Medisys PLC : Supply Agreement with Liberty & Placing and Open Offer

29 July 2004 Medisys announces that it has entered into an agreement to supply its Advance Micro-draw blood glucose monitoring product to Liberty Healthcare Group, Inc. The Company is also announcing the terms of a Placing and Open Offer to raise up to approximately £5.9 million net of expenses. Of this amount, approximately £3.5 million has been fully underwritten by Altium Capital Limited and certain Directors of the Company have irrevocably undertaken to subscribe for an aggregate of £220,447, thereby providing minimum proceeds for the Company of approximately £3.2 million (net of expenses).
Code Securities Limited is acting as financial adviser and broker to Medisys in relation to the Placing and Open Offer.

Highlights

David Conn, Chief Executive Officer of Medisys, said: "Developing the mail order channel for our next generation of blood glucose monitoring products is a central part of our growth strategy. We are therefore delighted to have reached this agreement with Liberty, the leading direct to consumer supplier of blood glucose monitoring products in the mail- order segment. This major new agreement is expected to generate sales of $38 million over its first three years and will position Medisys as a key supplier in this rapidly growing market."

Enquiries

Introduction
The Board announces that Medisys, through its wholly owned US subsidiary, Hypoguard, has entered into a supply agreement with Liberty, the leading US direct to consumer mail-order diabetes products supplier.
The Board also announces the terms of the Placing and Open Offer to raise up to approximately £6.4 million (up to approximately £5.9 million net of expenses) by the issue of up to 95,034,136 new Ordinary Shares at 6.75 pence per share. 39,131,703 New Ordinary Shares have been placed firm with institutional investors and are not subject to the Open Offer. In addition, 12,942,364 New Ordinary Shares have been placed with institutional investors, subject to clawback to satisfy valid applications under the Open Offer to the extent that such valid applications are received in respect of more than 42,960,069 Open Offer Shares. The Placing and Open Offer is underwritten to the extent of, in aggregate, 52,074,067 New Ordinary Shares. Under the terms of the Liberty Agreement, Hypoguard will initially supply Liberty with its proprietary Advance Micro-draw blood glucose monitoring system. The product will initially be sold under the Hypoguard brand name, and Liberty has the option to re-brand and supply the product under its own name or co-branded with Hypoguard. Although there are no contractual minimum purchase requirements under the Liberty Agreement, Hypoguard and Liberty have together produced forecasts which anticipate growth in demand for the product increasing year on year which would result in an aggregate increase in sales of approximately $38 million (approximately £20.8 million) for the Group during the first three years of the agreement. These forecasts are based on Liberty’s experience of supplying mail-order diabetes products to its extensive customer database and, in particular, on Liberty’s historic analysis of product take up for previous product launches. The Liberty Agreement has been entered into by the Company in the ordinary course of its business and is conditional on the Placing and Open Offer becoming unconditional in all respects on or before 31 August 2004.

Reasons for the Placing and Open Offer and use of proceeds
In order to fulfil the growth in demand for the Advance Micro-draw product which is anticipated to result from the Liberty Agreement, the Group needs to increase its production capacity for the Advance Micro-draw test strips. As production is increased to meet the growth in demand, the Directors expect that the unit manufacturing costs of the test strips will be significantly reduced.
On 25 March 2004, the Company announced that it had received its first order from Wal*Mart for the Group’s Flight product. Flight is a disposable, blood glucose monitoring product which has recently been launched in Wal*Mart’s stores under the name "NewTek, by ReliOn". Subject to future demand, the Group may also need to increase manufacturing capacity for this product over the next year.
The Board intends that the Minimum Net Proceeds will be used to purchase equipment needed to increase the manufacturing capacity for the Advance Micro-draw product.
To the extent that the net proceeds of the Placing and Open Offer exceed the Minimum Net Proceeds, such additional proceeds will be used to satisfy additional anticipated investment in stock and debtors requirements arising from the Liberty Agreement and for the Flight product and to satisfy additional anticipated manufacturing capacity for the Flight product. In the event that the net proceeds of the Placing and Open Offer do not exceed the Minimum Net Proceeds, the additional anticipated investment arising from the Liberty Agreement and for the Flight product will be satisfied by anticipated cashflows generated by the Group’s operations and/or by existing banking facilities.

Current trading and prospects
The Company reported its interim results on 24 May 2004 for the six months to 31 March 2004. The Board remains confident that both NewTek and the Futura Safety Syringe have excellent prospects, however, as both of these products have been recently launched, it is still too early to gauge their true performance in the market. In addition, output of the Advance Micro-draw product is being scaled up rapidly to fulfil anticipated mail-order demand. As a result, the Group is in a transitional phase where a significant positive impact on profitability from its new products has yet to be seen and will not be evident for some months, until anticipated economies of scale are achieved. As volume output increases, it is anticipated that unit manufacturing costs will fall enabling these products to generate increasing profitability. The remaining core business of the Group continues to perform well and the Directors have no reason to believe that this will not continue for at least the rest of the current financial year.
The NewTek integrated diabetes monitoring product was recently launched and is now available for sale in selected Wal*Mart stores and through their mail-order division in the US. Hypoguard is continuing to manufacture and ship further product with a view to it being more widely available in the coming weeks. Plans are now finalised to rapidly expand the current number of stores carrying the product and it is anticipated that NewTek will be nationally available in approximately 3,400 Wal*Mart pharmacy outlets by the end of the Group’s financial year. While the launch is still at a very early stage, the Directors are encouraged by the initial response to the product and the national roll-out remains on track.
Since 31 March 2004, the Group has supplied approximately $1 million (approximately £0.55 million) of Advance Micro-draw product to Liberty in anticipation of the Liberty Agreement.
The Board believes that the Liberty Agreement represents an excellent opportunity to significantly expand sales of the Group’s diabetes products in partnership with Liberty. The Board anticipates that this agreement will position the Group as a major supplier in the rapidly growing mail-order segment of the US blood glucose monitoring market.
Medisys is entering a new phase in its development when the Group should begin to see a return on the investment in new products over the last number of years. The Directors believe that the Group is well positioned, in terms of both product offering and presence in key segments of the healthcare market, for substantial growth.

Principal terms of the Placing and Open Offer
Pursuant to the Placing, 39,131,703 New Ordinary Shares have been placed firm with institutional investors at the Issue Price and are not subject to the Open Offer. In addition, 12,942,364 New Ordinary Shares have been conditionally placed with institutional investors, subject to clawback to satisfy valid applications made by Qualifying Shareholders under the Open Offer to the extent that such valid applications are received in respect of more than 42,960,069 Open Offer Shares. The Placing and Open Offer is conditional, inter alia, on the passing of the resolution to be proposed at the Extraordinary General Meeting to be held on 24 August 2004. The New Ordinary Shares will, when issued, rank pari passu with the Existing Ordinary Shares.
In order to give existing Shareholders the opportunity to participate in the issue of the New Ordinary Shares, Medisys has arranged for Code Securities (as its agent) to invite applications from Qualifying Shareholders to acquire Open Offer Shares at the Issue Price under the Open Offer. The Placing and Open Offer is underwritten by Altium Capital to the extent of, in aggregate, 52,074,067 New Ordinary Shares. Accordingly, the maximum number of New Ordinary Shares to be issued pursuant to the Placing and Open Offer will be reduced to the extent that valid applications are received for less than 42,960,069 Open Offer Shares and the maximum amount of proceeds receivable by the Company under the Placing and Open Offer will be reduced accordingly. Qualifying Shareholders may apply for Open Offer Shares on the basis of:
1 Open Offer Share for every 7 Existing Ordinary Shares held at the Record Date and so in proportion for any greater or lesser number of Existing Ordinary Shares then held.
Individual entitlements will be rounded down to the nearest whole number of Open Offer Shares. Fractions of Open Offer Shares that would otherwise arise will not be allocated under the Open Offer, but will be aggregated and placed with institutional investors under the Placing for the benefit of the Company. Accordingly, Qualifying Shareholders with fewer than 7 Existing Ordinary Shares will not be entitled to any Open Offer Shares.
Qualifying Shareholders should note that the Open Offer is not a rights issue and that Open Offer Shares not applied for under the Open Offer will not be sold in the market for the benefit of Qualifying Shareholders who do not apply under the Open Offer. Entitlements under the Open Offer are not transferable other than to satisfy a bona fide market claim, and the Application Form, not being a document of title, cannot be traded.

Irrevocable Undertakings
Medical Consultants and Management Limited (an investment holding company which is wholly owned by a trust settled by D Wong) and M P Barry have irrevocably undertaken to take up their maximum entitlements under the Open Offer amounting to 3,142,857 Open Offer Shares and 123,028 Open Offer Shares respectively, representing, in aggregate, approximately 5.84 per cent of the Open Offer Shares.

The following definitions apply throughout this announcement:
"Admission" the admission of the New Ordinary Shares (i) to listing on the Official List and (ii) to trading on the London Stock Exchange’s market for listed securities becoming effective in accordance with paragraphs 7.1 and 2.1 of the Listing Rules and the Standards respectively
"Altium Capital" Altium Capital Limited
"Application Form(s)" the application form(s) relating to the Open Offer being sent to Qualifying Shareholders
"Code Securities" Code Securities Limited
"CREST" the relevant system for the paperless settlement of trades in securities and the holding of uncertificated securities operated by CRESTCo in accordance with the Regulations
"CRESTCo" CRESTCo Limited, the operator of CREST
"Directors" or "Board" the board of directors of Medisys
"Ex-Entitlement Date" 29 July 2004, the date upon which the Existing Ordinary Shares are marked "ex" the entitlement to the Open Offer by the London Stock Exchange
"Existing Ordinary Shares" the Ordinary Shares in issue at the date of this announcement
"Extraordinary General Meeting" or "EGM" the extraordinary general meeting of Medisys convened for 10.00 a.m. on 24 August 2004 (or any adjournment of it)
"Form(s) of Proxy" the form(s) of proxy for use at the EGM
"FSMA" the Financial Services and Markets Act 2000
"Group" the Company and its subsidiary undertakings
"Hypoguard" Hypoguard USA, Inc., a wholly owned US subsidiary of the Company
"Irrevocable Undertakings" the irrevocable undertakings to subscribe for, in aggregate, 3,265,885 Open Offer Shares under the Open Offer
"Issue Price" 6.75 pence per New Ordinary Share
"Liberty" Liberty Healthcare Group, Inc. (part of PolyMedica Corp, listed on NASDAQ under the symbol PLMD)
"Liberty Agreement" the product supply agreement between Medisys and Liberty dated 29 July 2004
"Listing Rules" the listing rules made by the UK Listing Authority under Part VI of the FSMA (as amended from time to time)
"London Stock Exchange" London Stock Exchange plc
"Medisys" or "Company" Medisys PLC
"Minimum Net Proceeds" approximately £3.2 million, being the net proceeds receivable by the Company pursuant to the Placing and Open Offer assuming that no valid applications under the Open Offer are received (save for pursuant to the Irrevocable Undertakings)
"New Ordinary Shares" up to 95,034,134 new Ordinary Shares proposed to be issued fully paid by the Company pursuant to the Placing and Open Offer and, where the context so requires or admits, any of them
"Official List" the Official List of the UK Listing Authority
"Open Offer" the conditional invitation by Code Securities, on behalf of the Company, to Qualifying Shareholders to apply for New Ordinary Shares "Open Offer Shares" 55,902,433 of the New Ordinary Shares which are being made available to Qualifying Shareholders under the Open Offer (of which 12,942,364 New Ordinary Shares are subject to the Placing and are underwritten)
"Ordinary Shares" ordinary shares of 1 pence each in the capital of Medisys
"Overseas Shareholders" Shareholders who are resident in, or who are citizens of, or who have registered addresses in, territories other than the United Kingdom
"Placing" the placing of 52,074,067 of the New Ordinary Shares at the Issue Price subject, in the case of the Open Offer Shares, to clawback to satisfy valid applications for Open Offer Shares from Qualifying Shareholders under the Open Offer to the extent that valid applications are received in respect of more than 42,960,069 Open Offer Shares
"Qualifying Shareholders" Shareholders (other than certain Overseas Shareholders) on the register of members of the Company at the Record Date
"Record Date" the close of business on 28 July 2004
"Regulations" the Uncertificated Securities Regulations 2001 (SI 2001/3755)
"Resolution" the resolution set out in the notice of Extraordinary General Meeting
"Shareholders" holders of Ordinary Shares
"Standards" the requirements contained in the publication "Admission and Disclosure Standards" as amended from time to time containing, inter alia, the admission requirements to be observed by companies seeking admission to trading on the London Stock Exchange’s market for listed Securities
"UKLA" or "UK Listing Authority" the United Kingdom Listing Authority, being the Financial Services Authority in its capacity as competent authority for the purposes of Part VI of the FSMA
"uncertificated" or "uncertificated form" recorded on the relevant register or other record of the share or other security concerned as being held in uncertificated form in CREST, and title to which, by virtue of the Regulations, may be transferred by means of CREST
"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland
"$" the lawful currency of the United States of America
"£" or "pence UK" the lawful currency of the United Kingdom