Placing & Other Matters; Notice of General Meeting

RNS Number : 5767J

Real Estate Investors PLC

01 July 2011

 



1 July 2011

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN, INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, NEW ZEALAND, SOUTH AFRICA OR SWITZERLAND OR ANY OTHER JURISDICTION IN WHICH THE RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL

REAL ESTATE INVESTORS PLC

("REI" or the "Company")

Placing of new Ordinary Shares

Share Consolidation

Reduction of Share Premium Account

and

Notice of General Meeting

Further to the announcement made on 28 June 2011, Real Estate Investors plc (AIM:RLE), the West Midlands based property group, announces that it has conditionally placed 218,181,821 new Ordinary Shares at a price of 5.5 pence per Ordinary Share, raising gross proceeds of £12 million (£11.7 million net), from institutional and other investors. 

Summary of the Placing

* Placing of 218,181,821 new Ordinary Shares at a Placing Price of 5.5 pence per Ordinary Share, to raise gross proceeds of £12 million (£11.7 million, net)

* Net proceeds of the Placing to be used to provide additional resources to capitalise on acquisition opportunities in the West Midlands property market

* The Placing Price represents a discount of 4.3 per cent. to the closing middle market price of 5.75 pence per Ordinary Share on 27 June 2011, being the latest practicable date prior to the initial announcement of the Placing

* The Placing Shares will represent approximately 30.5 per cent. of the Company's enlarged issued share capital

The Placing is conditional, inter alia, on the approval by Shareholders in a general meeting. A circular setting out the details of the Placing and other proposals (the "Circular"), incorporating a notice convening the General Meeting, will be posted to shareholders today.  The Circular, Form of Proxy and a copy of the presentation made to prospective investors will also be available on the Company's website later today.

The Circular also sets out the Company's proposals to undertake a Share Consolidation and reduce the Company's share premium account to create distributable reserves to facilitate the payment of dividends in the future.

Information extracted from the Circular is set out below.

-ENDS-

For further information:

Real Estate Investors PLC Paul Bassi	[phone]
Liberum Capital Limited Chris Bowman / Richard Bootle	[phone]
Smith & Williamson Corporate Finance Limited Azhic Basirov / Siobhan Sergeant	[phone]
Tavistock Communications Jeremy Carey	[phone]

Notes to Editors

1.      REI is an AIM listed property investment company specialising in commercial and residential property principally in the West Midlands and central England.

2.      REI is focused on delivering shareholder value through returns generated from strong yields and capital enhancements. This is achieved by targeting investments in orphaned, distressed, part-let and underperforming commercial and residential property assets.

3.      REI is led by respected property investor Paul Bassi CBE, who has over 25 years of property experience in the West Midlands. Mr Bassi is also founder and chairman of Bond Wolfe and chairman of CP Bigwood Chartered Surveyors.

4.      REI was admitted to trading on AIM in June 2004 and has subsequently raised a total of £35 million in further equity issues as well as debt financing to grow its property portfolio.  As at 31 December 2010, its portfolio and inventories were valued at £56 million.

5.      Further information on REI can be found at www.reiplc.com.

The following information has been extracted without material adjustment from the Circular.  Unless the context otherwise requires, defined terms used in this announcement shall have the meanings ascribed to them in the Circular.

Background to and reasons for the Placing

Whilst the London commercial property market has shown recent signs of recovery and yield compression, the regional commercial property market still remains depressed which has corresponding effects on property valuations and yields.

This, however, has created opportunities for the Company to acquire prime and quality secondary properties in the West Midlands opportunistically in a capital starved market. The Company is a West Midlands focussed property investment company specialising in investment in offices, shops, residential properties and land in lot sizes between £1 million to £10 million, and through its in-depth knowledge of the local occupier market via its agency associations with CP Bigwood Chartered Surveyors and The Bond Wolfe Partnership, is ideally positioned to be a cash purchaser of acquisition opportunities emerging from a range of sources including:

●          banks and building societies seeking to asset manage and reduce their distressed loan book;

●          local government, regional development agencies and other government bodies, e.g. the NHS, seeking to release capital;

●          'motivated' vendors looking to sell to cash buyers on discounted terms; and

●          vendors who are seeking quick sales of investment properties to cash buyers.

The Directors expect that a lack of bank finance will continue to be a feature of the market place, with a greater number of transactions in the coming year, prompted by banks not renewing facilities and distressed sales, from private and quoted companies who are unable to refinance. Furthermore, the Directors believe that banks will embark upon a de-leveraging process during 2011-2012 and beyond. The Company is ideally positioned to take advantage of that process given its very strong local banking relationships. The Directors believe that another feature of the market place will be government departments and local authorities selling assets to raise capital, as well as government stimulus of the local occupier market via Birmingham's likely 'Enterprise Zone' status and unemployment training contracts focus. Where opportunities match the Company's investment criteria, it will act to add assets to its portfolio. The Company is well placed to capitalise on these opportunities having established REI as a respected regional property investment company, recognised by agents, advisors and vendors as a proven counterparty.

With the benefit of additional cash reserves and existing bank facilities, the Company intends to continue to acquire ex-institutional properties opportunistically, particularly where it can undertake asset management to produce attractive investment properties with strong tenant covenants and improved valuation yields. During the next 6 to 18 months, the Company's focus will be income generation from the existing portfolio and further acquisitions. The portfolio will continue to be risk averse, with no reliance on any single tenant or property. The Directors believe that the Company is likely to see capital growth from rising rental income, lettings, acquisitions, lease renewals, asset management and from market normalisation.

In order to maximise REI's ability to respond quickly to opportunities and its presence in the market as a cash buyer, the Directors are seeking to raise approximately £12 million (before expenses) by way of a Placing of new Ordinary Shares.

Use of Proceeds

The Board is proposing to raise approximately £12 million of additional equity (before expenses) by means of the Placing, in order to provide additional resources to capitalise on acquisition opportunities currently existing in the West Midlands property market from motivated vendors. REI will continue to invest in acquisition opportunities in line with its established investing policies, focusing on assets which have:

●          high running yields or short to medium term asset management opportunities; and

●          opportunities to generate rental value and/or capital growth from active asset management, refurbishment, redevelopment, change of use and planning gains.

Based on some of the attractive valuations the Board is now starting to see for acquiring certain commercial properties and its broader view of the opportunities that it expects to be forthcoming, it is the expectation of the Board that it should be able to substantially deploy the proceeds of the Placing within 6 to 18 months of Admission. It remains the Board's objective to grow the Company's portfolio from the current level and for the Company to become a growing, high payout ratio property business. The Directors believe that rental value and capital growth can be achieved through active asset management of acquired properties and will not be reliant on yield compression. The Directors believe however that yield compression in the market in the future should benefit the portfolio.

Current Trading and Prospects

On 4 April 2011, the Company announced its preliminary results for the 12 months ended 31 December 2010, confirming a loss before tax of £5.6 million principally as a result of the revaluation of the Company's portfolio. However, rental income was up 1.8 per cent. to £3.3 million compared to £3.2 million for the year ended 31 December 2009, with contracted annual rental income of £4.0 million, an increase of 20 per cent. on the previous year. Current contracted rental income is estimated at £4.3 million (7.2 per cent. of portfolio valuation pro-forma after acquisitions).

The level of ERV on the Company's existing portfolio represents yields of typically between 7.1 per cent. and just over 10 per cent. per annum. The Directors believe that there is still a significant differential between ERV and current contracted rental income, presenting prospects for organic growth with ERVs starting to be achieved on new lettings. The current ERV is estimated at £5.8 million (9.7 per cent. yield on valuation pro-forma). Leasing progress to date during 2011, including leases in legals, is estimated at £300,000 per annum.

The total property portfolio valuation, as at 31 December 2010, was £56 million, including inventory properties, with a net asset value per Ordinary Share of 6.5 pence and EPRA NAV of 6.3 pence. As at 30 June 2011, being the latest practicable date prior to the publication of the Circular, the portfolio valuation was estimated at £59.6 million, which comprises a legacy portfolio acquired by previous management equal to £13.5 million. Of the legacy portfolio, £6 million is classified as current assets, not re-valued and the upside is recognised only on sale. Approximately £2 million of disposals are planned in 2011, with assets recently let to Tesco and a position currently under offer to HBOS.

REI remains conservatively financed with bank loans of approximately £39 million and available cash of approximately £11.8 million as at 31 December 2010. It is the Board's intention that the loan to value ratio across the Company's portfolio will not exceed a level of 65 per cent. at any time.

On 12 January 2011, the Company announced that it had exchanged contracts to acquire Kingston House, West Bromwich for £3.1 million in cash, representing a yield in excess of 11 per cent. The principal tenant is the Secretary of State (comprising 84 per cent. of current contracted tenanted income to 2019). On the same date, the Company also announced that it had received detailed planning consent for eight three bedroom semi-detached homes on the site of an acquired public house known as Hill Tavern, Dudley, West Midlands.

On 5 May 2011, the Company completed the acquisition of 32.1 acres of land in Tredegar for £1 million in cash. The property has planning consent for 283 homes and the Company intends to place the property on the market for sale.

Portfolio and pipeline

The property portfolio, based principally in the West Midlands, comprises a diverse range of properties and is not reliant on or over-exposed to specific sub-sectors or tenants. The Directors believe that they can build on this portfolio through their network of agents and established relationships which provide introductions to prospective investments where the Company can act as an unlevered cash buyer to facilitate quick execution on competitive terms. Further, the Directors believe that REI's well established banking relationships, with institutions including the Lloyds Banking Group, Barclays, Santander, Yorkshire and Handelsbanken, will provide access to new credit facilities, allowing it to recycle its equity investments, as well as participate in distressed asset work-outs in the region where it has been selected as a preferred partner to one of the major UK banks.

REI has been in discussions in relation to a pipeline of opportunities with an aggregate value of almost £50 million which is expected to include the following vendors:

●          motivated sellers, sourced through the Company's agency relationships with The Bond Wolfe Partnership and CP Bigwood Chartered Surveyors (a leading property agent, manager and auctioneer in the West Midlands);

●          lender stakeholders, sourced through direct dialogue between REI management and regional lenders; and

●          local authority, Government departments, regional development agencies and breweries, sourced through the Company's agency relationships with The Bond Wolfe Partnership, CP Bigwood Chartered Surveyors and other agency practices.

These pipeline assets provide opportunities for re-financing and active asset management by the Company. Overall, it is the Directors' intention to achieve capital growth through active asset management coupled with revenue growth through the capture of reversionary income from the current portfolio and immediate revenue enhancement from pipeline acquisitions.

Details of the Placing

The Company is proposing to issue 218,181,821 Placing Shares at a price of 5.5 pence per Placing Share pursuant to the Placing, raising £11.7 million (net of expenses). The Placing Price represents a discount of 0.25 pence (4.3 per cent.) to the closing middle market price of an Ordinary Share on 27 June 2011, the latest practicable date prior to the announcement of the Placing.

The Placing has been undertaken pursuant to the Placing Agreement. Under the terms of the Placing Agreement Liberum, as agent for the Company, has agreed to use its reasonable endeavours to procure subscribers for the Placing Shares and Smith & Williamson as agent for the Company, has agreed to act as nominated advisor in connection with the application for Admission.

The Placing Agreement is conditional on, amongst other things:

(i)         the passing of the Resolutions (without material amendment) at the GM;

(ii)         the delivery by the Company to Liberum and Smith & Williamson of certain documents and letters;

(iii)        the Company not having breached in any material respect any of its obligations under the Placing Agreement; and

(iv)        Admission becoming effective by not later than 8.00 a.m. on 19 July 2011 (or such later time and/or date as the Company, Liberum and Smith & Williamson may agree (being not later than 8.00 a.m. on 9 August 2011)).

The Placing Agreement contains certain warranties given by the Company in favour of Liberum and Smith & Williamson as to, amongst other things, certain matters relating to the Company and its business. In addition, the Company has given certain undertakings to Liberum and Smith & Williamson relating to, amongst other things, the despatch of public communications concerning the Company following Admission and the issue and allotment of Ordinary Shares following Admission. The Placing Agreement also contains indemnities given by the Company in favour of Liberum and Smith & Williamson in relation to certain liabilities they may respectively incur in respect of the Placing and/or Admission. Liberum and Smith & Williamson have the right to terminate the Placing Agreement prior to Admission in certain circumstances, including: (i) in the event that the Company has failed to comply in any material respect with any of its obligations under the Placing Agreement; (ii) in the event that Liberum and Smith & Williamson become aware that any of the warranties from the Company in the Placing Agreement is not, or has ceased to be, true and accurate in any material respect; and (iii) in the event of certain events of force majeure, including any adverse change in national or international financial, economic, market or political conditions which in the opinion of Liberum and Smith & Williamson (arrived at in good faith and, as far as practicable, in consultation with the Company) would be materially adverse to the Placing or would render proceeding with the Placing impracticable or inadvisable.

In consideration for the services to be provided to the Company by Liberum and Smith & Williamson in connection with Admission and the Placing, the Company has agreed to pay Liberum and Smith & Williamson certain fees and commissions and certain other costs and expenses incidental to Admission and/or the Placing.

The expenses of and incidental to the Placing, including the fees and commissions payable to Liberum and Smith & Williamson, are estimated to amount to approximately £240,000 (including VAT), and will be payable by the Company.

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. Subject to, amongst other things, the Resolutions being duly passed by the requisite majority at the GM, it is expected that Admission will become effective and dealings in the Placing Shares on AIM will commence on 19 July 2011.

If Admission does not take place on or before 8.00 a.m. on 19 July 2011 (or such later time and/or date as the Company, Liberum and Smith & Williamson may agree (being not later than 8.00 a.m. on 9 August 2011)), the Placing will not proceed.

The Placing Shares will rank pari passu in all respects with the existing issued Ordinary Shares, including the right to receive all dividends and other distributions declared, paid or made after Admission.

The Placing is not being underwritten and none of the Directors intends to subscribe for Placing Shares in the Placing. At the time of their appointment as Directors, the Panel on Takeovers and Mergers deemed Paul Bassi, Marcus Daly and certain other individuals who invested in the Company at the same time to be members of a concert party. As none of the members of the concert party will be subscribing for Placing Shares in the Placing, the concert party's aggregate interest in the issued share capital of the Company following the Placing will be 14.61 per cent. in the Enlarged Issued Share Capital.

The Directors are seeking authority from Shareholders to allot Ordinary Shares pursuant to the Placing and to disapply statutory pre-emption rights in respect of such Ordinary Shares.

Related party transaction

As at 30 June 2011 (being the latest practicable date prior to the publication of the Circular) Caledonia Investments PLC ("Caledonia") held 28.21 per cent. of the existing issued Ordinary Shares. 61,570,664 Placing Shares will be issued to Caledonia pursuant to the Placing and because Caledonia's holding is in excess of 10 per cent. of the existing issued Ordinary Shares, Caledonia is considered to be a related party under the AIM Rules and Caledonia's participation in the Placing will constitute a related party transaction under Rule 13 of the AIM Rules.

The Board (with the exception of William Wyatt who is the Chief Executive Officer of Caledonia), having been so advised by Smith & Williamson, believes that this related party transaction is fair and reasonable as far as the Shareholders are concerned. In providing its advice to the Board, Smith & Williamson has taken into account the Directors' commercial assessment of this related party transaction.

Dividend policy

It is the Board's present intention that the Company's funds will principally be applied towards its investment strategy and that, accordingly, dividends have not been paid in respect of the year ended 31 December 2010. While the intention of the Board was to commence dividend payments in respect of the year ended 31 December 2010, the Directors believed it was not prudent to do so given the prevailing market conditions. The Board remains committed to paying a dividend in 2012, subject to capital being invested, the Company's contracted rental income providing the Company with a cash surplus and subject always to the Directors' judgment of market conditions and the Company's cash and financial position at the relevant time. The Directors consider that the Company's existing business model is suited to conversion for a REIT structure, and the Board will continue to consider the appropriateness of a conversion to a REIT structure in the future.

Proposed Share Consolidation

Following the Placing and Admission, the Company will have 714,205,982 issued Ordinary Shares.

It has become clear that there is a need to undertake the Share Consolidation to make the number of Ordinary Shares in the capital of the Company that are in issue more manageable.

The proposed new ordinary shares of £0.10 each in the capital of the Company that are to be created pursuant to the Share Consolidation ("New Denomination Ordinary Shares") will have the same rights as to voting, dividends and return on capital as the existing Ordinary Shares.

The Directors are seeking Shareholder approval by ordinary resolution at the GM for the Share Consolidation.

If approved, the Share Consolidation will be effective at 8.00 a.m. on the business day immediately following Admission. Certificates for the New Denomination Ordinary Shares will be despatched by 16 August 2011 to those Shareholders who hold their existing Ordinary Shares in certificated form. Any certificates in respect of existing Ordinary Shares will no longer be valid from 8.00 a.m. on the business day immediately following Admission and should be destroyed upon receipt of certificates in respect of the New Denomination Ordinary Shares. Pending despatch of the definitive certificates in respect of the New Denomination Ordinary Shares, transfers of the New Denomination Ordinary Shares will be certified against the register. Definitive share certificates for the New Denomination Ordinary Shares will not be despatched to those Shareholders who have previously elected to have their Ordinary Shares held in uncertificated form. Instead the New Denomination Ordinary Shares will be credited to such Shareholders in uncertificated form through CREST. The ISIN for the New Denomination Ordinary Shares will be GB00B45XLP34, the new Sedol number will be B45XLP3 and the ticker, RLE, remains unchanged.

In the event that any Shareholder becomes entitled to fractions of New Denomination Ordinary Shares as a result of the Share Consolidation, it is proposed that the Directors are authorised to deal with such fractions as they shall determine. The Articles grant the Directors the discretion to sell New Denomination Ordinary Shares representing such fractions to any person at the best price reasonably obtainable, and to pay the net proceeds of the sale of such New Denomination Ordinary Shares to the relevant Shareholders in proportion to their shareholding. Where the amount due is less than £3.00 then the relevant proceeds will be retained by the Company.

It is proposed that the Share Consolidation will consist of the following steps:

(i)         every 10 existing Ordinary Shares (or such number as will result in a whole number of New Denomination Ordinary Shares, the balance of the existing Ordinary Shares then held by each Shareholder being dealt with as provided in (ii) below) held by a Shareholder will be consolidated into one New Denomination Ordinary Share; and

(ii)         fractional entitlements arising out of the Share Consolidation under paragraph (i) above (including those arising by reason of a Shareholder holding less than 10 existing Ordinary Shares or a number not divisible by 10) shall be aggregated into New Denomination Ordinary Shares and the whole number of New Denomination Ordinary Shares so arising shall be sold to such persons as the Directors shall determine. The net proceeds from the sale of such New Denomination Ordinary Shares shall be distributed to the Shareholders entitled to them, and cheques are expected to be dispatched to Shareholders on or around 16 August 2011. Amounts less than £3.00 will not be distributed to Shareholders but will instead be aggregated and held for the benefit of the Company.

The following summary is intended as a general guide only and related to the UK taxation treatment of the Share Consolidation. It is based on current UK tax law and the current published HM Revenue and Customs practice applying in the case of those holders of existing Ordinary Shares who are residents of the UK for tax purposes, are the beneficial owners of those existing Ordinary Shares and hold them as investments. Certain holders of existing Ordinary Shares, such as dealers in securities, insurance companies, collective investments schemes and persons who have acquired their existing Ordinary Shares by reason of their or another's employment, may be taxed differently and are not considered here.

It is expected that for the purposes of UK taxation on chargeable gains the Share Consolidation will be treated as follows:

(i)         the New Denomination Ordinary Shares arising from the Share Consolidation will result from a reorganisation of the share capital of the Company. Accordingly, holders of existing Ordinary Shares should not normally be treated as making a disposal of all or part of their holding of existing Ordinary Shares by reason of the Share Consolidation being implemented. The New Denomination Ordinary Shares which replace their holding of existing Ordinary Shares as a result of the Share Consolidation will be treated as the same asset acquired at the same time as their holding of existing Ordinary Shares was acquired; and

(ii)         to the extent that holders of existing Ordinary Shares receive cash relating to any fractional entitlement by virtue of a sale on their behalf of New Denomination Ordinary Shares, they should not in practice normally be treated as having made a part disposal of their holding of existing Ordinary Shares. The proceeds will instead be deducted from the base cost of their holding of New Denomination Ordinary Shares for capital gains tax purposes.

Option holders who have adjustment clauses in their options which require consent will be written to and consent obtained so that their options will be deemed adjusted to reflect the Share Consolidation.

Option holders will have their entitlements adjusted pursuant to the terms of their options.

Proposed reduction of the Company's share premium account

The Company has undertaken a number of transactions in recent years and has issued a significant number of Ordinary Shares at a premium to nominal value. This has resulted in the Company having a significant share premium account. The balance sheet of the Company contained in the audited accounts for the year ended 31 December 2010 shows that the amount of the Company's share premium account was £37,654,000 and that the Company had accumulated profit and loss reserves of £10,270,000 which are not currently available for distribution. Upon Admission, the share premium account will increase by a further sum of approximately £9,500,000 as a result of the issue of the Placing Shares (net of expenses).

The Directors consider that this situation is to the detriment of the Company and its Shareholders as the Company will be unable to pay dividends until it has distributable reserves.

In view of the above, the Directors consider that it would be advantageous to reduce the Company's share premium account.

Accordingly the Circular contains a resolution to be proposed at the GM to enable Shareholders to vote to approve a reduction of the Company's share premium account.

The proposed reduction of the share premium account requires the approval of Shareholders by a special resolution and the approval of the Court. The resolution is set out in the notice of the GM. Assuming that Shareholders approve the resolution, it is expected that an application will be made in due course for a Court Order confirming the proposal. The reduction will be effective upon a Court Order being made and filed with Companies House. An announcement will be made by the Company upon the Court Order being made.

As stated above, as at 31 December 2010 the Company had accumulated profit and loss reserves of £10,270,000 which were not available for distribution. A copy of the audited accounts for the year ended 31 December 2010 is available on the Company's website www.reiplc.com.

The proposed reduction of share premium account will not involve any distribution or repayment to Shareholders. The principal effect will be to place the Company in a position where it can lawfully purchase its own shares and/or pay dividends out of distributable profits sooner than it would otherwise be able to do so. Notwithstanding the approval of the proposal, the Directors will determine the question of future distributions to Shareholders in accordance with the best interests of the Company at the relevant time.

The proposal will not change the number of Ordinary Shares (or New Denomination Ordinary Shares as appropriate) in issue or the rights attaching to those shares. The Ordinary Shares (or New Denomination Ordinary Shares as appropriate) will continue to be traded on AIM.

Additionally, the reduction will not affect the future trading prospects of the Company and its net assets will not be reduced as a consequence of the reduction.

General Meeting

As noted above, the Directors are seeking authorities to allot Ordinary Shares to implement the Placing, to consolidate the Company's share capital and to reduce the Company's share premium account. Notice of the GM is set out at the end of the Circular. The GM will be held at the Company's registered office, Cathedral Place, Third Floor, 42-44 Waterloo Street, Birmingham B2 5QB on 18 July 2011 at 10.00 a.m.

In addition, a Form of Proxy for use at the GM is enclosed with the Circular (see Part II of the Circular headed "Action to be Taken").

Shareholders have the right to attend, speak and vote at the GM (or, if they are not attending the meeting, to appoint someone else as their proxy to vote on their behalf) if they are on the Register at the Voting Record Time (namely 10.00 a.m. on 16 July 2011). Changes to entries in the Register after the Voting Record Time will be disregarded in determining the rights of any person to attend and/or vote at the GM. If the GM is adjourned, only those Shareholders on the Register at 10.00 a.m. on the day which is two days before the date of the adjourned GM will be entitled to attend, speak and vote or to appoint a proxy.

The number of Ordinary Shares a Shareholder holds as at the Voting Record Time will determine how many votes a Shareholder or his/her proxy will have in the event of a poll.

Explanation of the Resolutions to be proposed at the General Meeting

The notice convening the GM sets out the Resolutions to be proposed at the GM. An explanation of these Resolutions is set out below:

Authority to allot shares (Resolution 1)

The Directors need the authority of Shareholders to allot new Ordinary Shares and Resolution 1 provides such authority by granting the Directors the authority to allot shares in the capital of the Company for the purpose of the Placing up to a maximum nominal amount of £2,181,818.21 (representing, as at 30 June 2011 (being the latest practicable date before the publication of the Circular), 44.0 per cent. of the Company's issued share capital). This authority, if granted, would last until 9 August 2011. If, however, the Company makes an offer or enters into an agreement requiring the issue of Ordinary Shares prior to that date, the allotment will be valid even if the allotment occurs after the expiry of this authority.

The passing of Resolution 1 will require more than 50 per cent. of the votes cast voting in favour. This authority, if granted, will be in addition to any existing authorities to allot Ordinary Shares granted to the Directors prior to the date of the Circular which will continue in full force and effect whether or not the Placing is effected.

Share Consolidation (Resolution 2)

The Directors need the authority of Shareholders to implement the Share Consolidation. The passing of Resolution 2 will require more than 50 per cent. of the votes cast voting in favour. Subject to the requisite Shareholder approval, the Share Consolidation is expected to be effective from 8.00 a.m. on the business day immediately following Admission.

Disapplication of pre-emption rights (Resolution 3)

Section 561 of the Act requires that on an allotment of "equity securities" for cash, such equity securities must first be offered to existing Shareholders in proportion to the number of Ordinary Shares they each hold at that time. This is known as a shareholder's pre-emption right. The Ordinary Shares are "equity securities" for the purposes of Section 561 of the Act. Accordingly, the Ordinary Shares cannot be allotted for cash on a non pre-emptive basis unless the Shareholders have first waived their pre-emption rights and Resolution 3 requests Shareholders to do so for the purposes of the Placing. If the authority is granted, the Directors will be able to allot Ordinary Shares for cash on a non pre-emptive basis, to the extent authorised, without further authority from the Shareholders. As with Resolution 1, the authority s sought for the purpose of the Placing and is intended to last until 9 August 2011. The passing of Resolution 3 will require not less than 75 per cent. of the votes cast voting in favour. This authority, if granted, will be in addition to any existing authorities to disapply pre-emption rights granted to the Directors prior to the date of the Circular which will continue in full force and effect whether or not the Placing is effected.

Reduction of share capital (Resolution 4)

The Directors need the approval of Shareholders to proceed with the proposed reduction of the Company's share premium account. The passing of Resolution 4 will require not less than 75 per cent. of the votes cast voting in favour.

Irrevocable Undertakings

The Company has received irrevocable undertakings from certain Shareholders, including all the Directors, to vote in favour of the Resolutions in respect of an aggregate of 239,327,459 Ordinary Shares representing 48.25 per cent. of the Company's issued share capital.

Issued share capital

If the Placing and the subsequent Share Consolidation are approved by Shareholders, the Company's approximate issued share capital will be £7,142,059.80 divided into 71,420,598 New Denomination Ordinary Shares.

Recommendation

Your Board believes the Placing and the other proposals set out in the Circular to be in the best interests of the Company and the Shareholders taken as a whole. Accordingly, the Directors unanimously recommend you to vote in favour of the Resolutions to be proposed at the GM as they have irrevocably undertaken to do in respect of their beneficial holdings, amounting, in aggregate, to 99,350,000 Ordinary Shares, representing 20.03 per cent. of the existing issued share capital of the Company.

This announcement is for information purposes only and does not constitute an offer or invitation to acquire or dispose of any securities or investment advice in any jurisdiction.

Smith & Williamson Corporate Finance Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as nominated adviser for the purposes of the AIM Rules exclusively for the Company in connection with Admission and the Placing. Smith & Williamson Corporate Finance Limited is not acting for any other person and will not be responsible to any other person for providing the protections afforded to clients of Smith & Williamson Corporate Finance Limited or for advising any other person in connection with Admission and the Placing.

Liberum Capital Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting as lead manager and broker exclusively for the Company in connection with the Placing.  Liberum Capital Limited is not acting for any other person and will not be responsible to any other person for providing the protections afforded to clients of Liberum Capital Limited, or for advising any other person in connection with the Placing.

No representation or warranty, express or implied, is made by Smith & Williamson Corporate Finance Limited or Liberum Capital Limited or any of their respective directors, officers, employees, advisers or agents as to any of the contents of this announcement and, without limiting the statutory rights (if any) of any person to whom this announcement is issued, no liability whatsoever is accepted by Smith & Williamson Corporate Finance Limited or Liberum Capital Limited or any of their respective directors, officers, employees, advisers or agents for the accuracy of any information or opinions contained in this announcement or for the omission of any material information.

The information contained in this announcement is not for release, publication or distribution, directly or indirectly, to persons in the United States, Australia, Canada, Japan, New Zealand, South Africa or Switzerland or any other jurisdiction in which such publication or distribution is unlawful and should not be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of local securities laws or regulations.  The new Ordinary Shares to be issued in relation to the Placing have not been and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act"), or under the laws of any state of the United States, and may not be offered, sold or transferred in the United States except pursuant to an exemption from, or in a transaction not subject to, the requirements of the Securities Act.  The new Ordinary Shares to be issued in relation to the Placing may not be offered, sold or transferred, directly or indirectly, in or into Australia, Canada, Japan, New Zealand, South Africa or Switzerland, or any province or territory thereof, or any other jurisdiction in which it would be unlawful to do so.  There will be no public offer of Ordinary Shares to be issued in relation to the Placing in the United Kingdom or elsewhere.

 

END

 

 

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