RNS Number:4169M
Imagestate PLC
17 June 2003

PRESS RELEASE

                                                                    17 June 2003



                       ImageState PLC Additional funding





ImageState PLC ("ImageState" or the "Company") has agreed the terms for
additional funding of up to #1,000,000 to be provided by OVP2 Limited (a
subsidiary of Pacific Investments PLC, a company ultimately controlled by Sir
John Beckwith, a Director of the Company) which holds approximately 29 per cent.
of the Company.



On 10 October 2002 the Company announced that it had arranged a finance facility
of #2,350,000 which was to be provided by OVP2 Limited and Mike Luckwell
(together "the Founders") and Mark Johnson, a Director of ImageState and Pacific
Investments PLC (together with Mike Luckwell, "the Lenders"). The facility was
increased on 16 December 2002 by #750,000, on 21 March 2003 by a further
#675,000 and on 22 May 2003 by a further #250,000. The current funding will be
advanced in tranches provided that no event of default is subsisting. Otherwise
the terms of the facility remain unchanged.



The purpose of the loan is to provide additional working capital and reduce
trade creditors. While the Company has made progress in reducing costs, the
Company is still loss making and further cost reduction is required together
with revenue growth to achieve breakeven. During this period the Company will
continue to rely on the support of its major shareholder. In addition, the
Company will continue to seek to reduce costs as and where possible. The Company
also intends to strengthen the senior executive management team in the short
term.



As the Founders are precluded from buying any further shares by the Rules of the
Panel on Take-overs and Mergers, the additional funding (as with the rest of the
facility) has been structured as a loan repayable, at the lenders option, either
in cash or, if permissible, shares of 1p each at a price of 1p per share. The
repayment of the loan through the issue of new shares is dependent on it being
permissible under the rules of the Panel and the approval by independent
shareholders to issue the additional shares.  The maximum number of shares which
could be issued would amount to 502,500,000 which would result in significant
dilution to existing shareholders as it would increase the share capital by
approximately 200 per cent.  The Founders and Mark Johnson have provided the
loan on the basis that they expect to be repaid in shares.  Accordingly, in the
event that they wish to do so, but the Company is unable to comply and repays
the loan in cash, then there will be a redemption premium payable to the
Founders of 20 per cent. of the principal amount of the loan outstanding at the
repayment date.  Drawings under the loan bear an interest cost of LIBOR plus 3
per cent.





The Independent Directors (comprising the Chairman and Finance Director) have
reviewed the potential sources of funding for ImageState's immediate needs. That
review concluded that currently there were no other sources of acceptable
finance available to the Company, particularly given the current condition of
the stock market and the very cautious nature of the debt capital markets. In
reviewing the terms of the loan the Independent Directors have considered the
immediate needs of the business for further funding and the implications of not
receiving such funding in the short term, together with the recent share price
trading range.



The Independent Directors, who have consulted with the Company's nominated
adviser, have concluded that the terms of the lending are fair and reasonable in
so far as the shareholders are concerned.



In consideration of OVP2 Limited providing the additional funding the other
Lenders have agreed to assign their loans to OVP2 Limited for a nominal initial
consideration together with a further payment the amount of which is contingent
on the proceeds received by OVP2 Limited in due course on repayment of the loans
whether in cash or if so elected by OVP2 Limited in new ImageState ordinary
shares.



In due course a resolution will be put to shareholders to provide the necessary
authority to allot the new shares in the event that the loan is to be repaid
through the issue of shares at a conversion price of 1p per share. All
shareholders will be eligible to vote on this resolution, except for the
Founders and Mark Johnson.



Enquiries:



Michael Cornish

Chairman

ImageState PLC                                   0207 734 7344



END










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

MSCNKOKPDBKDQAD