Rights Issue and Acquisition

Clarity Commerce Solutions PLC
15 October 2001

CLARITY COMMERCE SOLUTIONS PLC

Rights Issue and acquisition of Flex Systems Limited


The Board announces a rights issue of 3,434,904 new ordinary shares at a price
of 75 pence per new ordinary share. The rights issue, which is underwritten by
Williams de Broe Plc on the basis of 4 new ordinary shares for every 11
existing ordinary shares held at the record date and will raise approximately
£2.13 million, net of expenses, to fund the growth in business that the Group
is currently experiencing.


The Board also announces the acquisition of Flex Systems Limited ('Flex'), a
provider of leisure management systems in the local authority market place.
Under the terms of the acquisition agreement, Clarity will pay a maximum total
consideration of £3.9 million funded from existing resources and from the
enlarged group's future income stream. The initial consideration of £2.1
million payable on completion will be satisfied by the allotment of 1,046,511
ordinary shares which do not qualify for entitlements under the rights issue,
valued in aggregate at £900,000, a cash payment of £200,000 and the issue of £
1 million of guaranteed loan notes. Deferred consideration of up to £1.8
million will be payable by a mixture of guaranteed and unguaranteed loan notes
and further ordinary shares depending on the value of the net assets of Flex
at completion and the trading performance of Flex for the 24 month period
ending 31 October 2003.


As part of these proposals Clarity has entered into a facilities agreement
with Bank of Scotland.


Background


The hospitality market in which the Group operates is continuing to grow and
the Directors believe that the restructuring of many companies in this market,
to create new multi-site groups, presents significant opportunities for
Clarity. The pub retailing sector in particular is experiencing changes in
ownership and this has provided opportunities to replace existing Electronic
Point of Sale ('EPOS') systems. In addition, because Clarity is not hardware
dependent, the Company can offer potential clients with outdated software a
cost efficient way of upgrading the systems and management information without
replacing hardware.


The last year has been a period of significant development for the Group. The
raising of the Group's profile resulting from its flotation in July 2000 has
provided new business winning opportunities. This is evidenced by contract
wins including those with Punch Retail Limited, Millhouse Inns (Trading)
Limited, San Marzano S.A (Pizza Express (Spain)), Hartford Group PLC, P&O
Stena Line Limited and Translucis UK Limited as well as National Union of
Students Services Limited to which Clarity has been appointed sole recommended
supplier. Additionally, the Group has become an IBM Business Partner.


In the nightclub sector, there has been a growth in the number of frequent
club-goers and an ongoing increase in consumer spending. Operators are looking
to sophisticated EPOS driven data to assist them to react more rapidly to
sales trends and to optimise profits.


Clarity also operates in the fine dining and branded restaurant markets. To
facilitate table service, Clarity is introducing a hand held order input
terminal.


Flex Systems Limited


Flex, established in 1986, specialises in supplying systems for local
authority leisure services departments. It also continues to maintain systems
developed in the past for local government administration of housing and
benefits, but has not sold these products since 1995. The existing management
team, consisting of Malcolm Hammond, Lee Butcher and Michael Stedman will each
enter into service contracts with Flex following completion of the
acquisition.


Turnover for the year ended 30 June 2001 was £1.586 million (2000: £1.257m)
and profit before tax would have been £461,000 (2000: £266,000) after
adjusting to charge directors' salaries amounting to £180,000 and estimated
benefits in kind, pension contributions and national insurance contributions
of £75,000 under their new service agreement.


Products


Flex installs and provides training and support for two software packages,
custom built to meet the needs of local authority owned leisure service
departments:


LeisureFlex - caters for the facility management requirements of leisure &
community centres such as admissions, bookings, membership, courses, door
access and management information. The Directors believe that the ability to
view and book facilities at local authority leisure establishments, whilst in
receipt of information on other simultaneous booked activities, improves
customer service and provides additional revenue generating opportunities.

The booking and planning modules assist in the allocation of resources at
multi-function establishments, such as sports halls, as well as producing
planning schedules for event preparation. The system manages the leisure
centre's booking, resource planning and certain accounting functions, allowing
multi-level pricing, cash and debtor controls. Currently, this product has
been sold to 45 customers operating, in aggregate, some 270 sites, with the
largest customer, Birmingham City Council, operating 35 sites.


In addition, Flex have recently launched a central web-based, real-time,
on-line booking system at Birmingham City Council. This allows a member of the
leisure facility to use the web to see the availability of specific facilities
e.g. tennis courts at his local club and book them or, if fully booked, the
system identifies alternative facilities for the chosen time amongst the other
leisure centres in the area.


TheatreFlex - caters for the requirements of a theatre or other venue where
seated events take place such as box office reservations, ticketing, multiple
seating plans, house analysis and management information. TheatreFlex allows
booking office staff to optimise the allocating of seating within relevant
pricing categories. This product has been sold to 14 customers operating, in
aggregate, 19 sites.


Market


Flex's traditional market has been centred upon local authority owned
facilities, where it has developed a detailed understanding of the
requirements of local authorities which require highly flexible reporting
systems for the presentation of statistics.


The compulsory tendering process undertaken by local authorities through the
'best value programme' has opened management of council facilities to the
private sector. The Directors believe that Flex's reputation for quality of
product, reliability and customer service will result in a number of sales
opportunities in the private sector.


The Directors also believe that the private sector, whilst requiring many of
the same system features as local authorities, places greater emphasis upon
secondary spend. This generation of additional income from customer spend in
bars and restaurants provides opportunities for Clarity for the provision of
EPOS systems, loyalty, back office and estate management software.


LeisureFlex and TheatreFlex are long established systems in the market, having
been installed in approximately 300 venues. Customers include large councils
such as Birmingham City Council, West Lancashire District Council, Swindon
Borough Council, Gloucester City Council, Leeds City Council, Newcastle City
Council, London Boroughs of Newham and Southwark, Cardiff City Council and the
Isle of Wight Council.


Flex has traditionally undertaken nominal marketing activity but enjoys a high
level of business from customer recommendations. Recurring revenue for support
and maintenance in the year to 30 June 2001 was £682,000 (of which £616,000
was recorded in the audited accounts of Flex in that year).


Competition


There are a number of companies offering similar products to those of Flex.
However, the Directors believe that these companies do not have the extensive
experience of the Flex management team of the requirements of local
authorities, nor do their products match the functionality of LeisureFlex or
TheatreFlex.


Benefits of the acquisition


The Directors believe that Clarity will gain in three distinct areas from the
acquisition:


  * Entry into a new market place (local authority) and therefore the
    platform to sell Clarity's range of software;


  * Ability to use Clarity sales and marketing resource to improve market
    awareness of Flex products; and


  * Ability to provide a fully integrated solution for leisure customers,
    from booking and entry through to EPOS sales. This provides opportunities
    for charge cards, loyalty and promotional activities as well as links to
    financial packages.


In particular, Clarity already has, with its Loysys software, a product with
which to exploit databases generated via membership and bookings software. The
ability to combine this with a system which handles all customer bookings,
tracks usage, controls spend in bars and restaurants as well as providing a
pro-active loyalty programme to increase visits and promote secondary spend
will, in the Directors' opinion, be highly attractive to any multi-function
venue such as health and leisure clubs.


Reason for the Rights Issue


The Directors believe that to raise additional funds by way of rights issue is
the most appropriate means of providing the Company with the additional
working capital required for the enlarged group. In July 2000 the Company
raised £2 million, net of expenses, by way of a placing. This amount has been
utilised to repay loan notes of £490,000, to fund marketing and research and
development, to finance an increase in personnel from 58 in June 2000 to 92
today and to provide working capital to implement contract wins.


The Rights Issue


Under the terms of the rights issue, the Company is proposing to issue
3,434,904 New Ordinary Shares at a price of 75 pence per share representing a
36 per cent. increase in the Company's issued share capital before the
acquisition. The new ordinary shares have been provisionally allotted on the
following basis:


4 new ordinary shares for every 11 existing ordinary shares


held at the close of business on the 8 October 2001 and so in proportion to
any greater number of existing ordinary shares then held.


Entitlements of qualifying shareholders will be rounded down to the nearest
whole number of new ordinary shares. Fractional entitlements which would
otherwise have arisen will not be allotted to qualifying shareholders, but
will be aggregated and placed in the market for the benefit of the Company.


The new ordinary shares, when fully paid, will rank pari passu in all respects
with existing ordinary shares and the shares as part of the consideration for
Flex, including the rights to receive all dividends and distributions declared
after 8 October 2001.


The rights issue, which is underwritten by Williams de Broe, is conditional
upon:


 a. The underwriting agreement not having been terminated in accordance with
    its terms prior to admission and otherwise becoming unconditional in all
    respects, and

 b. Admission to trading on the Alternative Investment Market becoming
    effective on or before 8.30am on 16 October 2001 (or such later time and/
    or date as Williams de Broe may decide, being not later than 8.30am on 23
    October 2001).


The latest time and date for acceptance and payment in full for the rights
issue is expected to be 3.00pm on 5 November 2001.


Irrevocable Undertakings


G York and D F J Shearmon, the two director shareholders, and Southwind
Limited have irrevocably undertaken not to take up their respective
entitlements to new ordinary shares under the rights issue amounting in
aggregate to 1,811,757 new ordinary shares. Arrangements have been made by
Williams de Broe Plc to place the whole of these entitlements firm, of which
666,667 new ordinary shares have been placed firm with A L R Morton, the
non-executive chairman, at the issue price, representing an investment of
approximately £500,000.


EIS/VCT Clearance


The Company has received confirmation from the Inland Revenue that the new
ordinary shares will be eligible shares under the EIS and VCT Rules.


Board Appointments


The Directors intend to further strengthen the Board by the appointment of a
finance director and a sales director during the current financial year.


Current Trading and Prospects


The Company published its maiden annual report and accounts since flotation
for the period ended 31 March 2001 in June. Significant further progress has
been made since the publication of the report and accounts.


Clarity has recently announced a number of contract wins. These include:


  * an additional contract with Punch DevCo in respect of further
    implementation of back office software and corporate data links, with
    particular emphasis on staff and HR;


  * a contract with Translucis UK Limited to supply Clarity's EPOS systems
    across 24 of its outlets and providing central data feedback for sales and
    marketing, currently valued at £138,000;


  * a contract with National Union of Students Services Limited, expected to
    contribute approximately £500,000 in revenue over the next twelve months,
    making Clarity the preferred supplier to universities and colleges
    nationwide; and


  * a further contract with Hartford Group PLC, including the well-known
    Pharmacy Restaurant and bar, to use Clarity Central head office software
    to link the restaurant estate of Hartford Group PLC to its head office.


In addition, the Group is currently undertaking a number of important pilots
for major public house groups that could lead to significant roll-outs
expected, by the Board, to commence during 2002.


Current trading is in line with the Board's expectations. The Group has now
commenced trading profitably, before amortisation of goodwill, and the order
book and the sales pipeline provides the Directors with confidence in the
Company's prospects for the current financial year.






Copies of the prospectus dated 15 October 2001 will be available, free of
charge, from the registered office of the Company for a period of one month.


Clarity's registered office is Number One, Netherhampton Business Centre,
Netherhampton, Salisbury, Wiltshire SP2 8PU.