In addition, nCipher currently intends to offer to purchase all outstanding common stock of Abridean which could enable nCipher to acquire the business in its entirety (together the Acquisition). The maximum total consideration payable under the terms of the Acquisition is US$ 17.9 million (£10.2 million). nCipher also intends to repay US$1.5 million pursuant to the terms of a loan provided by MMV Financial, Inc. due to Abridean, Inc.

The proposed acquisition has a strong strategic fit, enabling nCipher to enter the significant and growing market for Identity Management. The two companies believe that together they can exploit nCipher's sales channel and financial muscle to grow the combined business.

Due to the size and nature of the Acquisition, it constitutes a Class 1 transaction, pursuant to the FSA's Listing Rules, and, in addition, due to the association of the Chairman of nCipher with one of the groups of venture capitalists who own preferred stock in Abridean, it is considered a related party transaction. Accordingly the Acquisition will need to be approved by shareholders at an extraordinary general meeting. A circular will shortly be posted to shareholders convening an extraordinary general meeting to be held at Jupiter House, Station Road, Cambridge CB1 2JD at 12 pm on 18 November 2005.

Background to and reasons for the acquisition

As part of the continuous management review of the group's business, between November 2004 and May 2005 the board of nCipher (the Board or the Directors) carried out an analysis of the future evolution of various sectors within the IT security market including the sectors covering identity management and the protection of corporate information.

The technology of encryption and decryption has been the focus of nCipher's expertise for many years, but in order to capture the broader market opportunity it must be coupled with the technology for identifying and managing those who are the right users in the first place. For this reason, nCipher proposes to take the strategic step of acquiring Abridean.

Following a period of extensive research within the identity management marketplace, Abridean has been identified as a well-focused company, specialising in the management of identities, roles and user's rights within organisations through their abrideanProvisor product line. Abridean has technology whose modularity and flexibility positions it to satisfy the emerging requirements for a broader and more secure approach to user and credential provisioning within organisations concerned with the protection of consumer privacy and the integrity of their own internal systems. Abridean has a well-regarded software engineering team. The proposed acquisition of Abridean is therefore intended to enable nCipher to capitalise on trends within the expanding identity management market and address the demand for a more unified and robust approach to stronger authentication and rights management.

nCipher and Abridean have a shared vision and complementary expertise. The Directors believe that together the two companies can establish a powerful suite of solutions that capitalise on convergence between their respective markets. Over the coming years it is anticipated that the combination of Identity Management and cryptography will become the common mechanism by which organisations can cost-effectively define and enforce access rights and satisfy related audit and compliance requirements across the enterprise.

Benefits of the Transaction and the Offer

The Directors believe that the Acquisition will benefit the enlarged group in a number of ways:

• The combination of Abridean's user management technology with nCipher's portfolio of key management technology should generate a significant competitive advantage for both nCipher and Abridean in their respective markets;
• Abridean provides technology and expertise in an area identified as a technology gap in nCipher's own internal strategy evaluation;
• Abridean's existing business platform can be enhanced by nCipher's distribution capability and financial strength;
• Abridean's existing professional services capability expertise will enable nCipher to more quickly establish a broader service offering to support its other product lines; and
• Abridean's development capability is exclusively focused on designing enterprise-class software solutions. Access to, and control over, this capability will accelerate and strengthen nCipher's transition to deliver more valuable solutions.

For the financial year ended 31 December 2004, under UK GAAP, Abridean had sales of C$2,575,720, made a net loss of C$2,350,272 and had gross assets of C$1,250,200.

Principal terms of the Acquisition

nCipher will pay up to US$10 million (£5.7 million) in cash (being US$6.9 million (£3.9 million) initial consideration and US$3.1 million (£1.8 million) of earnout, based on certain revenue and profitability targets being achieved by Abridean in subsequent years following the Acquisition) for all of the preferred stock in Abridean, representing approximately 61 percent of the voting rights (and approximately 53 percent of the fully diluted capital stock assuming exercise of all options and warrants over shares of Abridean). In addition, nCipher currently intends to offer to purchase all of the outstanding common stock, any outstanding exchangeable shares and a warrant over preferred stock in Abridean. It is currently envisaged that the maximum cash consideration payable under these proposals will be US$17.9 million (£10.2 million). nCipher also intends to repay US$1.5 million pursuant to the terms of a loan provided by MMV Financial, Inc. due to Abridean, Inc.

The consideration for the purchase will be satisfied using nCipher's existing cash resources and is subject to downward adjustment based on the net assets of Abridean at completion.

The proposals, along with all indebtedness to be assumed, value Abridean at approximately £12.2 million, of which £4.7 million is due at closing, £5.5 million is due in earnout and £2.0 million is assumed debt (taking account of net assets at closing).

Executive quotes

"Abridean has been identified as a well-focused company specialising in the management of roles and user's rights within organizations, it has technology whose modularity and flexibility positions it to satisfy the emerging requirements for a broader approach to provisioning within security-sensitive organizations, and it has a well-regarded software engineering team," said Alex van Someren, Chief Executive Officer of nCipher. "nCipher and Abridean have a shared vision and complementary expertise. We anticipate that the combination of identity management and cryptography will become the common mechanism by which organisations satisfy related audit and compliance requirements across the enterprise."

"In addition to enhancing Abridean's existing business platform through the ability to leverage nCipher's distribution capability and financial strength, our own experience in delivering a range of professional services will become increasingly valuable as nCipher continues its evolution as a provider of turn-key security solutions," said Sean Sears, Chief Executive Officer of Abridean. "Furthermore, the combination of our user management technology with nCipher's portfolio of cryptographic products and expertise will generate a significant competitive advantage for both nCipher and Abridean in our respective markets."