Agreement and Cap Reorg

RNS Number:1211R
Watermark Group PLC
31 March 2008



31 March 2008


                              Watermark Group plc

                         ("Watermark" or the "Company")


New contract, underwriting of �7.5 million issue of new equity, bond conversion
and appointment of new broker

Watermark, a leading provider of in-flight catering and products to the airline,
travel and hospitality industries, is pleased to announce that its wholly owned
subsidiary, Air Fayre Limited ("Air Fayre"), has signed a partnership agreement
with United Airlines ("United") and proposes to create a solid capital structure
for the Company through a refinancing conditional on Shareholder approval. The
highlights of this contract and refinancing are as follows:

  * Strategic relationship established with United Airlines;
  * Seven year contract signed to serve all of United's international and
    domestic in-flight catering needs out of its Los Angeles hub;
  * Early conversion of the Company's �8,000,000 Secured Fixed Rate
    Convertible Bonds due 2010 together with all rolled up interest at an
    amended conversion price of 7.5 pence per new Ordinary Share;
  * Issue of approximately 6.2 million Warrants to the Bondholders with an
    exercise price of 15 pence per new Ordinary Share as compensation for
    surrendering the preferred status of their Bonds and foregoing the 15.5 per
    cent. coupon attached to the Bonds;
  * Underwriting by certain Bondholders of �7.5 million of an issue of new
    Ordinary Shares at 7.5 pence per new Ordinary Share;
  * �2.0 million unsecured term facility extended to the Company by certain
    Bondholders;
  * Company's banking covenants have been reset;
  * The Directors are considering moving the trading of the Ordinary Shares to
    AIM; and
  * KBC Peel Hunt Ltd has been appointed as broker to the Company.

Stephen Yapp, Chairman of Watermark said: "This is a transformational
opportunity for the Company and we are excited to be partnering with United. Our
unique business model can be replicated across North America and we look forward
to supporting United in its continued focus on costs, business growth and
customer service excellence."

"The signing of the new contract with United is proof of the benefits of our
approach to the management of global supply chains in the travel industry and
the de-gearing of Watermark's capital structure will position us well for future
growth."

The partnership with United

Air Fayre has signed a partnership agreement with United, one of the largest
global airlines, to provide logistics to manage all of United's on-board
catering requirements at Los Angeles International Airport ("LAX").

The seven year contract with United will serve all of United's international and
domestic flights at LAX from late 2008. United currently flies five
international and 86 domestic flights per day from LAX, all of which will be
serviced by Air Fayre pursuant to this partnership agreement. The Directors
believe that this unique US business model will ensure that United and its
customers receive superior quality, service and flexibility, all of which are
key requirements for United when it selects its strategic service providers.

To support its commitment to the partnership Air Fayre will be establishing a
state of the art 53,000 sq ft facility in Los Angeles on a site it has already
identified. Detailed plans for the new facility have already been prepared and
the Company is currently conducting negotiations for the lease of the required
specialist vehicles and the identification and hire of the dedicated senior
management team for the Los Angeles facility and the required ground staff.

Air Fayre's initial costs for setting up the facility in Los Angeles and
providing it with working capital will in part be financed by the Underwriting
and the Term Facility (details of which are set out below).


Capital restructuring

Background

As set out in the interim results for the six months ended 30 June 2007
announced on 27 September 2007, the Directors noted that the Group's trading had
been adversely affected and costs had risen due to a loss of focus on
operational controls and efficiencies. Following a review of the business
conducted by the new management team, a new management structure was put in
place and a number of cost issues have been addressed. Whilst trading since 30
June 2007 has significantly improved, the cash position of the Company remains
tight. Despite this, the Company's bankers remain supportive and have agreed to
revised covenants and have also consented to the signing of the United contract.

�2 million unsecured term facility

In order to provide the Company with immediate additional working capital
headroom and also to finance some initial setup costs of the United contract
prior to the Company receiving the net proceeds of the Underwriting, certain of
the holders of the Company's �8,000,000 Secured Fixed Rate Convertible Bonds due
2010 (the "Bonds") ("Bondholders") have extended to the Company a �2.0 million
unsecured term facility (the "Term Facility") on normal commercial terms. Any
funds drawn down from the Term Facility will be repaid upon the allotment of the
new Ordinary Shares pursuant to the Underwriting.

Underwriting of equity issue

Certain Bondholders have agreed to underwrite �7.5 million of an issue of new
ordinary shares of 1p each in the Company ("Ordinary Shares"), conditional on
approval by the holders of Ordinary Shares ("Shareholders"), at an issue price
of 7.5 pence per new Ordinary Share (the "Underwriting").

Bond conversion

The Directors have negotiated, and the Bondholders have consented by written
resolution to, an early conversion of the Bonds and all accumulated interest up
to and including the 4 June 2008 interest payment date amounting in aggregate,
together with the outstanding principal, to approximately �9.3 million. The
conversion terms of the Bonds have been altered such that the conversion price
is 7.5 pence per new Ordinary Share. The Directors estimate that, upon
conversion and conditional on Shareholder approval, approximately 123.8 million
new Ordinary Shares will be issued to the Bondholders. Conversion of the Bonds
will take place on the issue of new Ordinary Shares pursuant to the Underwriting
Agreement.

Issuance of Warrants

As compensation for surrendering the preferred status of their Bonds and
foregoing the 15.5 per cent. coupon attached to the Bonds, the Directors have
agreed to issue to the Bondholders, conditional on shareholder approval, an
aggregate of approximately 6.2 million warrants with an exercise price of 15
pence per new Ordinary Share with a four year expiry term (the "Warrants"). The
issue of the Warrants is conditional on such surrender and will occur on the
issue of the new Ordinary Shares pursuant to the Underwriting.

Related party participation

SVG Capital plc ("SVG"), through it having an interest in approximately 15.4 per
cent. of the ordinary issued share capital of the Company and its
representative, Graham Bird, being a Non-Executive Director of the Company, is a
related party pursuant to the Listing Rules of the UK Listing Authority (the
"Listing Rules"). SVG currently has an interest in approximately �2.1 million of
principal of the Bonds which, together with the accumulated interest up to and
including the 4 June 2008 interest payment date, amounts to approximately �2.4
million. The Directors estimate that, upon early conversion, approximately 32.1
million new Ordinary Shares will be issued to SVG. Additionally, pursuant to the
conversion of its Bonds, SVG will also be issued Warrants over approximately 1.6
million new Ordinary Shares.

Maurice Ostro, by virtue of the fact that he was a Director of the Company
within the 12 months prior to this announcement, is a related party pursuant to
the Listing Rules. Mr Ostro has an indirect interest in approximately �0.7
million of principal of the Bonds which, together with the accumulated interest
up to and including the 4 June 2008 interest payment date, amounts to
approximately �0.8 million. The Directors estimate that, upon conversion,
approximately 11.2 million new Ordinary Shares will be issued to Mr Ostro.
Additionally, pursuant to the conversion of his Bonds, Mr Ostro will also be
issued Warrants over approximately 0.6 million new Ordinary Shares.

Stephen Yapp, by virtue of the fact that he is a Director of the Company, is a
related party pursuant to the Listing Rules. Mr Yapp has a direct interest in
approximately �0.1 million of principal of the Bonds which, together with the
accumulated interest up to and including the 4 June 2008 interest payment date,
amounts to approximately �0.2 million. The Directors estimate that, upon
conversion, approximately 2.0 million new Ordinary Shares will be issued to Mr
Yapp. Additionally, pursuant to the conversion of his Bonds, Mr Yapp will also
be issued Warrants over approximately 0.1 million new Ordinary Shares.

Shareholder consent

The participations of SVG, Mr Ostro and Mr Yapp in the conversion of the Bonds
and the issue of the Warrants are classified as related party transactions under
the Listing Rules and are, therefore, conditional on Shareholder approval of
certain resolutions which will be sought at a general meeting of the Company
("General Meeting").

The conversion of the Bonds, the issue of the Warrants and the issue of new
Ordinary Shares pursuant to the Underwriting are also conditional on the
approval of certain resolutions by Shareholders to disapply sufficient
pre-emption rights to satisfy the proposed issue of new Ordinary Shares which
will also be sought at the General Meeting.

A circular setting out details of the resolutions and requisitioning the General
Meeting will be sent to Shareholders in due course.

Failure to obtain approval of the resolutions to be tabled at the General
Meeting will result in the Company having to urgently seek alternative sources
of finance to meet its financial commitments under the new contract with United.

Move to AIM

The Directors are currently considering moving the trading of the Ordinary
Shares to the AIM market of London Stock Exchange plc ("AIM"). The Directors
believe that AIM would be a more appropriate market for the Company and would
enable the Company to agree and execute transactions more quickly and cost
effectively should any development or opportunity arise in the future. A further
announcement with regard to the move to AIM will be made when appropriate.

Appointment of broker

The Company also announces the formal appointment of KBC Peel Hunt Ltd, which
has assisted it in the above financing proposal, as its broker with immediate
effect.

For further information, please contact:

Watermark Group plc                 Tel: +44 (0) 20 8606 2000
Stephen Yapp, Executive Chairman
Carl Fry, Interim Chief Financial
Officer

KBC Peel Hunt Ltd                   Tel: +44 (0) 20 7418 8900
Oliver Scott
David Anderson

Tavistock Communications            Tel: +44 (0) 20 7920 3150
Jeremy Carey
Matt Ridsdale

About United

United Airlines (NASDAQ: UAUA) operates more than 3,300* flights a day on
United, United Express and Ted to more than 200 U.S. domestic and international
destinations from its hubs in Los Angeles, San Francisco, Denver, Chicago and
Washington, D.C. With key global air rights in the Asia-Pacific region, Europe
and Latin America, United is one of the largest international carriers based in
the United States. United also is a founding member of Star Alliance, which
provides connections for its customers to 897 destinations in 160 countries
worldwide. United's 55,000 employees reside in every U.S. state and in many
countries around the world. News releases and other information about United can
be found at the company's website at united.com.

* Based on the flight schedule between Feb. 12, 2008 and Dec. 31, 2008.

SOURCE United Airlines
CONTACT: Worldwide Press Office of United Airlines, +1-312-997-8640



                      This information is provided by RNS
            The company news service from the London Stock Exchange

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