being asked to approve the Resolution, so that the Second Firm Subscription proceeds may be received by the Company at the earliest opportunity and to give the Directors the flexibility to raise additional equity capital by allotting and issuing Excess Subscription Shares if they deem it appropriate.

In the event that the Resolution is not passed, the Company’s cash position will be constrained by a shortage of operational headroom until such time as alternative arrangements are put in hand by the Company to secure the additional funds, which the Board has targeted to raise. In addition, further significant fees may be incurred with the Company’s existing bankers. This would be likely have an adverse impact on the Group’s operations.

The Directors believe that the Subscription is in the best interests of the Company and Shareholders as a whole, and that the timely receipt of proceeds raised via the Subscription is necessary to give the Company the financial flexibility to benefit from the New Facilities in early course and grow. If any Shareholder wishes to express an interest in subscribing for any Excess Subscription Shares, they should contact the Company Secretary at ivor.barton@eleco.com by no later than 10 am on 7 July 2014.

General Meeting

The Circular, which was posted to Shareholders today, contains a notice convening a General Meeting of the Company to be held the offices of Bates Wells & Braithwaite London LLP, Scandinavian House, 2-6 Cannon Street, London, EC4M 6YH at 10 a.m. on 9 July 2014, at which:

·     the Directors’ proposals to deal with the loss of capital will be considered; and

·     a special resolution will be proposed to authorise the Directors  to allot new Ordinary Shares pursuant to the Second  Subscription on a non-pre-emptive basis.

Other matters under consideration by the Directors

Following Second Admission, the Board will consider, with its advisors, proposals for consideration by Shareholders to reorganise the Company’s share capital and is likely to seek Shareholders’ approval (together with the approval of the Court) for the cancellation of some of the Company’s undistributable capital reserves to allow for the declaration of dividends in the future.  The Directors intend to publish a circular to Shareholders setting out a detailed proposal together with a further proposal to implement a new employee share option plan.

Admission, Settlement and CREST

Application for Admission of the First Subscription Shares has been made and it is expected that First Admission will become effective  on  or  around  24 June 2014  and  that  dealings  in  the  First Subscription  Shares  will commence at that time.  Applications will be made to the London Stock Exchange for the Admission of the Second Subscription Shares to trading on AIM and that, subject to the Resolution being passed, Second Admission will become effective on or around 10 July 2014 and that dealings in the Second Subscription Shares will commence at that time.

The Articles permit the Company to issue shares in uncertificated form in a computerised paperless share transfer and settlement system which allows shares and other securities to be held in electronic rather than paper form. The Ordinary Shares are already admitted to CREST and therefore the Subscription Shares will also be eligible for settlement in CREST. CREST is a voluntary system and Shareholders who wish to retain certificates will be able to do so upon request.  The Subscription Shares due to uncertificated holders are expected to be delivered in CREST on 28 June in respect of the First Subscription and, subject to the Resolution being passed, on 14 July in respect of the Second Subscription.

Action to be taken by Shareholders in respect of the General Meeting

Shareholders will find enclosed with the Circular a Form of Proxy for use at the General Meeting. Whether  or not you propose  to attend  the General  Meeting in person,  you are strongly encouraged to complete, sign and return your Form of Proxy in accordance with the instructions  printed  on it as soon as possible,  but in any event so as to be received,  by post or, during normal business hours only, by hand,  at Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham BR3 4TU, by no later than 10 a.m. on 7 July 2014 (or, in the case of an adjournment of the General  Meeting, not later than 48 hours before the time fixed for the holding of the adjourned meeting (excluding any part of a day that is not a Business Day)).

If you hold  your Ordinary  Shares in uncertificated form (that is, in CREST) you may vote using the CREST Proxy Voting service in accordance with the procedures set out in the CREST Manual  (please also refer to the accompanying notes to the Notice  of the General  Meeting set out at the end of the Circular). Proxies submitted via CREST must be received by the Company’s agent by no later than 10 a.m. on 7 July 2014 (or, in the case of an adjournment, not later than 48 hours before the time fixed for the holding  of the adjourned meeting  (excluding  any part of a day that is not a Business Day)).

Appointing a proxy in accordance with the instructions set out above will enable your vote to be counted at the General Meeting in the event of your absence. The completion and return of the Form of Proxy or the use of the CREST Proxy Voting service will not prevent you from attending and voting at the General Meeting, or any adjournment thereof, in person should you wish to do so.

Directors’ participation in the First Subscription and the Second Firm Subscription

* These numbers and percentages are calculated assuming that all the maximum number of Excess Subscription Shares is issued and none are subscribed by John Ketteley or Jonathan Cohen.

Irrevocable Undertakings

In total, the Company has received irrevocable undertakings and undertakes to procure that votes will be cast in favour of the Resolution in respect of holdings totaling, in aggregate, 25,517,699 Ordinary Shares, representing approximately 42.07 per cent. of the Existing Ordinary Shares.

Recommendation

The Directors believe that the Resolution to be proposed at the General Meeting is in the best interests of the Company and Shareholders as a whole and unanimously recommend that you vote in favour of the Resolution as they have irrevocably undertaken to do in respect of their own beneficial holdings totaling 9,244,407 Ordinary Shares, representing approximately 15.24 per cent. of the Existing Ordinary Shares of the Company as at the date of this announcement.

Expected timetable of principal events