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Watermark Group PLC (IM31)

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Tuesday 08 May, 2007

Watermark Group PLC

Posting of Circular

Watermark Group PLC
08 May 2007


For immediate release                                             8 May 2007


                              Watermark Group Plc

                                (the 'Company')

         Posting of Circular and Related Party and Class 2 Transactions


Further to the announcement made on 1 May 2007, the Company confirms that a
circular containing full details of the proposed placing and offer of £8,000,000
principal amount of Secured Fixed Rate Convertible Bonds due 2010 (the
'Convertible Bonds'), including a notice of the extraordinary general meeting to
be held at 11.00 a.m. on 4 June 2007 (the 'EGM'), has been posted to the
Company's shareholders (the 'Circular').

As described in the Circular, the placing and offer comprises (1) a firm placing
of £1,741,500 in principal amount of Convertible Bonds with Strategic Equity
Capital Plc ('SEC'), Strategic Recovery Fund II and its co-investment vehicle
SVG Capital Plc (together 'SRFII'), Dawnay, Day Properties Limited and North
Atlantic Value LLP (together the 'Underwriters'), and (2) the offer of up to
£6,258,500 in principal amount of Convertible Bonds made by the Company to
shareholders who hold at least 204,453 ordinary shares of 1p each in the Company
('Ordinary Shares'), excluding the Underwriters and shareholders in certain
overseas jurisdictions (a 'Qualifying Investor') on a basis proportional to
their existing shareholdings and entitlement to Ordinary Shares. The Convertible
Bonds are being offered to Qualifying Shareholders on the basis of 1 £1
denomination Convertible Bond for every 5.84 Ordinary Shares held or which the
Company is contracted to issue on 30 April 2007 (the 'Record Date'). The placing
and offer are conditional, inter alia, on approval by shareholders, which will
be sought at the EGM.

The Circular contains details of related party transactions in relation to the
placing and offer of the Convertible Bonds which are Class 2 transactions for
the purposes of the listing rules made by the UK Listing Authority (the 'Listing
Rules') details of which are set out below.

Further to the announcement made on 1 May 2007, also set out below are details
of the service agreements with Stephen Yapp and Peter Fitzwilliam, who were at
the time proposed directors of the Company.

Related Party and Class 2 Transactions

1. The Company is seeking to place in aggregate £700,000 in
   principal amount of Convertible Bonds at par value to SEC, which is a
   substantial shareholder for the purposes of the Listing Rules and therefore a
   related party as it holds in excess of 10 per cent. of the entire issued share
   capital of the Company, and to place in aggregate £529,647 in principal amount
   of Convertible Bonds at par value to SRFII, an associate of SEC. Such placing of
   Convertible Bonds to SEC and SRFII is on a basis proportional to SEC's existing
   shareholding at the Record Date. A resolution has been proposed in the Circular
   to approve this non pre-emptive placing of Convertible Bonds, as it is being
   made to a related party and an associate of a related party for the purposes of
   the Listing Rules.

2. The Company is offering the Max Ostro Children's Trust, the
   Max Ostro Grandchildren's Trust, Violette Management Limited, Radiance Services
   Limited and Media on the Move Holdings Limited (the 'Ostro Trusts'), of which
   Maurice Ostro is a potential beneficiary, and therefore each of which is
   considered to be an associate of a related party for the purposes of the Listing
   Rules, the opportunity to subscribe for a total of £709,380 in principal amount
   of the Convertible Bonds at par value. The Company has contracted to issue
   Ordinary Shares to some of the Ostro Trusts pursuant to a share purchase
   agreement dated 20 January 2004 for the purchase by the Company of Air Fayre
   Limited; such Ordinary Shares had not been entered on the register of members of
   the Company at the Record Date, but will be counted by the Company when
   calculating the proportionate entitlement of the Ostro Trusts and Qualifying
   Investors to subscribe for Convertible Bonds. Such offers of Convertible Bonds
   are otherwise as described above on a basis proportional to their existing
   shareholding. A resolution has been proposed to approve this non pre-emptive
   offer of Convertible Bonds as it is being made to associates of a related party
   for the purposes of the Listing Rules.

3. The Company is offering John Caulcutt, who was a director of the Company 
   within the last 12 months, to subscribe for a total of £799,050
   in principal amount of Convertible Bonds at par value. Such offer of Convertible
   Bonds is on a basis proportional to his existing shareholding at the Record
   Date. A resolution has been proposed to approve this non pre-emptive offer as it
   is being made to a related party for the purposes of the Listing Rules.

4. The Company is offering John Anstruther-Gough-Calthorpe, who was a director 
   of the Company within the last 12 months, to subscribe for a
   total of £452,412 in principal amount of Convertible Bonds at par value. Such
   offer of Convertible Bonds is on a basis proportional to his existing
   shareholding at the Record Date. A resolution has been proposed to approve this
   non pre-emptive offer as it is being made to a related party for the purposes of
   the Listing Rules.

The Company believes that the related party transactions set out above should be
approved and should be made on a non pre-emptive basis because this will
maximise the distribution of Convertible Bonds that are issued pursuant to the
placing and offer to Qualifying Investors. Accordingly, in the Circular, the
Company has recommended that shareholders vote in favour of the relevant
resolutions, as set out above, at the EGM. These Convertible Bonds will also
contribute towards the Company repaying a proportion of its indebtedness.

Convertible Bonds

The Convertible Bonds bear interest from 4 June 2007 (the 'Closing Date')
payable semi-annually in arrear on 4 June and 4 December each year (each, an
'Interest Payment Date') at the rate of 15.5 per cent. per annum, which interest
is payable by delivery of further Convertible Bonds, provided that, subject to
the consent of Barclays Bank PLC (the 'Bank') under the terms of an
intercreditor deed (between Capita Trust Company Limited as trustee of the
Convertible Bonds (the 'Trustee'), the Bank and the Company) while amounts are
outstanding under a term loan facility agreement dated 30 April 2007 between the
Company, various subsidiaries of the Company (acting as guarantors) and the
Bank:

(a) the Company may, provided that no Holder's Cash Payment Election (as defined
below) has been made in respect of the relevant Convertible Bonds, on not less
than 10 business days' notice delivered to those holders of the Convertible
Bonds which have not made the Holder's Cash Payment Election to the Trustee and
Law Debenture Corporate Services Limited (the 'Registrar') prior to any Interest
Payment Date falling on or after 4 December 2008, irrevocably elect to pay such
interest in cash on such Bonds as from the interest period commencing on that
Interest Payment Date; and

(b) at any time following the declaration by the Company of a dividend which is
to be paid in cash (in whatever currency), any holder of Convertible Bonds may,
on not less than 10 business days' notice given prior to any Interest Payment
Date, elect to require the Company to pay interest in cash on its holding of
Convertible Bonds as from the interest period commencing on that Interest
Payment Date (such election, the 'Holder's Cash Payment Election');

in which case as from the Interest Payment Date on which such election becomes
effective the Convertible Bonds will bear interest at the rate of 10 per cent.
per annum.

A Convertible Bond which is converted into Ordinary Shares will cease to bear
interest as of the Interest Payment Date preceding conversion save in limited
circumstances further described in the Circular.

A holder of Convertible Bonds requesting conversion no earlier than 30 days
prior to the sixth day prior to 4 June 2010 will not receive interest in respect
of the final interest period but instead an additional number of Ordinary Shares
equal to such interest amount divided by the conversion price described in the
Circular.

Application has been made for the Convertible Bonds to be listed on the Channel
Islands Stock Exchange LBG.

Unless previously redeemed or purchased and cancelled, holders of Convertible
Bonds will have the right to convert Convertible Bonds for Ordinary Shares at
the then applicable conversion price at any time from 4 December 2007 or, if
earlier, a firm offer being made pursuant to the City Code on Takeovers and
Mergers, to the close of business (at the place where the relevant certificate
is delivered for conversion) on the date falling six days prior to 4 June 2010
(both days inclusive) or, if such Convertible Bond is to be redeemed at the
option of the Company pursuant to Condition 6.2 or 6.3 of the Convertible Bonds
(as further described in Part 4 of the Circular) prior to 4 June 2010, then up
to the close of business (at the place where the relevant certificate is
delivered for conversion) on the sixth day before the date fixed for redemption
thereof.

Service Contracts

Details of service contracts of new directors and proposed directors of the
Company are set out below.

1. Stephen Yapp

The Company appointed Stephen Yapp, conditional on the passing of the
resolutions at the EGM, the Executive Chairman of the Company with effect from 4
June 2007, and he is required to work a minimum of three days a week for this
role. Mr Yapp's salary is £170,000 per annum, and he is entitled to an annual
salary review (but there is no obligation on the Company to increase his
salary). Mr Yapp is to be reimbursed for all travel, hotel, entertainment and
other out of pocket expenses reasonably and properly incurred by him in the
discharge of his duties, subject to production of evidence as it may require. He
is also entitled to death in service life cover, income protection, medical
expenses insurance and a monthly payment of £1,000 so as to provide him with a
motor car for his use in the performance of his duties. The contract is
terminable on the Company giving Mr Yapp 12 months' notice in writing, or on Mr
Yapp giving the Company 6 months' notice in writing. Mr Yapp is entitled to 12
months' salary in lieu of notice on a change of control of the Company.

2. Peter Fitzwilliam

The Company appointed Peter Fitzwilliam as Chief Financial Officer and Company
Secretary of the Company with effect from 8 May 2007, and he is required to
devote sufficient time as is necessary for the proper performance of his duties.
Mr Fitzwilliam's salary is £150,000 per annum, and he is entitled to an annual
salary review (but there is no obligation on the Company to increase his
salary). Mr Fitzwilliam is to be reimbursed for all travel, hotel, entertainment
and other out of pocket expenses reasonably and properly incurred by him in the
discharge of his duties, subject to production of evidence as it may require. He
is also entitled to death in service life cover, income protection, medical
expenses insurance and a contribution of 10 per cent of his basic salary (or
such other rate as agreed in writing) by the Company to an exempt approved
personal pension scheme. The contract is terminable on the Company giving Mr
Fitzwilliam 12 months' notice in writing, or on Mr Fitzwilliam giving the
Company 6 months' notice in writing.

Other

The Circular has also been submitted to the UK Listing Authority, and will
shortly be available for inspection at the UK Listing Authority's Document
Viewing Facility, which is situated at:

        UK Listing Authority
        The Financial Services Authority
        25 The North Colonnade
        Canary Wharf
        London E14 5HS.

The Circular is also currently available for inspection at the offices of SJ
Berwin LLP during normal business hours at:

        SJ Berwin LLP
        10 Queen Street Place
        London EC4R 1BE.


Enquiries:

Peter Fitzwilliam, Chief Financial Officer
Watermark Group plc
Tel: 020 8606 1300

Jeremy Carey/Matt Ridsdale
Tavistock Communications
Tel: 020 7920 3150







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