Proposed Acquisition and Placing

RNS Number : 9202N

Palace Capital PLC

08 September 2011

 



Palace Capital plc ("Palace Capital or the "Company")

Proposed acquisition of Hockenhull Estates Limited,

Placing of 23,266,666 new ordinary shares of 1p each in Palace Capital plc at 2.25p per share,

approval of the waiver of obligations under Rule 9 of the Takeover Code

Notice of General Meeting

and

Admission of Enlarged Share Capital to trading on AIM

8 September 2011

1.      INTRODUCTION

The Board announced today that the Company has agreed conditionally to acquire Hockenhull Estates Limited. The consideration for the Acquisition will be £1,817,500 (subject to adjustment in accordance with the terms of the Acquisition Agreement), to be satisfied in cash at Completion conditional on, inter alia, Admission. Further details of the Acquisition Agreement are set out in the section headed ''Principal Terms of the Acquisition'' below. Detailed information on Hockenhull Estates, which owns a portfolio of commercial properties, is set out in Part I, Part III and Part IV of the Admission Document.

The Admission Document will be posted to Shareholders today and will be available shortly from the Company's website at www.palacecapitalplc.com.

The Company has raised £523,500 (approximately £273,545 net of expenses) by the issue of up to 23,266,666 new Ordinary Shares through the Placing at 2.25p per Placing Share. The Placing Shares will represent 73.64 per cent. of the Enlarged Share Capital. At 1 August 2011, being the latest practicable date prior to the date of this announcement and the date the Existing Ordinary Shares were suspended from trading on AIM, the closing mid-market price of an Existing Ordinary Share was 4.25p. At this price Palace Capital is valued at approximately £0.31 million.

The Company has arranged a secured debt financing of Hockenhull Estates through the provision of a bank facility by the Lender for £1,200,000 until 30 September 2014. The total facility will be drawn down in full on Admission. It is intended that immediately following drawdown, the total sum of the Facility will be loaned by Hockenhull Estates to Palace Capital and will be used to finance part of the Acquisition.

Stanley Harold Davis, Rachel Rita Davis and NSS Trustees Limited a/c IRG (the trustees of the IRG PLC Directors Retirement and Death Benefit Scheme of which Stanley Davis is the sole beneficiary), have conditionally agreed to subscribe for convertible loan notes issued by the Company to a value of £300,000 on the terms of the 2011 Convertible Loan Agreement. The 2011 Convertible Loan Notes are convertible into Ordinary Shares at 2.25 pence per Ordinary Share. Interest of 4 per cent. will be payable quarterly on the outstanding 2011 Convertible Loan Notes.

In addition, Stanley Davis, has agreed conditionally to loan £277,500 to the Company by way of an unsecured mezzanine loan under the terms of the Mezzanine Facility Agreement. The Mezzanine Facility is available until 4 October 2015 with interest only payments being due quarterly in arrears.

As the Concert Party will hold more than 50 per cent. of the Enlarged Share Capital and Stanley Davis, non-executive Chairman of the Company, will individually hold more than 30 per cent. of the Enlarged Share Capital following Admission, the approval of the Independent Shareholders is required of a waiver from the obligations of Rule 9 of the Takeover Code that would otherwise require the Concert Party and/or Stanley Davis to make a general offer to the holders of all of the Ordinary Shares. The members of the Concert Party, who are currently interested in 2,157,570 Ordinary Shares representing 29.9 per cent. of the Existing Ordinary Shares, will not be entitled to vote on this Waiver Resolution.

In view of the size of Hockenhull Estates relative to the Company, the Acquisition will constitute a reverse takeover of Palace Capital under the AIM Rules for Companies and therefore requires the prior approval of Shareholders which is being sought at a General Meeting, notice of which is set out at the end of the Admission Document. Application will be made for the Existing Ordinary Shares to be readmitted and the Placing Shares and the Fairfax Shares to be admitted to trading on AIM subject to the passing of the Resolutions. Shareholders should note that the Existing Ordinary Shares will remain suspended from trading on AIM, conditional upon the Resolutions at the General Meeting on 3 October 2011 being passed, Assuming the Resolutions are passed, the suspension of the Ordinary Shares will be lifted and trading in the Ordinary Shares on AIM will be restored on 4 October 2011.

In addition, the SD Financing constitutes a related party transaction under Rule 13 of the AIM Rules and, as such, for the purposes of the AIM Rules, the Directors (excluding Stanley Davis), not being related parties in relation to the SD Financing, having consulted Fairfax, the Company's nominated adviser, consider that the terms of the SD Financing are fair and reasonable insofar as Shareholders are concerned.

2.      BACKGROUND TO, AND REASONS FOR, THE ACQUISITION AND PLACING

The Company has no ongoing trade or investments. The Company has one dormant wholly owned Subsidiary, Equalgold Limited.

Investing Policy

On 6 July 2010, the Company posted a Circular to Shareholders detailing the disposal of its principal asset, a 50 per cent. shareholding in Grafton, to Safeland for a consideration of £90,000. Following this Disposal, the Company became an Investing Company and was required under the AIM Rules for Companies to adopt an Investing Policy, which was approved by Shareholders at the 2010 General Meeting.

The Company's Investing Policy is to create shareholder value through making property related investments. The intention is to build the Company by making selective acquisitions funded by the issue of Ordinary Shares and debt where appropriate. The Company will take an active role in managing its investments by integrating them into the Enlarged Group.

Following the Disposal, the initial focus of the Directors centred on investment opportunities relating to car parks, outdoor advertising and billboarding and care homes. The Directors consider that the provision of car parking facilities is a recession resistant business and that the shortage of capacity in many towns is a significant issue. Therefore the Directors focused initially on acquiring (i) companies that manage car parks for third parties or car parks themselves; and (ii) available vacant development sites which were unlikely to be built upon for some time. The Directors have considered a number of investment opportunities since July 2010 but as, in the Directors' opinion, the prices asked and their associated yields would not have created sufficient value for Shareholders, the Directors have not progressed such opportunities. Some of the investments previously considered remain on the market so opportunities to acquire them at a valuation that will represent an appropriate investment for Shareholders may arise at a later date.

The Investing Policy adopted is for the Company to seek to make property related acquisitions or investments which may include:

(i)   freehold or long leasehold property or asset-backed businesses owning freehold or long leasehold property;

(ii)   property related businesses which manage asset-backed businesses;

(iii)   investment, in partnership with others, in distressed properties where the Company proposes to manage the asset(s) for a fee and participate in any potential upside;

(iv)   private property companies; and

(v)   property services businesses where the majority of the income is effectively recurring, such as property management, rating and utility brokerage.

The Board considers that this is an appropriate time in the property and economic cycles to implement this strategy.

There is no maximum exposure limit to any single investment nor restriction on gearing or cross holdings. The nature of the returns to Shareholders are dependent on the assets acquired. After an acquisition has been made, it is expected that returns to Shareholders will be initially in the form of capital appreciation. The Board will consider the payment of dividends if and when the Company has sufficient cash resources and retained reserves.

As a result of the Disposal and in accordance with AIM Rule 15, the Investing Policy was approved by Shareholders at the 2010 General Meeting and the Company must implement the Investing Policy within 12 months of Completion, being by 30 July 2011. As the Company did not implement its Investing Policy by 30 July 2011, the Existing Ordinary Shares were suspended from trading on AIM on 1 August 2011. Assuming the Resolutions are passed at the General Meeting on 3 October 2011, the suspension of the Ordinary Shares will be lifted and trading in the Ordinary Shares on AIM will be restored on 4 October 2011 when Admission occurs.

Acquisition

Following the Board's review of potential opportunities, the Company has entered into the Acquisition Agreement to acquire Hockenhull Estates (subject to Admission and certain other conditions). Further details of the Acquisition Agreement are set out in paragraph 8.1.4 of Part V of the Admission Document. Hockenhull Estates owns the freehold interest in nine commercial properties located in Crewe and Nantwich, Cheshire which are let under fourteen individual leases. Further details of these property interests are set out in paragraph 8 below.

The Board believes that the combination of Hockenhull Estates' assets and the Company's access to equity capital markets has the potential to enhance Shareholder value in the medium term. The Board believes that the Acquisition initially satisfies the Investment Policy as Hockenhull Estates offers it:

-   existing revenue generation;

-   an existing platform from which acquisitions can be made; and

-   the opportunity to actively manage the portfolio keeping some properties for long term investment and trading the remainder.

3.      STRATEGY FOR THE ENLARGED GROUP

The Board intends initially to focus the resources of the Enlarged Group on the business of Hockenhull Estates and it will also continue to pursue additional acquisition opportunities within the UK real estate sector using the Acquisition as a platform for growth.

The Board believes that significant opportunities for growth exist within the UK secondary property market and in particular with private property companies. Assuming that there is limited historic tax liability in the relevant target, there is scope to acquire property-holding companies rather than the property assets themselves thus creating a saving in stamp duty land tax. In addition, by acquiring companies that may have existing debt, there may be opportunities for the Company to finance transactions with incumbent lenders.

During the course of the economic cycle the Board believes that there will be further opportunities for growth through acquisition of secondary properties. The businesses and properties that the Board intends to target are likely to exhibit some or all of the following characteristics:

-   good cash flow;

-   lack of property asset management by incumbent manager;

-   be located outside of London; and

-   properties that are preferably freehold or long leasehold.

The Concert Party has confirmed that, following Admission and completion of the Acquisition, it has no intention of changing the Enlarged Group's strategy or business, the employment rights of any employees or management of the Enlarged Group (including any material change in any conditions of employment) or changing the location of its place of business or redeploying any of the Enlarged Group's fixed assets.

4.      PRINCIPAL TERMS OF THE ACQUISITION

On 8 September 2011, the Company entered into the Acquisition Agreement with the Vendor to acquire Hockenhull Estates (subject to Admission and certain other conditions). The consideration payable is £1,817,500 (subject to adjustment in accordance with the terms of the Acquisition Agreement), to be satisfied entirely in cash at Completion and, is subject to a retention as described in more detail below. The consideration will be decreased on a pound for pound basis to the extent that the net assets of Hockenhull Estates are less than £1,817,500 and a further sum will be paid by the Company on a pound for pound basis to the extent the net assets of Hockenhull Estates are more than £1,817,500.

A retention of £150,000 will be paid at Completion into a retention account as security with respect to (i) warranty claims and (ii) indemnity claims. Such retention will be released (subject to any relevant claims being made) to the Vendor on 30 April 2013.

Completion of the Acquisition is conditional, inter alia, on (i) the passing of the Resolutions, and (ii) Admission. Further details of the Acquisition Agreement are set out in paragraph 8.1.4 of Part V of the Admission Document.

5.      DETAILS OF THE PLACING

The Company has raised £523,500 (approximately £273,545 net of expenses) by the conditional placing of 23,266,666 new Ordinary Shares pursuant to the Placing at the Placing Price. The Placing Shares will represent approximately 73.64 per cent. of the Enlarged Share Capital on Admission.

The Placing, which is not underwritten or guaranteed, is conditional, inter alia, upon the passing of the Resolutions and Admission. Further details of the Placing Agreement are set out in paragraph 8.1.3 of Part V of the Admission Document.

Stanley Davis, Neil Sinclair and Anthony Dove have agreed to subscribe for 9,555,556, 2,222,222 and 100,000 Placing Shares respectively.

Immediately following Admission, the Board and their immediate families are expected to hold in aggregate approximately 13,216,158 Ordinary Shares amounting to approximately 42.15 per cent. of the Enlarged Share Capital on Admission.

As a consequence of the Acquisition constituting a reverse takeover, the Company is required to apply for re-admission to AIM as the Enlarged Group. Therefore, application will be made for the Existing Ordinary Shares to be re-admitted and the Placing Shares and the Fairfax Shares to be admitted to trading on AIM. It is expected the Admission will become effective and that dealings in the Ordinary Shares will commence on AIM on 4 October 2011. The Placing Shares will rank pari passu in all respects with the Existing Ordinary Shares.

6.      REASONS FOR THE FACILITY LETTER, PLACING, SD FINANCING AND USE OF PROCEEDS

Facility

The Company has arranged a debt financing, the entirety of which will be used to fund part of the consideration for the Acquisition of Hockenhull Estates through the provision of a Facility by the Lender for £1,200,000 until 30 September 2014. The Facility will be drawn down in full on Admission. It is intended that immediately following drawdown, the total sum of the Facility will be loaned by Hockenhull Estates to Palace Capital and will be used to finance part of the Acquisition. The balance of the Consideration will be funded out of a combination of the SD Financing and the proceeds of the Placing. Hockenhull Estates will provide security to the Lender by virtue of (i) a debenture over its assets and (ii) a first legal charge over its properties in the form required by the Lender. The Facility is repayable on demand.

The Facility is subject to, amongst other things, the following conditions precedent:

(i)   satisfactory reports on title with respect to the properties;

(ii)   execution of the debenture and first legal charge referred to above;

(iii)   a legal opinion from Isle of Man counsel on Hockenhull Estates; and

(iv)   confirmation that the properties owned by Hockenhull Estates are validly insured.

Further detail of the Facility Letter is set out in paragraph 8.1.8 of Part V of the Admission Document.

Placing

The Company has raised £523,500 (approximately £273,545 net of expenses) by way of the conditional Placing to fund part of the Acquisition through the issue of 23,266,666 Ordinary Shares. Further details of the Placing Agreement are set out in paragraph 8.1.3 of Part V of the Admission Document.

2011 Convertible Loan Notes

The Company has agreed with Stanley Harold Davis, Rachel Rita Davis and NSS Trustees Limited a/c IRG (the trustees of the IRG PLC Directors Retirement and Death Benefit Scheme of which Stanley Davis is the sole beneficiary) that they will conditionally subscribe for convertible loan notes to the value of £300,000 partly to fund the Acquisition and partly to provide the Company with additional working capital. Further details of the 2011 Convertible Loan Notes Agreement pursuant to which the 2011 Convertible Loan Notes will be conditionally issued is set out in paragraph 8.1.12 of Part V of the Admission Document.

Mezzanine Facility

In addition, Stanley Davis has agreed that he will loan £277,500 to the Company by way of an unsecured mezzanine loan for working capital purposes under the terms of the Mezzanine Facility. Further details of the Mezzanine Facility are set out in paragraph 8.1.13 of Part V of the Admission Document.

Use of proceeds

The intended use of proceeds from the Placing and SD Financing are as follows:

	£
Expenditure
Consideration for Acquisition	1,817,500
Transaction Costs	249,955
SD Loan	20,000
Financing Method
Facility	1,200,000
Mezzanine Facility	277,500
2011 Convertible Loan Notes	300,000
Placing	523,500
Total	213,545

7.      INFORMATION ON THE COMPANY

Background

The Company was originally admitted to trading on AIM in March 2005 under its former name Libra Retail plc. The Company acquired a 50 per cent. interest in a reverse takeover of Grafton in December 2005.

At the time of the Grafton acquisition, Grafton was a newly incorporated property insurance company. When the initial stake was acquired in Grafton by the Company in December 2005, a long term contract was entered into with Safeland for the provision of property insurance services. The contract was due to expire in December 2013.

Whilst Grafton itself had been profitable (the Company's share of the results of its interest in

Grafton in the year ended 31 January 2010 was a post-tax profit of £34,061), the costs of running the Company as a public company (£79,051 in the same period) were in excess of the share of profits from Grafton attributable to the Company. The Company reported a consolidated loss after tax for the year ended 31 January 2010 of £50,840. The Group's net liabilities as at 31 January 2010 were £95,968, whilst the Company's interest in Grafton was carried as a non-current asset of £20,237.

Without the prospect of an improvement in the financial position or trading performance of the Company at that time, Safeland was unwilling to continue to provide financial support. Therefore, on 6 July 2010, Neil Sinclair, London Active Management Ltd (a company controlled by Neil and Pamela Sinclair), Stanley Davis, Pamela Sinclair (wife of Neil Sinclair) and Andrew Perloff (collectively the ''Purchasers'') entered into a conditional agreement to acquire a 29.9 per cent. stake in the ordinary share capital of the Company from existing shareholders, subject to the Company selling its 50 per cent. interest in Grafton. In addition Safeland also sold to Andrew Perloff and Stanley Davis, all of the Preference Shares.

Disposal

On 6 July 2010, the Company entered into a conditional agreement for the disposal of its principal asset, a 50 per cent. interest in Grafton, to Safeland for consideration of £90,000 which was settled by way of offset of the outstanding indebtedness owed by the Company to Safeland at completion of the Disposal (totalling approximately £75,000) and the balance of £15,000 in cash.

The disposal of Grafton constituted a fundamental change of business by the Company pursuant to Rule 15 of the AIM Rules for Companies and was also subject to the provisions of section 190 of the 2006 Act. Therefore, in accordance with the AIM Rules for Companies and the 2006 Act, the Company sent a circular to Shareholders setting out the reasons for, and principal terms of, the Disposal, and also details of the Company's Investing Policy following completion and to seek Shareholders' approval for the Disposal and the proposed Investing Policy. Both were approved at the 2010 General Meeting.

At completion on 30 July 2010, Leo Holdings (2008) Corporation (a company controlled by Larry Lipman and Errol Lipman, both former directors of the Company) sold in aggregate 2,157,570 Ordinary Shares (representing approximately 29.9 per cent. of the issued share capital of the Company) to the Purchasers at a price of 2.25 pence per Ordinary Share. The Purchasers agreed to acquire the Ordinary Shares in the following proportions:

	Number of Existing Ordinary Shares	Percentage of Existing Ordinary Shares
Andrew Perloff	719,190	9.97
Stanley Davis	719,190	9.97
Neil Sinclair	450,000	6.24
London Active Management Ltd	179,190	2.48
Pamela Sinclair	90,000	1.25
Total	2,157,570	29.9

The resultant shareholdings of Leo Holdings (2008) Corporation and Safeland in the Company are set out in paragraph 5.6 of Part V of the Admission Document.

In addition, Andrew Perloff and Stanley Davis entered into an agreement with Safeland to acquire all the Preference Shares in issue for a total consideration of £15,000. Both Andrew Perloff and Stanley Davis have undertaken not to exercise their rights to redeem their Preference Shares until the Company has sufficient distributable reserves to effect the redemption and sufficient cash resources to meet its liabilities for 12 months following the redemption.

As part of these arrangements, on 30 July 2010: (i) Neil Sinclair and Stanley Davis were appointed as directors of the Company; and (ii) the then existing directors of the Company resigned immediately from the board.

On 30 July 2010, the Company issued the Convertible Loan Notes for which the Purchasers undertook to subscribe. Unless converted into Ordinary Shares, the Convertible Loan Notes are required to be repaid in cash on or before 31 July 2012 at 2.25 pence per Ordinary Share. No coupon is or will be payable on the outstanding Convertible Loan Notes.

Assuming full conversion of the Convertible Loan Notes, 2,666,667 Ordinary Shares would be issued (equating to 26.98 per cent. of the issued Ordinary Shares at that time being the Enlarged Share Capital, plus the Ordinary Shares to be issued on such conversion and assuming no additional Ordinary Shares are issued).

The Convertible Loan Notes, which are held as follows would, if converted, require the issue to certain parties of the following Ordinary Shares:

	Convertible Loan Notes	Ordinary Shares required to be issued upon conversion
Neil Sinclair	£2,000	88,889
Andrew Perloff	£24,500	1,088,889
Stanley Davis	£31,500	1,400,000
London Active Management Ltd	£2,000	88,889
Total	£60,000	2,666,667

The Takeover Code

Under Rule 9 of the Takeover Code, when any person acquires, whether by a series of transactions over a period of time or not, an interest in shares (as defined in the Takeover Code) which (taken together with shares in which he and persons acting in concert with him are interested) carry 30 per cent. or more of the voting rights of a company subject to the Takeover Code that person is normally required to make a general offer to all of the company's shareholders to acquire the remaining shares in that company not held by him.

Similarly, when any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of a company, but does not hold shares carrying more than 50 per cent. of the voting rights of the company, a general offer is required if any further interest in shares is acquired by any such person, or persons acting in concert with him.

An offer under Rule 9 must be in cash and at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interest in shares acquired during the 12 months prior to the announcement of the offer.

Effect of the implementation of the Proposals

Stanley Davis, Neil Sinclair, Pamela Sinclair, London Active Management Ltd (a company controlled by Neil and Pamela Sinclair), Andrew Perloff, Harold Perloff and David Kaye are considered to be acting in concert for the purposes of the Takeover Code. Detailed information on the Concert Party is set out in paragraph 1.3 of Part V of the Admission Document.

As at the date of this announcement the Concert Party holds an interest in 2,157,570 Existing Ordinary Shares representing approximately 29.90 per cent. of the Existing Ordinary Shares.

Following Admission, the Concert Party will hold 17,268,681 Ordinary Shares representing approximately 54.66 per cent. of the Enlarged Share Capital and Stanley Davis will hold 10,274,746 Ordinary Shares representing approximately 32.52 per cent. of the Enlarged Share Capital.

Following Admission, the Concert Party will hold at least 50 per cent. of the Company's voting share capital and will therefore be able to increase its shareholding further without incurring an obligation under Rule 9 of the Takeover Code to make a general offer.

The Takeover Panel has agreed, subject to the passing of the Waiver Resolution at the General Meeting on a poll by Independent Shareholders, to waive the obligation of the Concert Party and Stanley Davis to make a general offer to Shareholders under Rule 9 of the Takeover Code that would otherwise arise as a result of the implementation of the Proposals.

The Waiver Resolution to be proposed at the General Meeting, which will be taken on a poll of Independent Shareholders, deals with the grant to the Concert Party by the Takeover Panel of a conditional waiver of Rule 9 of the Takeover Code, relating to the Placing and Acquisition (the ''Waiver''). The members of the Concert Party, who are currently interested in 2,157,570 Ordinary Shares representing 29.9 per cent. of the Existing Ordinary Shares, will not be entitled to vote on the Waiver Resolution.

The Independent Director believes that, for the reasons specified in paragraphs 2 and 6 above, the Waiver is necessary in order to secure the Proposals. The Concert Party is not prepared to make an offer to the holders of all of the Ordinary Shares and is only prepared to provide funds via the Placing and the SD Financing if the Waiver is granted and the Waiver Resolution passed.

The maximum interests of the Concert Party following the Proposals is set out below:

	Number of Existing Ordinary Shares	Percentage of Existing Ordinary Shares	Number of Ordinary Shares following Admission	Percentage of Enlarged Share Capital	Number of Ordinary Shares assuming full conversion of the 2011 Convertible Loan Notes	Percentage of enlarged share capital assuming full conversion of 2011 Convertible Loan Notes	Number of Ordinary Share assuming conversion of the 2011 Convertible Loan Notes and exercise of Share Options in full	Percentage of enlarged share capital assuming conversion of 2011 Convertible Loan Notes and exercise of Share Options in full
Neil Sinclair (1)	450,000	6.24	2,672,222	8.46	2,672,222	5.95	4,409,878	9.17
London Active Management Ltd	179,190	2.48	179,190	0.57	179,190	0.40	179,190	0.37
Pamela Sinclair	90,000	1.25	90,000	0.28	90,000	0.20	90,000	0.19
Stanley Davis (2)	719,190	9.97	10,274,746	32.52	23,608,079	52.55	24,476,907	50.90
Andrew Perloff	719,190	9.97	2,941,412	9.31	2,941,412	6.55	2,941,412	6.12
Harold Perloff	-	-	1,111,111	3.52	1,111,111	2.47	1,111,111	2.31
David Kaye	-	-	-	-	-	-	552,890	1.15
Total	2,157,570	29.90	17,268,681	54.66	30,602,014	68.11	33,761,388	69.06

(1)   2,222,222 Placing Shares subscribed for by Neil Sinclair pursuant to the Placing will be held in the name of The Trustees of the Sinclair Goldsmith Executive Pension Scheme of which Neil Sinclair is the sole beneficiary.

(2)   13,333,333 new Ordinary Shares to be issued upon conversion of the 2011 Convertible Loan Notes will be held in the name of Stanley Harold Davis, Rachel Rita Davis and NSS Trustees Limited a/c IRG being the trustees of the IRG PLC Directors Retirement and Death Benefit Scheme, of which Stanley Davis is the beneficiary.

Assuming full Conversion of the 2011 Convertible Loan Notes, the Concert Party will own 30,602,014 Ordinary Shares representing 68.11 per cent. of the then enlarged share capital and Stanley Davis will hold 23,608,079 Ordinary Shares representing approximately 52.55 per cent. of the then enlarged share capital.

On Admission, Stanley Davis, Neil Sinclair and David Kaye will also be granted 868,828, 1,737,655 and 552,890 Share Options respectively. Assuming conversion of the 2011 Convertible Loan Notes and exercise of all of the Share Options, the Concert Party will own a maximum controlling interest in the Company of 33,761,388 Ordinary Shares representing approximately 69.06 per cent. of the further enlarged share capital.

For the avoidance of doubt, the Waiver applies only in respect of increases in the interests of Ordinary Shares of the Concert Party and members of the Concert Party resulting solely from the issue to them of the Placing Shares and any Ordinary Shares to be issued as a result of conversion of the 2011 Convertible Loan Notes or the Share Options. If any member of the Concert Party acquires Ordinary Shares which increase the aggregate interest in Ordinary Shares of such member to 30 per cent. or more of the issued share capital of the Company, or increases such member of the Concert Party's interest in Ordinary Shares to between 30 per cent. and 50 per cent., other than pursuant to the issue to it of the Placing Shares and any Ordinary Shares to be issued as a result of conversion of the 2011 Convertible Loan Notes or the Share Options, then Rule 9 would apply and such member or the Concert Party would be obliged to make an offer for the entire issued share capital of the Company not held by them.

The Concert Party as a whole, following Admission, will hold 54.66 per cent. of the Company's issued share capital and will therefore be able to increase its shareholding further without incurring an obligation under Rule 9 of the Takeover Code to make a general offer.

No waiver of any obligation to each, or any, of the Purchasers (as such term is defined above) to make a mandatory offer to Shareholders under Rule 9 of the Takeover Code on conversion of the Convertible Loan Notes was, or has been, sought. As the Purchasers do not wish to make a mandatory offer under Rule 9 of the Takeover Code for the Company, exercise of the Convertible Loan Notes will not take place if such exercise would trigger such a mandatory offer under Rule 9 of the Takeover Code at that time.

8.      INFORMATION ON HOCKENHULL ESTATES LIMITED

Introduction

Hockenhull Estates is a property investment company which was incorporated on 6 August 1992 and is resident in the Isle of Man with property investments currently held in Nantwich and Crewe, in Cheshire, in the North of England.

The majority of the investment properties currently owned by Hockenhull Estates were originally owned privately by Frank Hockenhull prior to their transfer into Hockenhull Estates in 1992, a company owned by a trust of which Frank Hockenhull is the settlor and certain members of his family are the beneficiaries. The properties have been purchased over the course of the last forty years. The last property to be purchased was 23-25 Market Street, Crewe which was purchased in November 2004.

Further details in respect of the property investments held by Hockenhull Estates are set out in the Valuation Report in Part IV of the Admission Document.

The properties are currently managed by F H Properties Limited, incorporated in England and Wales, of which Frank Hockenhull is the ultimate controlling party. This agreement will be terminated upon Completion of the Acquisition.

Frank Hockenhull grew up in Cheshire, has close personal ties with the area and knows the real estate market in this region. Many of the tenants currently occupying the investment properties have done so for a long period of time and are known personally by Frank Hockenhull.

Property Portfolio

Hockenhull Estates owns the freehold interest in nine commercial properties located in Crewe and Nantwich, Cheshire which are let under fourteen individual leases, the details of which are as follows:

Property	Type	Individual value (£) as at 6 July 2011	Annual Net Rent Receivable (£)
Bridgewater House (232 Edleston Road and 1 Wistaston Road) Crewe, Cheshire CW2 5EH	Retail/offices	380,000	36,100
1-7 (odd) High Street, Nantwich, Cheshire CW5 5AW	Leisure/retail	350,000	34,160
45 High Street, Nantwich, Cheshire CW5 5DB	Offices	265,000	22,500
106 Nantwich Road, Crewe, Cheshire, CW1 2EW	Retail	90,000	8,250
23-25 Market Street, Crewe, Cheshire CW1 2EW	Offices	400,000	33,740
52,54 and 56 Beam Street, Nantwich, Cheshire CW5 5LJ*	Retail	265,000	25,456
7 & 7A Earle Street, Crewe, Cheshire CW1 2BS	Retail/offices	265,000	25,000
TOTAL		2,015,000	185,206

*      This comprises three separate properties registered under a single title number.

At Admission, the Company's property portfolio will comprise 9 investments, all of which are located in the United Kingdom with an aggregate value as at 6 July 2011 of £2.015 million.

Details of all of these property investments are set out in the Valuation Report in Part IV of the Admission Document.

The Market and Opportunity

The current UK commercial property market is generally in a slow period of recovery. There is very strong demand for prime commercial property investments in London and the South East and this has been fuelled by demand by overseas investors. This is also the case with high end residential property in London and the South East.

The Company is focusing on the UK secondary property market outside of London in order to find value. The Directors believe that although recovery in the commercial property market outside London may be somewhat slower, the Directors consider that they will secure better value away from London.

The sale of Hockenhull Estates was first advertised in the Estates Gazette (a trade publication) on 16 October 2010 at a price of £2.35 million. Palace Capital is purchasing Hockenhull Estates for cash consideration of £1,817,500 (subject to adjustment under the Acquisition Agreement) on a property valuation as at 6 July 2011 of £2.015 million. The property portfolio will be actively managed and the Board will continue to seek similar opportunities following Admission.

The Directors believe that the key features of the UK secondary property market are that:

-   it is well established;

-   it has not to date recovered its value to the same extent as primary property; and

-   the effects of the banking crisis will provide suitable opportunities for the Enlarged Group.

A report published by DTZ Research dated 24 May 2011 entitled ''Money into Property, UK 2011, Working it Out'' states that the significant recovery in UK prime capital values over the last two years has now left it less attractively priced than most other markets globally. Secondary property, on the other hand, has so far been left behind.

The report also states that UK recovery is expected to broaden into a wider range of non-prime markets over time, driven by improving investor and lender sentiment. Given prime markets are fully priced, it is expected that investors will move into non-prime and value added assets. As lenders move into the non-prime phase of their work out, more stock will reach the market. The size and complexity of the deleveraging means that this will take some time to resolve. DTZ Research state that whilst appetite for secondary stock is still limited, they expect the supply and demand of such properties to increase.

Although non-prime property can be more difficult to source than prime property and can require substantial asset management as well as capital expenditure to maintain income the Directors believe that there are current and future opportunities to acquire undervalued non-prime properties and that non-prime property has not recovered its value to the same extent as prime property.

Directors and employees

As at the date of this announcement, the directors of Hockenhull Estates are employees of Peregrine Corporate Services Limited, Hockenhull Estates' administering agent in the Isle of Man, all of whom will remain on the board of Hockenhull Estates (which will be a wholly owned subsidiary of Palace Capital) following Admission. Neil Sinclair will join the board of Hockenhull Estates, conditional on Completion and Admission. None of the current directors of Hockenhull Estates will join the Board on Admission. Hockenhull Estates has no employees and has never had any employees.

9.      DIRECTORS

Brief biographies of the Directors are set out below. Paragraph 7 of Part V of the Admission Document contains further details of the current and past directorships and partnerships and certain other important information regarding the Directors.

Directors

Stanley Harold Davis, aged 73, British, Non-executive Chairman

Stanley is a successful serial entrepreneur who has been involved in the City of London since 1963. His founding company was company registration agent, Stanley Davis Company Services Limited, which he sold in 1989. In 1990 he became Chief Executive of a small share registration company which became known as IRG plc and acquired a number of businesses including Barclays Bank Registrars and was sold for a substantial sum to Capita Group plc. He is Chairman of Stanley Davis Group Limited specialising in company formations, property and company searches.

Ronald Neil Sinclair, aged 68, British, Managing Director

Neil has over 50 years' experience in the property sector. He was a founder of Sinclair Goldsmith Chartered Surveyors which was admitted to the Official List in 1987 and subsequently merged with Conrad Ritblat in 1993, when he became Executive Deputy Chairman. Neil was appointed Nonexecutive Chairman of Baker Lorenz surveyors in 1999 which was sold to Hercules Property Services plc in 2001. He was appointed a Non-executive Director of Tops Estates plc, a fully listed company, in 2003 and remained so until it was sold to Land Securities plc in 2005. He was one of the founders of Mission Capital plc (now Quindell Portfolio plc), which was admitted to AIM in 2005, and was Executive Chairman until February 2008.

He was elected Chief Barker (Chairman) for 1991 for the Variety Club Children's Charity one of the country's premier charities and is still a Trustee. He co-founded ''the PROPS'', one of the industry's leading events which has raised in excess of £6.9 million for the Variety Club's Easy Riders Wheelchair Programme. He is also a Director and a Vice President of Variety International, the Children's Charity based in Los Angeles which raises in excess of £30 million per annum for sick, disabled and disadvantaged children.

Anthony Charles Dove, aged 66, British, Non-executive Director

Anthony has over 30 years experience in the corporate sector. He was a partner at the international law firm Simmons & Simmons from 1977 until 1999. In 1998 he joined the board of Tops Estates plc, a fully listed company, and remained so until 2005 when the company was acquired by Land Securities plc. He is currently a Managing Director of Locate Continental Properties Kft a private Hungarian company with investments in Budapest and was a trustee of the Gynaecology Cancer Research Fund from 2002 to 2009. Anthony read law at Cambridge, was admitted as a solicitor in 1969 and retired from practice in 1999.

Directors' service contracts and letters of appointment

The Directors have agreed not to receive any fees or salary until the Company has completed the Acquisition.

Conditional on Admission, Stanley Davis will continue to act as non-executive Chairman pursuant to a letter of appointment with the Company dated 8 September 2011 under which he will receive a fee of £12,500 per annum.

Conditional on Admission, Neil Sinclair will continue to act as Managing Director pursuant to a service agreement with the Company dated 8 September 2011 under which he will receive an annual salary of £45,000.

Conditional on Admission, Anthony Dove will continue to act as non-executive director pursuant to a letter of appointment with the Company dated 8 September 2011 under which he will receive a consultancy fee of £12,500 per annum.

10.      SUMMARY FINANCIAL INFORMATION

Palace Capital

The table below sets out Palace Capital's summary financial information for the last three financial years extracted without material adjustment from Palace Capital's consolidated audited accounts for the three years ended 31 January 2009, 31 January 2010 and 31 January 2011, which were prepared under IFRS. In accordance with AIM Rule 28, the London Stock Exchange has authorised the omission of financial information required by section 20.1 of Annex I from the Admission Document. The report and accounts for the three years ended 31 January 2009, 31 January 2010 and 31 January 2011 can be accessed on the Company's website at www.palacecapitalplc.com.

The relevant links to the report and accounts for the three years ended 31 January 2009, 31 January 2010 and 31 January 2011 are as follows:

2011 Report & Accounts	http://www.palacecapitalplc.com/palacecapital_pdf/ Palace%20Capital%20Plc%20Interim%20Report%202011.pdf
2010 Report & Accounts	http://www.palacecapitalplc.com/palacecapital_pdf/ Leo%20Insurance%20AR%202010.pdf
2009 Report & Accounts	http://www.palacecapitalplc.com/palacecapital_pdf/Leo_AR_2009.pdf

The page numbers referencing the figures below within each set of report and accounts are included in the table below. There were no changes in the accounting policies or major notes to the financial statements of the Company in the 3 years ended 31 January 2011, 31 January 2010 or 31 January 2009.

	Year ended 31 January 2011	Year ended 31 January 2010	Year ended 31 January 2009
Turnover	- page 10	- page 15	- page 8
Loss from operations	(116,753) page 10	(79,051) page 15	(85,837) page 8
Loss for the period after tax	(28,291) page 10	(50,840) page 15	(33,046) page 8
Basic and diluted loss per share (p)	(0.40) page 10	(0.70) page 15	(0.46) page 8
Total non-current assets	- page 11	20,237 page 16	19,176 page 9
Total assets	15,578 page 11	38,677 page 16	77,995 page 9
Total equity	124,259 page 11	(95,968) page 16	(45,128) page 9

The 2011 Report & Accounts, 2010 Report & Accounts and 2009 Report & Accounts can all be downloaded from the Company's website at www.palacecapitalplc.com and a hard copy of each was previously posted to Shareholders at the relevant time. A hard copy of each of these documents will not be sent to Shareholders with the Admission Document unless requested. Any Shareholder wishing to obtain a hard copy of the 2011 Report & Accounts, 2010 Report & Accounts and 2009 Report & Accounts should write to the Company Secretary, Palace Capital plc, 41 Chalton Street, London NW1 1JD or call [phone].

Hockenhull Estates

The table below sets out Hockenhull Estates' summary financial information for the last three financial years extracted without material adjustment from Hockenhull Estates' consolidated audited accounts for the three years ended 5 April 2008, 5 April 2009 and 5 April 2010 and for the period from 6 April 2010 to 31 January 2011 which were prepared under IFRS. The summary financial information with regard to Hockenhull Estates has been extracted from Part III of the Admission Document.

	Period from 6 April 2010 to 31 January 2011	Year ended 5 April 2010	Year ended 5 April 2009	Year ended 5 April 2008
Property income	158,919	185,639	185,853	187,796
Operating income	144,752	153,845	19,801	34,308
Income after tax	117,198	129,281	9,056	34,894
Total assets	2,997,012	3,165,479	3,041,164	3,068,635
Total non-current assets	2,015,000	2,015,000	2,015,000	2,150,000
Total equity	2,169,901	2,052,703	1,923,422	1,914,366

At 31 January 2011, Hockenhull Estates had amounts due to it from related parties of £513,568 and owed amounts to related parties, at the same date, of £762,967. These related party balances, along with any subsequent interest charges or movements since 31 January 2011, are expected to be extinguished prior to Completion. Further financial information on Hockenhull Estates is set out in Part III of the Admission Document.

11.      CURRENT TRADING AND PROSPECTS

Current Trading - Palace Capital

The report and accounts for 3 years ending 31 January 2011 are available on the Company's website at www.palacecapitalplc.com. Palace Capital has no investments and has not traded since July 2010. Palace Capital has one dormant, wholly owned Subsidiary, Equalgold Limited.

Palace Capital has been seeking an appropriate acquisition target in line with its Investing Policy, whilst minimising operating expenses and in the year to 31 January 2011 reported a loss after tax of approximately £28,291.

In order to keep operating costs of the Company to a minimum each of the members of the Board agreed not to receive any salary or fee until the Company completed its first acquisition.

Current Trading - Hockenhull Estates

Hockenhull Estates owns the freehold interest let under fourteen individual leases in nine commercial properties located in Crewe and Nantwich, Cheshire for which the current annual rent receivable is £185,206 as detailed in the table above.

In the period from 6 April 2010 to 31 January 2011, Hockenhull Estates made a profit after tax of £117,198.

Prospects - Enlarged Group

The Directors believe that, following Admission and completion of the Acquisition and its corresponding positive impact on the Enlarged Group's capital structure, the future prospects for the Enlarged Group are encouraging. In addition, the Directors believe that there are acquisition opportunities within the UK secondary property market and that the Enlarged Group will seek to be acquisitive in the future.

12.      PROPERTY, PLANT AND EQUIPMENT

Palace Capital

Palace Capital has no investments and has one dormant Subsidiary.

Hockenhull Estates

The main assets of Hockenhull Estates are the freehold interests in nine commercial properties located in Crewe and Nantwich, Cheshire, which are let under fourteen individual leases which had an aggregate value of £2.015 million at 6 July 2011.

13.      DIVIDEND POLICY

The Company does not currently declare dividends. The Directors currently propose to reinvest the Enlarged Group's earnings to finance the growth of the Company's business in the short to medium term and intend to commence the payment of dividends only when they consider it commercially prudent to do so having regard to the availability of the Enlarged Group's distributable profits, available cash balances and the retention of funds required to finance future growth. This will take into account both the requirements of the business and the expectations of the Shareholders.

14.      CORPORATE GOVERNANCE

The Board consists of three directors of whom one is executive and two of which are nonexecutive. The Board meets as and when required and is satisfied that it is provided with information in an appropriate form and quality to enable it to discharge its duties. All Directors are required to retire by rotation with one third of the board seeking re-election each year. Due to the current size of the Company, the duties that would normally be attributed to an Audit, Remuneration or Nomination Committee, have been undertaken by the Board as a whole.

Given the Company's size and the nature of its business, the Board does not consider it would be appropriate to have its own internal audit function. An internal audit function will be established as and when the Enlarged Group is of an appropriate size but meanwhile the audit of internal financial controls forms part of the responsibilities of the Enlarged Group's finance function.

The Board remains fully committed to maintaining regular communication with its shareholders. There is regular dialogue with major shareholders. Press releases are issued throughout the year and the Company maintains a website, www.palacecapitalplc.com on which all documentation is uploaded in accordance with AIM Rule 26.

The Company has adopted a code based on the Model Code for Directors' Dealings and will take all proper and reasonable steps to ensure compliance by the Board and relevant employees in the future.

It is the Directors' intention that as the Company grows, policies and procedures be developed that more fully reflect the recommendations of the UK Corporate Governance Code, so far as is practicable and taking into account the size and nature of the Enlarged Group.

15.      GENERAL MEETING

A notice convening a general meeting of the Company, to be held at 10.00 a.m. on 3 October 2011 at Hamlins LLP, Roxburghe House, 273-287 Regent Street, London W1B 2AD, is set out at the end of the Admission Document. At that meeting the Waiver Resolution and a resolution will be proposed in order to obtain Shareholder approval for the Acquisition. In addition, resolutions will be proposed at the General Meeting granting powers of allotment and disapplying of pre-emption rights in respect of the Placing and for the future grant of Share Options, to assist the Enlarged Group going forward. Further details of the Resolutions are set out below:

Resolution 1 - Waiver Resolution

Resolution 1 is an ordinary resolution to approve the waiver granted by the Takeover Panel of the obligation that would otherwise arise on the Concert Party to make a general offer to the shareholders of the Company under Rule 9 of the Takeover Code as a result of the allotment and issue to the Concert Party pursuant to the Placing of 23,266,666 new ordinary shares (representing approximately 73.64 per cent. of the Enlarged Share Capital) and the potential issue of up to 13,333,333 Ordinary Shares upon conversion of the 2011 Convertible Loan Notes and the potential issue of up to 3,159,373 Ordinary Shares under the Share Option Scheme. To be passed, the Waiver Resolution requires a majority of more than 50 per cent. of the Shareholders voting, in person or by proxy, in favour. The Waiver Resolution, in compliance with the Takeover Code, will be taken on a poll of Shareholders, present in person or by proxy, voting at the General Meeting. The members of the Concert Party, who are currently interested in 2,157,570 Ordinary Shares representing 29.9 per cent. of the Existing Ordinary Shares, will not be entitled to vote on the Waiver Resolution.

Resolution 2 - Approval of the Acquisition

Resolution 2 is an ordinary resolution to approve the Acquisition. As the Acquisition constitutes a reverse takeover under the AIM Rules for Companies, Shareholder approval is required under the AIM Rules for Companies. The Acquisition is conditional, inter alia, upon the passing of the Resolutions and therefore if they are not approved by Shareholders, the Acquisition will not be completed.

Resolution 3 - Authority to allot shares

Resolution 3 is an ordinary resolution to authorise the Directors under Section 551 of the 2006 Act to issue Ordinary Shares. The 2006 Act requires that the authority of Directors to allot shares and to make offers or agreements to allot shares in the Company or grant rights to subscribe for or convert any security into shares (''relevant securities'') should be subject to the approval of Shareholders in general meeting or to an authority set out in the Company's Articles. Accordingly, Resolution 3 will be proposed to authorise the directors to allot relevant securities pursuant to the Placing, in relation to the exercise of the Share Options, the conversion of the Convertible Loan Notes and the 2011 Convertible Loan Notes and otherwise up to a total nominal value of £250,000 representing 25,000,000 Ordinary Shares. This authority will expire on the earlier of the Company's next Annual General Meeting or 15 months after the passing of the Resolution.

Resolution 4 - Disapplication of statutory pre-emption rights

Resolution 4 is a special resolution to disapply statutory pre-emption rights under Section 571 of the 2006 Act in respect of equity securities (as defined in section 560 of the 2006 Act). The

2006 Act requires that any equity shares issued wholly for cash must be offered to existing Shareholders in proportion to their existing shareholdings unless otherwise approved by Shareholders in general meeting or accepted under the Company's Articles. The Placing Shares are not being offered to Shareholders in proportion to their existing holdings. A special resolution will be proposed at the General Meeting to give the Director's authority to allot equity securities for cash other than on a pro rata basis pursuant to the Placing, in relation to the exercise of Share Options, in relation to the conversion of the Convertible Loan Notes and the conversion of the 2011 Convertible Loan Notes and otherwise up to a total nominal value of £250,000 representing 25,000,000 Ordinary Shares. This authority will expire on the earlier of the conclusion of the next Annual General Meeting of the Company or 15 months after the passing of the Resolution.

Implementation of the Placing and Acquisition is conditional, among other things, on Shareholders passing the Resolutions being proposed at the General Meeting. If Shareholders do not pass the Resolutions, the Placing and Acquisition will not proceed.

16.      SHARE OPTION SCHEME

The Company has granted Share Options over 868,828, 1,737,655 and 552,890 Ordinary Shares to Stanley Davis, Neil Sinclair and David Kaye (Company Secretary) respectively, conditional upon Admission, under the Share Option Scheme. The Share Options will represent 10 per cent. of the Enlarged Share Capital. The rules of the Share Option Scheme state that the number of options that remain capable of being issued under the Share Option Scheme would not exceed 10 per cent. of the Company's issued share capital from time to time.

17.      ADMISSION TO AIM

Application will be made to the London Stock Exchange for the Existing Ordinary Shares to be readmitted and the Placing Shares and the Fairfax Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Ordinary Shares will commence on AIM on 4 October 2011. No application has or will be made for the Ordinary Shares to be admitted to trading or to be listed on any other stock exchange.

18.      CREST

As is the case with Existing Ordinary Shares, the Enlarged Share Capital will be enabled for settlement in CREST on the date of Admission. Accordingly, settlement of transactions in the

Ordinary Shares following Admission may take place within CREST if Shareholders so wish.

19.      LOCK-IN AND ORDERLY MARKET ARRANGEMENTS

Each of Stanley Davis, Neil Sinclair, Anthony Dove, Andrew Perloff and Harold Perloff (the ''Locked-in Persons'') who in aggregate will hold 17,368,681 Ordinary Shares (approximately

54.98 per cent. of the Enlarged Share Capital) on Admission have agreed not to dispose of any interest in Ordinary Shares held by them or their associates (within the meaning of section 345 of the 2006 Act) for a period of 12 months following Admission (the ''Lock-in Period'') (subject to certain limited exceptions). The Locked-in Persons have also agreed to follow certain orderly market arrangements for any disposals permitted during the Lock-in Period and all other disposals which apply for 12 months after the expiry of the Lock-in Period.

20.      IRREVOCABLE UNDERTAKINGS

The Company has received irrevocable undertakings from Stanley Davis, Neil Sinclair, and Andrew Perloff to vote in favour of Resolutions 2, 3 and 4 in respect of, in aggregate 2,157,570 Ordinary Shares representing approximately 29.9 per cent. of the Existing Ordinary Shares. As members of the Concert Party, Stanley Davis, Neil Sinclair, and Andrew Perloff will abstain from voting on the Waiver Resolution.

21.      BRIBERY LEGISLATION

The Bribery Act 2010 prescribes criminal offences for businesses engaged or allowing others to engage in bribery or corrupt practices. This came into force in July 2011 and applies to the Company. The Directors have regard to the impact of such legislation and have established appropriate procedures.

22.      TAXATION

Information regarding United Kingdom taxation is set out in paragraph 16 of Part V of the Admission Document. These details are, however, intended only as a general guide to the current tax position under UK taxation law. Shareholders who are in any doubt as to their tax position or who are subject to tax in jurisdictions other than the UK are strongly advised to consult their own independent financial adviser immediately.

23.      ACTION TO BE TAKEN

Shareholders will find enclosed with the Admission Document a Form of Proxy for use at the General Meeting. Whether or not you intend to be present at the General Meeting you are requested to complete, sign and return the Form of Proxy to the Company's registrars, Capita Registrars, PXS, 34 Beckenham Road, Beckenham, Kent BR3 4TU, as soon as possible but, in any event, so as to arrive by no later than 10.00 a.m. on 29 September 2011. The completion and return of a Form of Proxy will not preclude you from attending the meeting and voting in person should you wish to do so.

24.      RECOMMENDATION OF THE INDEPENDENT DIRECTOR

The Independent Director, who has been so advised by Fairfax, considers that the terms of the Waiver are fair and reasonable and are in the best interests of the Independent Shareholders and the Company as a whole. In providing advice to the Independent Director, Fairfax has relied upon the Independent Director's commercial assessment. Accordingly, the Independent Director recommends Independent Shareholders to vote in favour of the Waiver Resolution (Resolution 1).

Stanley Davis and Neil Sinclair took no part in the Independent Director's decision to recommend Independent Shareholders to vote in favour of the Waiver and will abstain from voting on the Waiver Resolution (Resolution 1) in respect of their beneficial shareholdings, as will the other members of the Concert Party.

25.      RECOMMENDATION OF THE DIRECTORS

The Directors, who have been so advised by Fairfax, consider that the terms of the Acquisition, the Placing, and the Facility are fair and reasonable and are in the best interests of Shareholders and the Company as a whole. In providing advice to the Directors, Fairfax has relied upon the Directors' commercial assessments. Accordingly, the Directors recommend Shareholders to vote in favour of Resolutions 2, 3 and 4 as they have undertaken to do in respect of their own shareholdings, amounting in aggregate to 1,438,380 Ordinary Shares, representing 19.93 per cent. of the Existing Ordinary Shares.

For the purposes of the AIM Rules, the Directors (excluding Stanley Davis), who are not related parties in relation to the SD Financing consider, having consulted with the Company's nominated adviser, Fairfax, that the terms of the SD Financing are fair and reasonable insofar as Shareholders are concerned and accordingly recommend Shareholders to vote in favour of Resolutions 2, 3 and 4 at the General Meeting.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Admission Document publication date	8 September 2011
Latest time and date for receipt of completed Forms of Proxy	10.00 a.m. on 29 September 2011
General Meeting	10.00 a.m. on 3 October 2011
Completion of the Acquisition	3 October 2011
Admission of Enlarged Share Capital to AIM	8.00 a.m. on 4 October 2011
CREST accounts credited with Placing Shares	4 October 2011
Certificates for Placing Shares despatched (where applicable)	week commencing 10 October 2011

Each of the dates in the above timetable is subject to change at the absolute discretion of the Company and Fairfax. All times are British Summer Time.

PLACING AND ACQUISITION STATISTICS

Number of Existing Ordinary Shares in issue prior to the Acquisition	7,215,956
Number of Placing Shares to be issued pursuant to the Placing	23,266,666
Number of Fairfax Shares to be issued in lieu of fees in relation to Admission	1,111,111
Enlarged Share Capital on Admission	31,593,733
Placing Price	2.25p
Percentage of Enlarged Share Capital represented by the Placing Shares	73.64
Percentage of the Enlarged Share Capital held by members of the Concert Party following completion of the Proposals	54.66
Percentage of the further enlarged share capital held by members of the Concert Party following completion of the Proposals and assuming full conversion of the 2011 Convertible Loan Notes	68.11
Percentage of the further enlarged share capital held by members of the Concert Party following completion of the Proposals, assuming full conversion of the 2011 Convertible Loan Notes and assuming exercise in full of the Share Options	69.06
Gross proceeds of the Placing	£523,500
Net proceeds of the Placing	£273,545
Market capitalisation of the Company at the Placing Price on Admission	£0.71 million
International Securities Identification Number (ISIN) of Ordinary Shares	GB00B0NN1H91

DEFINITIONS

''2006 Act''	the Companies Act 2006;
''2010 General Meeting''	the general meeting of the Company, held at 10.15 a.m. on 30 July 2010;
''2011 Convertible Loan Notes Agreement''	the agreement dated 8 September 2011 made between the Company (1) and Stanley Harold Davis, Rachel Rita Davis and NSS Trustees Limited a/c IRG (2) pursuant to which Stanley Harold Davis, Rachel Rita Davis and NSS Trustees Limited a/c IRG have conditionally agreed to subscribe for convertible loan notes to a value of £300,000;
''2011 Convertible Loan Notes''	£300,000 of convertible loan notes issued by the Company to Stanley Harold Davis, Rachel Rita Davis and NSS Trustees Limited a/c IRG under the terms of the 2011 Convertible Loan Notes Agreement;
''2011 Report & Accounts''	the report and accounts of the Company dated 26 July 2011;
''2010 Report & Accounts''	the report and accounts of the Company dated 6 July 2010;
''2009 Report & Accounts''	the report and accounts of the Company dated 30 June 2009;
''Acquisition''	the proposed acquisition of Hockenhull Estates by the Company;
''Acquisition Agreement''	the agreement dated 8 September 2011 made between the Vendor (1) and the Company (2) pursuant to which the Company has conditionally agreed to acquire the entire issued share capital of Hockenhull Estates;
''acting in concert''	shall bear the meaning ascribed thereto in the Takeover Code;
''Admission''	the re-admission of the Existing Ordinary Shares and admission of the Placing Shares and the Fairfax Shares to trading on AIM becoming effective in accordance with the AIM Rules for Companies;
''Admission Document''	the admission document dated 8 September 2011;
''AIM''	the AIM market operated by the London Stock Exchange;
''AIM Rules for Companies''	the rules which set out the obligations and responsibilities of companies whose shares are admitted to AIM as published by the London Stock Exchange from time to time;
''AIM Rules for Nominated Advisers''	the rules of the London Stock Exchange which set out the eligibility, obligations and certain disciplinary matters of nominated advisers as published by the London Stock Exchange from time to time;
''Articles''	the articles of association of the Company;
''Board'' or ''Directors''	the directors of the Company as at the date of this announcement and following Admission, whose names are set out on page 9 of the Admission Document;
''Circular''	the circular dated 6 July 2010 posted to Shareholders containing details, inter alia, of the disposal of the Company's shareholding in Grafton, adoption of the Articles, issue of Convertible Loan Notes and change of name to Palace Capital plc;
''Completion''	completion of the Acquisition;
''Concert Party''	Stanley Davis, Neil Sinclair, Pamela Sinclair (Neil Sinclair's wife), London Active Management Ltd (a company controlled by Neil and Pamela Sinclair), Andrew Perloff, Harold Perloff and David Kaye;
''Consideration''	£1,817,500, subject to adjustment in accordance with the terms of the Acquisition Agreement;
''Convertible Loan Note Instrument''	the convertible loan note instrument entered into by the Company on 30 July 2010;
''Convertible Loan Notes''	£60,000 of convertible loan notes issued by the Company on 30 July 2010 on the terms of the Convertible Loan Note Instrument;
''CREST''	the system for the paperless settlement of trades in securities and the holding of uncertificated securities in accordance with the CREST Regulations;
''CREST Manual''	the rules governing the operation of CREST as published by Euroclear;
''CREST Regulations''	the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755), as amended from time to time;
''Disposal''	the disposal of the Company's interest in Grafton which completed on 30 July 2010, pursuant to the terms and conditions of the Disposal Agreement, further details of which were set out in the Circular;
''Disposal Agreement''	the sale and purchase agreement dated 6 July 2010 between the Company and Safeland;
''Enlarged Group''	Palace Capital and its Subsidiaries following Completion and Admission;
''Enlarged Share Capital''	the enlarged share capital of the Company upon Admission, comprising the Existing Ordinary Shares, the Fairfax Shares and the Placing Shares;
''Equalgold''	Equalgold Limited, the Company's sole wholly owned Subsidiary;
''Euroclear''	Euroclear UK & Ireland Limited, the Central Securities Depositary for the UK market and Irish securities and the operation of CREST;
''Existing Ordinary Shares''	the 7,215,956 ordinary shares of 1p each in the capital of the Company in issue as at the date of this announcement;
''Facility''	the conditional loan facility to be advanced by the Lender to Hockenhull Estates pursuant to the Facility Letter;
''Facility Letter''	the facility letter between Hockenhull Estates and the Lender dated 8 September 2011;
''Fairfax''	Fairfax I.S. PLC, the Company's nominated adviser and broker;
''Fairfax Shares''	the 1,111,111 Ordinary Shares to be issued to Fairfax in lieu of payment of part of its corporate finance fee in relation to Admission;
''Form of Proxy''	the form of proxy accompanying the Admission Document for use by Shareholders at the General Meeting;
''FSMA''	the Financial Services and Markets Act 2000 (as amended);
''GBP'', ''£'', ''UK£'' or ''Sterling''	pound sterling, the lawful currency of the United Kingdom;
''General Meeting''	the general meeting of the Company to be held at 10.00 a.m. on 3 October 2011 (and any adjournment of such meeting) at Hamlins LLP, Roxburghe House, 273-287 Regent Street, London W1B 2AD;
''Grafton''	Grafton Insurance Services Limited, the Company's former principal asset;
''Hockenhull Estates''	Hockenhull Estates Limited, a company registered in the Isle of Man with registered number O59474C;
''IFRS''	International Financial Reporting Standards;
''Independent Director''	Anthony Charles Dove, for the purposes of the Takeover Code;
''Independent Shareholders''	the Shareholders excluding the members of the Concert Party;
''Investing Company''	any AIM company which has, as its primary business or objective, the investing of its funds in securities, businesses or assets of any description;
''Investing Policy''	the policy the Company follows in relation to asset allocation and risk diversification as set out in paragraph 4 on page 7 of the Circular dated 6 July 2010 and as approved by shareholders at the 2010 General Meeting;
''Lender''	Close Property Finance, a company incorporated with registered number 00195626;
''Locked-in Persons''	each of Stanley Davis, Neil Sinclair, Anthony Dove, Andrew Perloff and Harold Perloff;
''London Stock Exchange''	London Stock Exchange plc;
''Mezzanine Facility''	a £277,500 unsecured loan provided by Stanley Davis to the Company under the terms of the Mezzanine Facility Agreement;
''Mezzanine Facility Agreement''	the agreement dated 8 September 2011 made between the Company (1) and Stanley Davis (2) pursuant to which Stanley Davis has conditionally agreed to provide a mezzanine loan facility to a value of £277,500;
''Notice of General Meeting'' or ''Notice of GM''	the notice convening the General Meeting set out at the end of the Admission Document;
''Official List''	the Official List of the United Kingdom Listing Authority;
''Ordinary Shares''	ordinary shares of 1p each in the capital of the Company having the rights set out in the Articles;
''Palace Capital'' or the ''Company''	Palace Capital plc, a company incorporated with registered number 05332938;
''Placing''	the conditional placing by Fairfax on behalf of Palace Capital of the new Ordinary Shares at the Placing Price pursuant to the Placing Agreement;
''Placing Agreement''	the conditional agreement dated 8 September 2011 between (1) Palace Capital (2) the Directors and (3) Fairfax, relating to the Placing;
''Placing Price''	2.25 pence per Placing Share;
''Placing Shares''	the 23,266,666 new Ordinary Shares to be allotted and issued by Palace Capital pursuant to the Placing;
''Preference Shares''	65,000 redeemable preference shares of £1 each in the capital of the Company having the rights set out in the Articles;
''Proposals''	the Acquisition, the Placing, the Facility, the SD Financing and Admission, in each case as described in the Admission Document;
''Registrar''	Capita Registrars Limited;
''Resolutions''	the resolutions including the Waiver Resolution contained in the Notice of GM set out at the end of the Admission Document and reference to a ''Resolution'' shall be the relevant resolution set out in the Notice of GM;
''Safeland''	Safeland plc, a company controlled by Larry Lipman and Errol Lipman, both former directors of the Company;
''Scanlans Consultant Surveyors''	Scanlans Consultant Surveyors LLP, the valuer's to the Company, a limited liability partnership registered in England and Wales under number OC348425;
''SD Financing''	together, the 2011 Convertible Loan Notes and the Mezzanine Facility;
''SD Loan''	the loan from Stanley Davis to the Company;
''Shareholders''	the holders of Existing Ordinary Shares;
''Share Options''	the options to subscribe for Ordinary Shares, to be granted under the Share Option Scheme;
''Share Option Scheme''	the Palace Capital No.1 Share Option Scheme, comprising an unapproved share option plan;
''Subsidiary'' or ''Subsidiaries''	a subsidiary undertaking (as defined by section 1159 of the 2006 Act);
''Takeover Code''	the City Code on Takeovers and Mergers;
''Takeover Panel''	the Panel on Takeovers and Mergers;
''UK Corporate Governance Code''	the UK Corporate Governance Code published in June 2010 by the Financial Reporting Council;
''UK'' or ''United Kingdom''	the United Kingdom of Great Britain and Northern Ireland;
''UKLA''	the Financial Services Authority, acting in its capacity as the competent authority for the purposes of Part V of FSMA;
''uncertificated'' or ''in uncertificated form''	recorded on the relevant register of the share or 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 States'', ''US'' or ''USA''	the United States of America, its territories and possessions and any other areas subject to its jurisdiction, any states of the United States and the District of Columbia;
''Valuation Report''	the valuation report prepared by Scanlans Consultant Surveyors LLP included at Part IV of the Admission Document;
''Vendor''	Peregrine Company Managers Limited as trustee of The Frank Hockenhull Trust;
''Waiver''	the waiver by the Takeover Panel of Rule 9 of the Takeover Code as described in paragraph 7 above; and
''Waiver Resolution''	the resolution contained in the notice of General Meeting approving the Waiver for the purposes of Rule 9 of the Takeover Code.

 Enquiries:

Palace Capital Plc

Neil Sinclair, Managing Director

Tel: [phone]

Fairfax I.S. PLC

Katy Birkin/Ewan Leggat

Tel: [phone]

Lehmann Communications plc

Ronel Lehmann

Tel:  [phone]

 

END

 

 

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