REG - Hornby PLC - Placing and Open Offer <Origin Href="QuoteRef">HRN.L</Origin> - Part 1

HornbyAnnouncement

22/06/2016 07:05

RNS Number : 8922B
Hornby PLC
22 June 2016
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES OF AMERICA, CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA OR IN OR INTO ANY OTHER JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OR BREACH OF ANY APPLICABLE LAW OR REGULATION.
THE INFORMATION CONTAINED IN THIS ANNOUNCEMENT DOES NOT CONSTITUTE AN OFFERING OF SECURITIES FOR SALE IN THE UNITED STATES OF AMERICA AND NO SECURITIES HAVE BEEN OR WILL BE REGISTERED UNDER THE UNITED STATES SECURITIES ACT 1933, AS AMENDED (THE "SECURITIES ACT") OR UNDER THE SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION IN THE UNITED STATES OF AMERICA NOR WILL THEY QUALIFY FOR DISTRIBUTION UNDER ANY OF THE RELEVANT SECURITIES LAWS OF CANADA, AUSTRALIA, JAPAN OR THE REPUBLIC OF SOUTH AFRICA, NOR HAS ANY PROSPECTUS IN CONNECTION WITH THE SECURITIES BEEN LODGED WITH OR REGISTERED BY THE AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION. THE SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OF AMERICA. THIS ANNOUNCEMENT IS NOT FOR DISTRIBUTION DIRECTLY OR INDIRECTLY IN OR INTO THE UNITED STATES OF AMERICA.
THIS ANNOUNCEMENT, WHICH DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT FOR THE PURPOSES OF THE PROSPECTUS RULES AND HAS NOT BEEN, AND WILL NOT BE, APPROVED BY, OR FILED WITH, THE FINANCIAL CONDUCT AUTHORITY. IT DOES NOT CONSTITUTE OR FORM PART OF, AND SHOULD NOT BE CONSTRUED AS, AN OFFER TO SELL OR ISSUE, OR A SOLICITATION OF ANY OFFER OF OR INVITATION TO BUY OR SUBSCRIBE FOR, ANY SECURITIES, NOR SHALL IT (OR ANY PART OF IT), OR THE FACT OF ITS DISTRIBUTION, FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, OR ACT AS AN INDUCEMENT TO ENTER INTO, ANY CONTRACT OR COMMITMENT WHATSOEVER. ANY FAILURE TO COMPLY WITH THESE RESTRICTIONS MAY CONSTITUTE A VIOLATION OF THE APPLICABLE SECURITIES LAWS IN SUCH JURISDICTION. THIS ANNOUNCEMENT DOES NOT CONSTITUTE A RECOMMENDATION REGARDING ANY SECURITIES. INVESTORS SHOULD NOT SUBSCRIBE FOR OR PURCHASE ANY SECURITIES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT ON THE BASIS ON THE INFORMATION IN THE CIRCULAR TO BE PUBLSIHED BY THE COMPANY AND ANY SUPPLEMENT THERETO.
22 June 2016
Hornby PLC
("Hornby", the "Company")
Placing and Open Offer of 29,629,630 New Ordinary Shares to raise 8,000,000.10 
Approval of waiver of obligations under Rule 9 of the Takeover Code
and 
Notice of General Meeting
Hornby Plc, the international models and collectibles group, is pleased to announce that it proposes to raise, in aggregate, approximately 8.0 million (before expenses) through the issue of 29,629,630 New Ordinary Shares at an issue price of 27 pence per New Ordinary Share, pursuant to a conditional Placing and an Open Offer.
Highlights
 Approximately 8.0 million to be raised via a proposed Placing and Open Offer at 27 pence per New Ordinary Share
 Placing comprising
o Firm element of 21,518,686 New Ordinary Shares to raise approximately 5.8 million 
o Conditional element of up to 8,110,944 New Ordinary Shares to raise up to approximately 2.2 million subject to scale-back dependent upon the take-up of the Open Offer 
 Open Offer of up to 8,110,944 New Ordinary Shares to raise up to approximately 2.2 million 
o Qualifying Shareholders may subscribe on the basis of 1 Open Offer Share for every 6.77523775284356 Existing Ordinary Shares
o Qualifying Shareholders may also make applications in excess of their pro rata initial entitlement
 The Issue Price of 27 pence per New Ordinary Share represents a 15.6 per cent. discount to the Closing Price of 32.0 pence per Existing Ordinary Share on 21 June 2016 (being the latest practicable date prior to publication of the Circular (defined below))
 Proposed waiver in respect of any obligation of the Concert Party (comprising Phoenix Asset Management Partners Limited, the Company's largest shareholder and Roger Canham, the Company's Executive Chairman) to make a mandatory general offer pursuant to Rule 9 of The City Code on Takeovers and Mergers as a result of its participation in the Placing and Open Offer
 New business plan developed by the Board to refocus the business on existing profitable and cash generative products, channels and geographies whilst also reducing the cost base of the business to reflect projected revenue sources and a simplified overall business model
 Amended RCF agreed with Barclays for 10.0 million, conditional on Admission
 Funds raised to be used to strengthen the Company's balance sheet, to provide working capital and investment to implement the planned business restructuring and to move the Company back to a position of sustainable profit and cash generation
 Circular to be posted to Shareholders today (the "Circular"), a copy of which will be available on the Company's website www.hornby.plc.uk
Roger Canham, Executive Chairman said, 
"We have undertaken and completed a comprehensive review of the business led by Steve Cooke. This has led to the development of a clear plan to turnaround the business, to move it back to a position of sustainable profit and cash generation and to identify the necessary investment required. This will result in a smaller, more focused business concentrated on our major UK brands and a streamlined European operating model which will be run out of the UK. 
"To underpin this plan and to enable the Group to move forwards with the appropriate financing structure in place, we have approached investors to raise additional equity funding of 8 million and have also signed a new three-and-a-half year, 10 million facility with the Group's bank, which is subject to the completion of the equity raise. 
"I am confident that under Steve's leadership, the Group has the people and plan to build on the foundations for recovery that we have put in place over the last 2 years and to return the business to sustainable profit and cash generation. Once we have completed the changes demanded by the new plan this year, the business will be in a position to grow and succeed into the medium term."
Notice of General Meeting
The General Meeting has been convened for 9.00 a.m. on 8 July 2016 and will take place at the offices of the Company's solicitors, Berwin Leighton Paisner LLP at Adelaide House, London Bridge, London EC4R 9HA. The actions that Shareholders should take to vote on the Resolutions and/or apply for Open Offer Shares are set out in the Circular, along with the recommendations of the Directors and the Independent Directors.
Admission
Application will be made for the New Ordinary Shares to be admitted to trading on AIM and it is expected that Admission will become effective and trading will commence in the New Ordinary Shares at 8.00 a.m. on 11 July 2016. Following Admission the Company's issued share capital will comprise 84,583,204 Ordinary Shares. From Admission, the figure of 84,583,204 may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure and Transparency Rules.
Further details of the Placing and Open Offer can be found overleaf.
Defined terms used in this announcement will have the meaning (unless the context otherwise requires) as set out in this announcement and the Circular to be posted to Shareholders today, which will be available on the Company's website www.hornby.plc.uk.
- ends -
For further information contact: 
Hornby Plc
Roger Canham, Executive Chairman  
Steve Cooke, Chief Executive
David Mulligan, Interim Finance Director
 
+44 (0) 1843 233500
Web: www.hornby.com
Numis Securities (Nomad & Broker)
Oliver Cardigan
Paul Gillam
Tom Ballard
+44 (0) 20 7260 1000
Capital Access Group
Simon Courtenay
+44 (0) 20 3763 3400


Further details of the Placing and Open Offer, the approval of the waiver of obligations under Rule 9 of the Takeover Code and Notice of General Meeting
1. Introduction
1.1 The Company announced today that it is proposing to raise, in aggregate, approximately 8 million (before expenses) through the issue of 29,629,630 New Ordinary Shares pursuant to a conditional Placing and an Open Offer.
1.2 The Placing comprises a firm element, pursuant to which the Company intends to raise approximately 5.8 million through the issue of 21,518,686 New Ordinary Shares to Firm Placees, and a conditional element, pursuant to which the Company intends to raise up to 2.2 million through the issue of up to 8,110,944 New Ordinary Shares to Conditional Placees, both at a price of 27 pence per New Ordinary Share. The number of New Ordinary Shares to be issued pursuant to the conditional element of the Placing is subject to clawback pursuant to the Open Offer. 
1.3 The Company intends to raise up to 2.2 million pursuant to a conditional Open Offer to Qualifying Shareholders comprising up to 8,110,944 New Ordinary Shares at a price of 27 pence per New Ordinary Share. The intention of the conditional element of the Placing is to ensure that any Open Offer Shares not applied for under the Open Offer may instead be taken up by the Conditional Placees pursuant to the Placing, and the net proceeds held for the benefit of the Company. Therefore, if the Open Offer is taken up in full by Qualifying Shareholders, Firm Placees will receive their placing participation in full and Conditional Placees would not receive any New Ordinary Shares. 
1.4 The Issue Price represents a 15.6 per cent. discount to the Closing Price of 32.0 pence per Existing Ordinary Share on 21 June 2016 (being the latest practicable date prior to publication of the Circular).
1.5 The Directors currently have existing authorities to allot shares and disapply pre-emption rights under section 551 and section 570 of the Act which were obtained at the Company's Annual General Meeting held on 16 September 2015. However, these would be insufficient to enable the Company to allot and issue the full amount of New Ordinary Shares pursuant to the Placing and Open Offer. Accordingly, the Placing and Open Offer are conditional upon, amongst other things, the Directors obtaining appropriate Shareholder authorities at the General Meeting to allot the Placing Shares and Open Offer Shares and to disapply statutory pre-emption rights which would otherwise apply to such allotment. 
1.6 The Concert Party comprises Phoenix and Roger Canham. Phoenix is an investment management firm controlled by an individual, Gary Channon. Phoenix is the Company's largest Shareholder and, as at 21 June 2016 (being the latest practicable date prior to publication of the Circular), is interested in 16,257,323 Existing Ordinary Shares, representing approximately 29.58 per cent. of the Company's existing issued ordinary share capital. Roger Canham is a director of both the Company and Phoenix, as well as a Shareholder and he is deemed, by virtue of his office as a director of Phoenix, to therefore be acting in concert with Phoenix for the purposes of the Takeover Code. As at 21 June 2016 (being the latest practicable date prior to publication of the Circular), he is currently interested in 40,000 Existing Ordinary Shares, representing approximately 0.07 per cent. of the Company's existing issued ordinary share capital. In aggregate, the Concert Party is therefore interested in 16,297,323 Existing Ordinary Shares, representing approximately 29.66 per cent. of the Company's existing issued ordinary share capital. 
1.7 Phoenix has agreed to subscribe for 8,765,554 New Ordinary Shares as a Firm Placee pursuant to the Placing and up to 8,110,944 New Ordinary Shares as a Conditional Placee pursuant to the Placing, subject in each case to the passing of the Resolutions and, in the case of its participation in the Placing as a Conditional Placee, to clawback under the Open Offer to the extent that the Open Offer Shares are taken up in full by Qualifying Shareholders pursuant to the Open Offer. Roger Canham has irrevocably undertaken not to take up any New Ordinary Shares under either the Placing or the Open Offer. 
1.8 The terms of the Placing and Open Offer give rise to certain considerations under the Takeover Code as a result of the proposed participation of Phoenix in the Placing. The participation of Phoenix (a member of the Concert Party) will result in the Concert Party's shareholding in the Company increasing to between 29.63 and 39.22 per cent. of the Enlarged Share Capital, depending on the extent to which Open Offer Shares are taken up by Qualifying Participants pursuant to the Open Offer. Accordingly, the Board is also seeking the approval of the Independent Shareholders of the Waiver which the Panel has agreed with the Company to grant, subject to the passing of the Whitewash Resolution by the Independent Shareholders at the General Meeting, of any obligation of the Concert Party (or any of its members) to make a mandatory general offer to Shareholders under Rule 9, as more fully set out in the Circular to be posted to Shareholders today.
1.9 If the Resolutions are not approved by Shareholders at the General Meeting, the Placing and Open Offer will not proceed. Subject to the Resolutions being passed at the General Meeting and any other relevant conditions being satisfied (or, if applicable, waived), it is expected that the New Ordinary Shares will be admitted to trading on AIM at 8.00 a.m. on 11 July 2016. Further details regarding thePlacing and Open Offer are set out in the Circular to be posted to Shareholders today. 
1.10 Shareholders' attention is drawn to the statements on use of proceeds, importance of vote and current trading and prospects set out inthe Circular to be posted to Shareholders today. Shareholders are advised to read the Circular in its entirety.
1.11 The purpose of the Circular is to (i) outline the reasons for, and provide further information on, the proposed Placing and Open Offer and Waiver, (ii) explain why the Directors (in respect of the Placing and the Open Offer) and the Independent Directors (in respect of the Waiver) believe the Placing and the Open Offer and the Waiver to be in the best interests of the Company and its Shareholders as a whole and (iii) seek Shareholders' approval for the Resolutions to be proposed at the General Meeting. As such:
(a) the Independent Directors unanimously recommend that the Independent Shareholders vote in favour of Resolution 1, being the Whitewash Resolution, in each case as they have irrevocably undertaken to do in respect of their own beneficial holdings of Existing Ordinary Shares (or, where applicable, procured to do, in respect of Existing Ordinary Shares held by their connected persons) amounting, in aggregate, to 42,325 Existing Ordinary Shares, representing approximately 0.08 per cent. of the existing issued ordinary share capital of the Company; and
(b) the Directors unanimously recommend that Shareholders vote in favour of Resolutions 2 and 3, as they have irrevocably undertaken to do in respect of their own beneficial holdings of Existing Ordinary Shares (or, where applicable, procured to do, in respect of Existing Ordinary Shares held by their connected persons) amounting, in aggregate, to 82,325 Existing Ordinary Shares, representing approximately 0.15 per cent. of the existing issued ordinary share capital of the Company.
1.12 At the end of the Circular, you will find a Notice of the General Meeting setting out the Resolutions to be proposed at the General Meeting to approve the Waiver, the allotment of New Ordinary Shares and the disapplication of statutory pre-emption rights for the purposes of the Placing and Open Offer. The General Meeting has been convened for 9.00 a.m. on 8 July 2016 and will take place at the offices of the Company's solicitors, Berwin Leighton Paisner LLP at Adelaide House, London Bridge, London EC4R 9HA. The actions that you should take to vote on the Resolutions and/or apply for Open Offer Shares are set out in the Circular, along with the recommendations of the Directors and the Independent Directors.
2. Background to and reasons for the PLACING and Open Offer 
2.1 On 10 February 2016, the Company provided an update on its turnaround strategy. This showed significant operational progress in implementing changes to modernise product sourcing, improve management of the supply chain, upgrade the logistics, warehousing and stock control processes and accelerate the distribution routes to customers. However this, together with the rollout of the new Microsoft Dynamics AX enterprise resource planning (ERP) system (the "AX System"), resulted in disruption across the business which had a significant impact on the trading performance of the Group.
2.2 Trading in the UK in November and December 2015 had been strong, with like-for-like sales up 17 per cent. as sales opportunities were maximised. This, however, led to a build-up of stock in the distribution network and the trading performance in January and early February 2016 was in stark contrast, with year-on-year sales down during January, substantially below expectations.
2.3 International trading was severely disrupted from autumn 2015 due to significant reorganisation of the management and distribution operations of the European subsidiaries and, although like-for-like sales across December and January combined were up 5 per cent., this was significantly behind the Board's previous expectations. 
2.4 As a result, the Directors expected to report a substantially increased trading loss than previously forecast for the then current financial year and an underlying loss before tax (at the time of the announcement in February the Directors expected this underlying loss before tax to be in the range of 5.5 million to 6.0 million; as announced this morning, the Company's reported underlying loss before tax for the year ended 31 March 2016 was 5.7 million). As a result of this poor financial performance, the Board considered there to be a risk that the Company would breach a covenant of its Existing Bank Facility in March 2016. The Company therefore entered into discussions with its lender, Barclays, with whom it has enjoyed a long and supportive relationship. The Board undertook to analyse the causes and consequences of the poor start to the new calendar year.
2.5 On 15 February 2016, the Company announced that Richard Ames, then Chief Executive of the Company, would be stepping down and leaving the business with immediate effect. Roger Canham was appointed Executive Chairman ahead of a permanent appointment. On 26 April 2016, the Company announced that Finance Director, Steve Cooke, had been appointed Chief Executive. On 26 May 2016, the Company announced that David Mulligan had been appointed Interim Finance Director.
2.6 The Company last updated Shareholders on discussions with Barclays and current trading on 30 March 2016, at which time the Directors reported that Barclays had agreed to waive the March covenant tests contained in the Existing Bank Facility. Recent trading at that time was in line with the Board's expectations: sales for the second half of the year to date were down 1.7 per cent. year-on-year, within which the UK business was up 3.9 per cent. year-on-year.
2.7 The Board has since completed a thorough review of the business, and has proposed a new business plan, which has the support of Barclays and the Company's five largest Shareholders which represent, in aggregate, 72.63 per cent. of the entire issued share capital of the Company. The proposed Placing and Open Offer and Waiver are intended to strengthen the Company's balance sheet and provide investment to implement the new business plan to move the Company back to a position of sustainable profit and cash generation.
New business plan
2.8 The Board has undertaken a complete review of the Company's operations, including its brands, product lines, distribution channels and territories. This review has identified a number of core parts of the business that are stable, profitable and cash generative, driven by iconic brands with a strong market position. The review has also identified areas of the business that require fundamental change to deliver sustainable profit and cash generation.
2.9 The Board intends to refocus the business on existing profitable and cash generative products, channels and geographies. The Board intends to reduce the cost base of the business to reflect projected revenue sources and a simplified overall business model. The recent implementation of the new AX System is now complete and is expected to facilitate operational improvements through access to improved management information going forwards.
2.10 The key target of the new business plan is to return to profitability and cash generation through the following:
(a) Reduce business scale and cost: The Company intends to focus on the most profitable and cash generative areas of the business and to make significant cost savings. As a result, it expects to reduce revenue by approximately a quarter.
(b) Maintain key UK brands: The Company intends to retain all of its key UK brands. The Company owns a number of highly recognisable and profitable brands (Hornby, Scalextric, Airfix, Humbrol and Corgi) which are core to the Company's future strategy. The Group sells products to both the hobby market and toy market. The new business plan will be strongly focused on improving service to core Hornby customers, especially through its independent and internet distribution channels (further details of which are set out in paragraph 2.10(d) below).
(c) Focused product range: The Board intends to reduce its product line plan by approximately 40 per cent. during the remainder of the 2016 calendar year to approximately 1,500 product lines, focusing on higher gross margin products and reducing complexity and activity levels which is expected to allow the Group's cost base to be reduced. It should be noted that, in the financial year ended 31 March 2016, approximately 50 per cent. of the Company's product lines contributed approximately 90 per cent. of the Company's profit. The Board intends to reduce its product lines further in the 2017 calendar year, while continuing to release innovative new products to the market.
(d) Refine channel strategy and exit concessions: The Company intends to exit most of its concessions as it looks to focus on profitable channels to market. Going-forwards, the Company intends to actively manage its key accounts. The Board has been pleased with the growing profitability of its independent and internet distribution channels and, in particular, intends to support and build on the success of its independent distribution channel. The Company's online sales increased by approximately 39 per cent. compound annual growth rate between 2013 and 2015 and the Company is keen to capitalise on this.
(e) Changes to EU operating model leveraging UK central services: The Company intends to refocus its European business on its most profitable European model rail brands. This is expected to allow the Group to maintain a strong market position in international model rail. In addition, the Company intends to centralise its operations and product development in the UK, which is expected to result in a significant reduction in the cost base of the Group's European business. The Company intends to retain its US business given its historic profitability and future growth potential.
(f) Stock reduction: The failure of the Company to meet sales targets in the 2015/16 financial year, combined with its rationalisation of the product range, the exit of the concessions channel and the contraction of the European business, has resulted in a significant volume of excess stock. The new business plan includes a stock reduction plan which is expected to result in cash generation and a reduction of stock to normal levels.
2.11 Implementation of the new business plan is expected to give rise to restructuring costs of approximately 1.7 million across the Company's UK and European operations. Implementation of any changes to the business and its product lines is intended to be phased and structured to minimise disruption to the core business.
2.12 In the short term, after a period of transition in 2016, the Board expects the new business plan to result in a modest improvement in percentage gross margin in 2017/2018 (driven only by the improved mix effect of the product range rationalisation), with variable costs expected to reduce significantly. Once implemented, the new business plan for 2017/2018 is estimated to result in an approximately 33 per cent. reduction in fixed costs. Focusing on a reduced number of product lines is expected to reduce the Company's capital expenditure, with a consequent positive impact on its cash generation (EBITDA less capital expenditure). In the medium term, the new business plan targets modest revenue growth, a stabilisation of gross margin and EBITDA improvement driven by operational gearing. Combined with a stable level of capital expenditure this is expected to result in improved cash generation. 
Growth drivers
2.13 The Board considers the Company to operate in an attractive market, which is experiencing strong growth. The addressable UK hobby market has grown by approximately 10 per cent. per annum over the last 3 years; in particular, the Company is a key player in the UK hobby market where sales are driven by independent specialist retailers, who are demonstrating positive pricing trends. The broader UK toy market grew by 5.9 per cent. in 2015, to approximately 3.2 billion. 
2.14 The Company has a strong heritage and history, which the Board considers provides a major competitive advantage versus its peers. Three of the Company's brands are market leaders in their segments (Hornby, Scalextric and Airfix are ranked no. 1 by the Company's consumer research for brand awareness) and consumers have described the Company's brands as quality, trustworthy and collectible. The Company's core consumers have a relatively high disposable income and spend more on recreational activities than the average consumer.
2.15 The Board has identified the requirement to focus on a reduced number of product lines and intends to actively support its best-selling product lines, whilst optimising pricing strategy and strengthening its distribution channels. 
3. USE OF PROCEEDS
The proceeds of the Placing and Open Offer will be used to strengthen the Company's balance sheet, to provide working capital and investment to implement the business restructuring and to move the Company back to a position of sustainable profit and cash generation as outlined in paragraph 2 above.
4. Importance of Vote
4.1 Shareholders should note that, unless the Resolutions are passed at the General Meeting, the Placing and Open Offer and Waiver cannot be implemented. In such circumstances, the Company will not receive the proceeds of either the Placing or the Open Offer. If this were to happen, the Company would be expected to be in breach of one or more covenants that are in place under the terms of its Existing Bank Facility. 
4.2 In the above circumstances, the Company would need to enter into further negotiation with Barclays to relax the relevant covenant(s) or to request that any breach of the relevant covenant(s) be waived. Barclays have been supportive of the Company to date and most recently in the context of the amendment and extension of the terms of its existing facility in June 2015. However, there is no guarantee that this will be the case in the future, particularly if the Company's financial position or trading performance were to deteriorate. If Barclays remained supportive, the Directors believe that any amendment or waiver would be likely to require the payment of additional fees and potentially to result in the imposition of more onerous obligations and restrictions on the Group than those which the Group has negotiated to date. In the event that Barclays were not supportive of the Company, and any such amendment or waiver were not possible to agree, a failure to comply with any relevant financial covenants would be an event of default under the Existing Bank Facility and would entitle Barclays to demand repayment of all outstanding amounts and to cancel the Existing Bank Facility. In such case, this may lead to Barclays initiating enforcement action over all or part of the Company's assets (or those of certain of its subsidiaries), including executing a disposal of any such assets.
4.3 Shareholders should further note that, if the Resolutions are not passed at the General Meeting, such that the Placing and Open Offer and Waiver cannot be implemented by 31 July 2016, the Company is expected to be unable to comply with one or more covenants that are in place under the terms of its Existing Bank Facility and may find itself unable to prepare accounts on a going concern basis without first securing further external bank finance and/or other alternative sources of financing which may or may not be forthcoming. 
4.4 The Directors consider that the scenarios described in paragraphs 4.1 to 4.3 (inclusive) would not be in the best interests of the Company or its Shareholders as a whole and that any alternative financing, if available, would be on less favourable terms and could risk leading to more substantial dilution for Shareholders than would be the case under the proposed Placingand Open Offer and Waiver. Accordingly, the Directors and, where appropriate, the Independent Directors, believe that the approval of the Resolutions is in the best interests of Shareholders and the Directors and where appropriate the Independent Directors unanimously recommend that Shareholders vote in favour of the Resolutions so that the Placing and Open Offer and Waiver can be implemented.
5. Current trading and prospects
5.1 The outlook for the Company in the medium term is underpinned by the proposed Placing and Open Offer and Waiver and debt proposals announced today and which the Board urges Shareholders to approve at the General Meeting. As described in paragraph 4 above, without the successful conclusion of the proposed funding plans, the new business plan will not be deliverable.
5.2 The remainder of the 2016/17 financial year will be a period of transition for the Company as it reshapes and streamlines its business to deliver the plans outlined above. The year is expected to include the various impacts of refocusing the business, including an initial period running with a cost base which is too high, the costs of restructuring and the financial impact of stock reduction. 
5.3 For the 10 weeks to 12 June 2016 the group delivered total year on year sales growth of 6%.This has been driven largely by the UK, underpinned by the stock reduction programme, and the US. The European businesses are trading broadly in line with last year. This level of performance is in line with the Company's expectations and the new business plan. Group net debt as at 12 June 2016 was approximately 8.1 million.
5.4 On 13 June 2016 the Company sold its Spanish office premises for a consideration of 1.3 million. The Company iscurrently in discussion with a potential purchaser regarding the sale of its Margate site. The new business plan also includes a stock reduction plan which is expected to result in cash generation and a reduction of stock to normal levels. 
5.5 At this early stage, the Board considers that the transition to the new business plan is progressing well. As a result, the Board is confident that the new business plan can be delivered successfully and that the Company can return to being a profitable and cash generative business which will progress to delivering value for Shareholders in the medium term.
6. Details of the Placing and Open Offer
6.1 The Company is proposing to raise, in aggregate, approximately 8 million (before expenses) through the issue of 29,629,630 New Ordinary Shares pursuant to a conditional Placing and an Open Offer at the Issue Price. 21,518,686 New Ordinary Shares to be issued pursuant to the Placing have been placed firm with Firm Placees, and up to 8,110,944 New Ordinary Shares to be issued pursuant to the Placing shall be placed with Conditional Placees, dependent upon the take-up of the Open Offer by Qualifying Shareholders. 8,110,944 New Ordinary Shares have been offered to Qualifying Shareholders pursuant to the Open Offer at the Issue Price. The intention of the conditional element of the Placing is to ensure that any Open Offer Shares not applied for under the Open Offer may instead be taken up by the Conditional Placees pursuant to the Placing, and the net proceeds held for the benefit of the Company. 
6.2 The aggregate number of New Ordinary Shares issued pursuant to the Placing and Open Offer will, on Admission and provided that all of the Resolutions are passed at the General Meeting, represent approximately 35.03 per cent. of the Enlarged Share Capital. 
6.3 The Placing and Open Offer will result in a dilution of the proportionate holdings of existing Shareholders. On Admission, Shareholders who do not participate in the Placing or the Open Offer will experience an immediate dilution of approximately 35.03 per cent.
6.4 The Issue Price represents a 15.6 per cent. discount to the Closing Price of 32 pence per Ordinary Share on 21 June 2016 (being the latest practicable date prior to the publication of the Circular). The Issue Price has been set by the Directors following their assessment of market conditions and following a "book-building" exercise, which is a mechanism through which investor support for a fundraising such as the Placing and Open Offer is ascertained. 
6.5 Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. On the assumption that, amongst other things, the Resolutions are passed by Shareholders at the General Meeting, it is expected that Admission of the New Ordinary Shares will become effective at 8.00 a.m. on 11 July 2016. 
6.6 The New Ordinary Shares will be issued credited as fully paid and will rank in full for all dividends and other distributions declared, made or paid after Admission in respect of Ordinary Shares and will otherwise rank on Admission pari passu in all respects with the Existing Ordinary Shares. The New Ordinary Shares are not being made available to the public and are not being offered or sold in any jurisdiction where it would be unlawful to do so. 
The Placing to Firm Placees
6.7 Numis Securities has, subject to the passing of the Resolutions at the General Meeting, conditionally placed, on behalf of the Company, 21,518,686 Placing Shares with the Firm Placees in order to raise approximately 5.8 million (before expenses).
6.8 The Placing Shares to be issued to Firm Placees represent 39.16 per cent. of the existing issued ordinary share capital of the Company as at 21 June 2016 (being the latest practicable date prior to the publication of the Circular) and will, on Admission, represent approximately 25.44 per cent. of the Enlarged Share Capital. 
The Placing to Conditional Placees
6.9 Numis Securities has conditionally placed, on behalf of the Company, up to 8,110,944 Placing Shares with Conditional Placees, subject to clawback under the Open Offer so as to ensure that, in the event that the Open Offer is not taken up in full, the balance of any New Ordinary Shares not taken up as Open Offer Shares by Qualifying Shareholders will be taken up by the Conditional Placees. This is intended to ensure that the gross proceeds of the fundraising (and which the Company requires) do not fall short of expectations. Once the outcome of the Open Offer is known and, specifically, what proportion of the Open Offer Shares have been taken up by Qualifying Shareholders, to the extent that Conditional Placees have conditionally subscribed for more than the total number of New Ordinary Shares not taken up under the Open Offer, the Directors shall allocate the available New Ordinary Shares to Conditional Placees in such manner as the Directors may determine, in their absolute discretion. 
6.10 If the Open Offer is taken up in full by Qualifying Shareholders:
(a) Firm Placees would receive their placing participation in full; and
(b) Conditional Placees would not receive any New Ordinary Shares.
The Open Offer
6.11 The Company considers it important that Shareholders who have not taken part in the Placing have an opportunity to participate in the proposed fundraising. The Company is therefore providing all Qualifying Shareholders with the opportunity to subscribe for an aggregate of up to 8,110,944 Open Offer Shares at the Issue Price pursuant to a conditional Open Offer to raise, in aggregate, up to approximately 2.2 million (before expenses). This will allow Qualifying Shareholders to participate on a pre-emptive basis whilst providing the Company with the flexibility to raise additional equity capital to further improve its financial position. In order to increase the number of Open Offer Shares available to other Qualifying Shareholders pursuant to the Open Offer, those Qualifying Shareholders who are also Firm Placees, and Roger Canham, have irrevocably undertaken not to take up their respective Open Offer Entitlements.
6.12 Subject to fulfilment of the conditions set out in the Circular, the Open Offer provides Qualifying Shareholders with the opportunity to apply to acquire Open Offer Shares at the Issue Price pro rata to their holdings of Existing Ordinary Shares as at the Open Offer Record Date on the following basis:
1 Open Offer Share for every 6.77523775284356 Existing Ordinary Shares
and in proportion for any other number of Existing Ordinary Shares then held.
6.13 Entitlements to apply to acquire Open Offer Shares will be rounded down to the nearest whole number and any fractional entitlements to Open Offer Shares will be disregarded in calculating an Open Offer Entitlement and will be aggregated and made available to Qualifying Shareholders pursuant to the Excess Application Facility.
6.14 The Open Offer is conditional upon, inter alia, the passing of the Resolutions and Admission. The proceeds of the Open Offer are anticipated to amount to up to approximately 2.2 million before expenses. If the conditions of the Open Offer are not satisfied, the Open Offer will not proceed and any Open Offer Entitlements admitted to CREST will thereafter be disabled and application monies under the Open Offer will be refunded to the applicants, by cheque (at the applicant's risk) in the case of Qualifying Non-CREST Shareholders and by way of a CREST payment in the case of Qualifying CREST Shareholders, without interest, as soon as practicable, but within 14 days, thereafter. 
Excess Applications
6.15 The Open Offer is structured to allow Qualifying Shareholders to subscribe for Open Offer Shares at the Issue Price pro rata to their holdings of Existing Ordinary Shares. Qualifying Shareholders may also make applications in excess of their pro rata initial entitlement up to an amount equal to the total number of Open Offer Shares available under the Open Offer less an amount equal to such Qualifying Shareholder's Open Offer Entitlement. To the extent that pro rata entitlements to Open Offer Shares are not subscribed by Qualifying Shareholders, such Open Offer Shares will be available to satisfy such excess applications. Applications under the Excess Application Facility may be allocated in such manner as the Directors may determine, in their absolute discretion, and no assurance can be given that any applications under the Excess Application Facility by Qualifying Shareholders will be met in full or in part or at all.
6.16 Qualifying Shareholders should note that the Open Offer is not a rights issue. Qualifying Non-CREST Shareholders should be aware that the Application Form is not a negotiable document and cannot be traded. Qualifying Shareholders should also be aware that in the Open Offer, unlike in a rights issue, any Open Offer Shares not applied for will not be sold in the market nor will they be placed for the benefit of Qualifying Shareholders who do not apply under the Open Offer.
Overseas Shareholders
6.17 Certain Overseas Shareholders may not be permitted to subscribe for Open Offer Shares pursuant to the Open Offer and should refer to the Circular for further details.
CREST instructions
6.18 Application has been made for the Open Offer Entitlements and Excess Open Offer Entitlements for Qualifying CREST Shareholders to be admitted to CREST. It is expected that the Open Offer Entitlements will be admitted to CREST on 23 June 2016. The Excess Open Offer Entitlements will also be enabled for settlement in CREST on 23 June 2016. Applications through the CREST system will only be made by the Qualifying Shareholder originally entitled or by a person entitled by virtue of a bona fide market claim. Shareholders should note that Excess Open Offer Entitlements will not be subject to Euroclear's market claims process. Qualifying CREST Shareholders claiming Excess Open Offer Entitlements by virtue of a bona fide market claim are advised to contact the Receiving Agent to request a credit of the appropriate number of entitlements to their CREST account.
Admission, settlement and dealings
6.19 Application will be made to the London Stock Exchange for the New Ordinary Shares, to be admitted to trading on AIM. Subject to certain conditions, it is expected that Admission will become effective and that dealings in respect of such New Ordinary Shares will commence at 8.00 a.m. on 11 July 2016. Further information in respect of settlement and dealings in the Open Offer Shares is set out in the Circular.
6.20 The actions to be taken for Qualifying Shareholders to apply for Open Offer Shares is described in the Circular.
7. Takeover Code
7.1 The terms of the Placing and Open Offer give rise to certain considerations under the Takeover Code. Brief details of the Panel, the Takeover Code and the protection they afford are given below.
7.2 The Takeover Code is issued and administered by the Panel. The Company is a company to which the Takeover Code applies and, as such, its Shareholders are entitled to the protections afforded by the Takeover Code. The Takeover Code and the Panel operate principally to ensure that the shareholders of a company are treated fairly and are not denied an opportunity to decide on the merits of a takeover. The Takeover Code also provides an orderly framework in which takeovers are conducted. 
7.3 Under Rule 9, where any person acquires, whether by a series of transactions over a period of time or not, an interest (as defined in the Takeover Code) in shares which (taken together with shares in which he is already interested and in which persons acting in concert with him are interested) carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, that person, and any person acting in concert with him, is normally required by the Panel to make a general offer in cash to all of the remaining shareholders to acquire the remaining shares in that company not held by him and/or his concert party. 
7.4 Rule 9 further provides that, where any person, together with any persons acting in concert with him, is interested in shares which, in aggregate, carry not less than 30 per cent. but not more than 50 per cent. of a company's voting rights, a general offer will normally be required if any further interest in shares is acquired by any such person, or any person acting in concert with him. 
7.5 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 persons acting in concert with him, for any interest in shares in the company during the 12 months preceding the date of the announcement of such offer.
7.6 Rule 9 of the Takeover Code further provides, amongst other things, that where any person who, together with persons acting in concert with him, holds over 50 per cent. of the voting rights of a company and acquires an interest in shares which carry additional voting rights, then they will not normally be required to make a general offer to the other shareholders to acquire their shares. However, the Panel may deem an obligation to make an offer to have arisen on the acquisition by a single member of a concert party of an interest in shares sufficient to increase his individual holding to 30 per cent. or more of a company's voting rights or, if he already holds more than 30 per cent. but less than 50 per cent. an acquisition which increases his shareholdings in that company.
7.7 Under the Takeover Code, a concert party arises where persons acting together pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control, or to frustrate the successful outcome of an offer for a company, subject to the Takeover Code. Control means an interest, or interests, in shares carrying, in aggregate, 30 per cent. or more of the voting rights of a company, irrespective of whether such interest or interests give de facto control. The members of the Concert Party are deemed to be acting in concert for the purposes of the Takeover Code. 
8. Potential voting rights of the Concert Party 
8.1 As at 21 June 2016 (being the latest practicable date prior to publication of the Circular), Phoenix is interested in 16,257,323 Existing Ordinary Shares and Roger Canham is interested in 40,000 Existing Ordinary Shares, representing 29.58 and 0.07 per cent. respectively of the voting rights of the Company.
8.2 On completion of the Placing and Open Offer and Waiver, assuming that the Open Offer is taken up in full by Qualifying Shareholders, the Concert Party's aggregate interest in the Ordinary Shares will increase to 25,062,877 Ordinary Shares as a result of Phoenix's participation in the Placing as a Firm Placee, representing approximately 29.63 per cent. of the Enlarged Share Capital. However, in the event that Qualifying Shareholders do not take up any of their respective Open Offer Entitlements pursuant to the Open Offer, the Concert Party's interest in the Ordinary Shares may, in the absence of other Conditional Placees, increase to a maximum of 33,173,821 Ordinary Shares, as a result of Phoenix's additional participation in the Placing as a Conditional Placee. Further details concerning the Concert Party are set out in Part 5 of the Circular. 
8.3 The relevant interests of the members of the Concert Party in the Company as at 21 June 2016 (being the latest practicable date prior to the publication of the Circular), and their respective maximum potential controlling positions following completion of the Placing and Open Offer and Waiver, are illustrated below: 
Member of Concert Party
As at 21 June 20161
Following Admission (assuming that the Open Offer is taken up in full by Qualifying Shareholders other than Placees)
Following Admission (assuming that the Qualifying Shareholders do not take up any of their Open Offer Entitlements)
Number of Ordinary Shares
Percentage of issued share capital
Number of Ordinary Shares
Percentage of Enlarged Share Capital
Number of Ordinary Shares
Percentage of Enlarged Share Capital
Phoenix
16,257,323 
29.58 
25,022,877 
29.58 
33,133,821 
39.17 
Roger Canham
40,000 
0.07 
40,000 
0.05 
40,000 
0.05 
Aggregate total
16,297,323 
29.66 
25,062,877 
29.63 
33,173,821 
39.22 
1. The latest practicable date prior to publication of the Circular.
9. waiver and Whitewash Resolution
9.1 Under Note 1 of the Notes on the Dispensations from Rule 9, the Panel may waive the requirement for a general offer to be made in accordance with Rule 9 if, amongst other things, the shareholders of a company who are independent of the person who would otherwise be required to make an offer, and any person acting in concert with him, pass an ordinary resolution on a poll at a general meeting or by way of a written resolution approving such a waiver. 
9.2 The Panel has agreed, subject to the passing of the Whitewash Resolution by the Independent Shareholders on a poll at the General Meeting, to waive the obligation of the Concert Party, collectively and/or individually, to make a mandatory offer for the Ordinary Shares not already owned by it or persons connected with it as would otherwise arise on the Concert Party's participation in the Placing and the Open Offer. Accordingly, the Company proposes that the Independent Shareholders waive the obligation on the Concert Party to make a mandatory general offer under Rule 9 which would otherwise arise as a result of the Concert Party's participation in the Placing and the Open Offer.
9.3 To be passed, the Whitewash Resolution will require a simple majority of the votes cast on a poll vote. As the Waiver must be approved by the Independent Shareholders, the Concert Party will not be able to vote on the Whitewash Resolution. The Concert Party will abstain, and will take all reasonable steps to ensure that its associates will abstain from voting at the General Meeting in relation to Resolution 1 for the approval of the Waiver.
9.4 Phoenix will not be restricted from making a subsequent offer in the future for the Company in the event that the Waiver is approved by Independent Shareholders. However, any further increase in the Ordinary Shares held by Phoenix will be subject to the provisions of Rule9. 
9.5 For the avoidance of doubt, the Waiver, which is valid only for so long as the authority granted pursuant to the Waiver Resolution remains in force, applies only in respect of increases in shareholdings of the Concert Party resulting from the Placing and Open Offer and not in respect of other increases in its holdings. Roger Canham, by virtue of being deemed to be acting in concert with Phoenix, has not taken part in any decision of the Board relating to the Waiver and the Waiver has been approved by the Independent Directors alone.
9.6 The Waiver will be invalidated if any purchases of Ordinary Shares are made by any member of the Concert Party in the period between the date of the Circular and the General Meeting.
10. Independent Advice
10.1 Numis Securities has provided advice to the Independent Directors, in accordance with the requirements of paragraph 4(a) of Appendix 1 of the Takeover Code, in relation to the Placing and Open Offer and Waiver. 
10.2 This advice was provided by Numis Securities to the Independent Directors of the Company only and, in providing such advice, Numis Securities has taken into account the Independent Directors' commercial assessments.
10.3 The Independent Directors, who have been so advised by Numis Securities, consider the terms of the proposed transaction, comprising the Placing and Open Offer and Waiver, to be fair and reasonable and in the best interests of the Independent Shareholders and the Company as a whole. In providing such advice, Numis Securities has taken into account the Independent Directors' commercial assessments. 
11. Intentions of the Concert Party regarding the Company's business 
11.1 The members of the Concert Party support the strategic goal of the Company as described in the Circular. In addition to entering into a Relationship Agreement with the Company, further details of which are contained in paragraph 17.5 of this announcement, Phoenix has confirmed to the Company that it is not proposing, in the event of any increase in its proportionate shareholding as a result of the Placingand Open Offer, to seek any change in the composition of the Board or to the general nature or to any other aspect of the Company's business, and that the business of the Group should, subject to the strategic goal of the Company as described in paragraph 2 of this announcement being adopted, continue to be run in substantially the same manner as at present and in line with the Company's strategy. 
11.2 Phoenix has further confirmed that, as at 21 June 2016 (being the latest practicable date prior to publication of the Circular), it does not have any intentions regarding the Company's business that would affect:
(a) the strategic plans of the Company;
(b) the continued employment of any of the Group's employees and management (including any material change to the conditions of employment); 
(c) any employer contributions into the Company's pension scheme (including with regard to current arrangements for the funding of any scheme deficit), the accrual of benefits for existing members and the admission of new members;
(d) any form of incentivisation arrangements with members of the Company's management who are interested in the Ordinary Shares of the Company;
(e) the locations of the Company's business or operating subsidiaries; 
(f) the redeployment of the fixed assets of the Company; or
(g) the maintenance of any existing trading facilities in respect of the Ordinary Shares,
although, in the long-term, Phoenix would expect to be consulted by the Company regarding each of the above matters in its capacity as the Company's largest shareholder and the outcome of which consultation may affect some of the above matters. In the case of Roger Canham, he has confirmed that, in his capacity as a member of the Concert Party but not in his capacity as Chairman of the Company, he does not have any current intentions in the long-term regarding the Company's business that would affect the matters described above.
12. Related party transaction
12.1 As at 21 June 2016 (being the latest practicable date prior to publication of the Circular), Phoenix holds 16,257,323 Ordinary Shares representing approximately 29.58 per cent. of the issued ordinary share capital of the Company. As at the same date, New Pistoia holds 12,129,000 Ordinary Shares representing approximately 22.07 per cent. of issued ordinary share capital of the Company. Both Phoenix and New Pistoia are therefore considered related parties of the Company for the purposes of the AIM Rules.
12.2 The participation of Phoenix and New Pistoia in the Placing and Open Offer will, for the purposes of AIM Rule 13, be considered a "Related Party Transaction". The Independent Directors consider, having consulted with the Company's nominated adviser, Numis Securities, that the terms of the related party transaction are fair and reasonable insofar as Shareholders are concerned. 
12.3 Following Admission, New Pistoia will hold 18,668,661 Ordinary Shares, representing 22.07 per cent. of the Enlarged Share Capital. Phoenix will have a minimum holding of 25,022,877 Ordinary Shares, representing 29.58 per cent. of the Enlarged Share Capital (assuming full take up of the Open Offer by shareholders other than the Placees) and otherwise, a maximum of 33,133,821 Ordinary Shares, representing 39.17 per cent. of the Enlarged Share Capital (assuming that the Open Offer is not taken up by Qualifying Shareholders).
13. Dilution resulting from the Placing and Open Offer
The Placing and Open Offer will result in a dilution of the proportionate holdings of existing Shareholders. On Admission, Shareholders who do not participate in the Placing or Open Offer will experience an immediate dilution of approximately 35.03 per cent. 
14. Amendment and restatement of the Existing BAnk Facility
14.1 In conjunction with the Placing and Open Offer and the Waiver, the Company, together with certain members of its Group, has also entered into an amendment and restatement agreement with its principal lender, Barclays, in respect of the Existing Bank Facility (the "Amendment and Restatement"). 
14.2 Pursuant to the terms of the Amendment and Restatement, the Group's existing 10 million multi-currency revolving credit facility made available to Hornby Hobbies Limited (the "Borrower") will be amended and extended (the terms of the Existing Bank Facility, as so amended and extended, being the "Amended and Restated RCF"). 
14.3 The Amended and Restated RCF will be guaranteed by the Company, Hornby Industries Limited and H&M Systems Limited and will benefit from security given by each of these companies and the Borrower.
14.4 Completion of the Amended and Restated RCF is conditional on, amongst other things, the occurrence of Admission by not later than 31 July 2016. 
14.5 Under the terms of the Amended and Restated RCF, the revolving credit facility will mature on 31 December 2019 and is expected to allow sufficient headroom for trading working capital needs through to such date. 
14.6 Interest on drawings under the Amended and Restated RCF will be payable at a percentage rate per annum equal to a margin of 3.5 per cent over LIBOR for the relevant currency and term of the relevant drawing (or over such other cost of funds basis as determined in accordance with the terms of the Amended and Restated RCF). The Amended and Restated RCF will also be subject to commitment and utilisation fees payable quarterly dependent on the level of drawings under the revolving credit facility. 
14.7 Drawings under the Amended and Restated RCF may be made in sterling, euro, Hong Kong dollars and US dollars or such other currency approved by Barclays. Any such drawing will be for a term of either one month, three months or six months, but may, subject to payment of break costs by the Company, be prepaid prior to the end of its term in accordance with the terms of the Amended and Restated RCF. In addition, the net proceeds from the disposal of two of the Group's non-core properties (one of which has already been disposed of) will be required to be applied in reduction of the revolving credit facility limit (up to an aggregate maximum of 2.25 million).
14.8 Barclays will only be obliged to make available a drawing under the revolving credit facility if certain conditions precedent are satisfied, including that no event of default (or potential event of default) is continuing or would result from the drawing. Subject to the other terms of the Amended and Restated RCF, the revolving credit facility may, once a drawing is repaid, be re-drawn up to the level of the total facility commitments.
14.9 As is customary, the Amended and Restated RCF will contain financial covenants which the Group must comply with and which are to be tested quarterly. Through to and including December 2017, such financial covenants will include a minimum EBITDA test and a current asset (stock and receivables) to net debt test. Thereafter, such financial covenants will revert to leverage and interest cover financial covenants. 
14.10 The Amended and Restated RCF contains various representations and warranties given by the Company and various members of the Group. In the Amended and Restated RCF, the Company also gives various information undertakings and (on behalf of itself and each other member of the Group) various general undertakings.
14.11 Breach of an undertaking, financial covenant, representation or warranty given by the Company or other member of the Group under the Amended and Restated RCF will constitute an event of default and entitle Barclays to cancel the revolving credit facility and make demand for all amounts outstanding under the Amended and Restated RCF to be repaid. 
14.12 Other events of default relating to the Group are contained in the Amended and Restated RCF whose occurrence would also entitle Barclays to cancel the revolving credit facility and make demand for all amounts outstanding under the Amended and Restated RCF. These include events of default relating to non-payment, cross-default, insolvency, insolvency proceedings, creditors' process, unlawfulness, cessation of business, expropriation, repudiation, litigation and material adverse change.
15. DIVIDENDS
The challenges facing the business during the past 12 months have been significant and consequently trading has been impacted. Therefore, the Board has once more taken the decision not to pay a dividend (2015: 0.0p). The Board continues to keep the dividend policy under review. The Company may revise its dividend policy from time to time. Under the Amended and Restated RCF, the Group is permitted to make dividends on the basis that such dividends do not exceed 60 per cent. of amounts available for distribution in any relevant financial period and it continues to forecast compliance with its financial covenants for the next 12 months. A similar restriction on share buy-backs has also been put in place.
16. GEneral meeting
16.1 The Directors currently have existing authorities to allot shares and disapply pre-emption rights under section 551 and section 570 of the Act which were obtained at the Company's Annual General Meeting held on 16 September 2015. However, these would be insufficient to enable the Company to allot and issue the full amount of New Ordinary Shares pursuant to the Placing and Open Offer. 
16.2 Accordingly, in order for the Company to allot and issue the New Ordinary Shares, the Company needs to first obtain approval from its Shareholders to grant to the Board additional authority to allot the New Ordinary Shares and disapply statutory pre-emption rights which would otherwise apply to such allotment. In addition to the Whitewash Resolution described in the Circular, the Company is therefore also seeking Shareholder authority to increase the Director's general authority to allot securities and disapply pre-emption rights pursuant to sections 551 and 570 of the Act respectively.
16.3 Set out at the end of the Circular is a notice convening the General Meeting of the Company to be held at the offices of the Company's solicitors, Berwin Leighton Paisner LLP at Adelaide House, London Bridge, London EC4R 9HA on 8 July 2016 at 9.00 a.m., at which the Resolutions will be proposed. Please note that the summary and explanation set out below is not the full text of the Resolutions and Shareholders should read the full text of the Resolutions as set out in the Notice of General Meeting before returning their Forms of Proxy. 
16.4 The Resolutions are all inter-conditional such that if any Resolution is not passed by Shareholders at the General Meeting, the Placing and Open Offer and Waiver will not proceed. The Resolutions can be summarised as follows:
(a) Resolution 1 - this will be proposed as an ordinary resolution (to be taken on a poll of the Independent Shareholders voting in person and by proxy) and seeks the approval of the Independent Shareholders to waive the obligation on the Concert Party which would otherwise arise under Rule 9 as a result of the participation of any member of the Concert Party in the Placing and Open Offer; 
(b) Resolution 2 - this will be proposed as an ordinary resolution and seeks the approval of Shareholders to authorise the Directors to allot the New Ordinary Shares in connection with the Placing and Open Offer; and
(c) Resolution 3 - this will be proposed as a special resolution and seeks the approval of Shareholders, to authorise the Directors under section 570 of the Act, to disapply pre-emption rights in connection with the allotment of the New Ordinary Shares.
16.5 Save in respect of the allotment of the Placing Shares and Open Offer Shares, the grant of options to employees under employee share plans or other similar incentive arrangements and pursuant to any exercise of existing options in respect of Ordinary Shares, the Directors have no current intention to allot shares, or rights to subscribe or convert into shares, in the capital of the Company.
16.6 Shareholders should note that, if the Resolutions are not passed at the General Meeting, the Placingand Open Offer and Waiver will not proceed and that, as explained in paragraph 4 above, the Company will not receive the full amount of the anticipated proceeds of the fundraising. Without the full anticipated proceeds of the Placingand Open Offer, the consequences described at paragraph 4 will apply and which include, the need for the Board to consider alternative sources of financing, which may or may not be forthcoming. In light of this, the Directors and where appropriate the Independent Directors believe that the Placingand Open Offer and Waiver are in the best interests of Shareholders and the Directors and where appropriate the Independent Directors unanimously recommend that Shareholders vote in favour of the Resolutions so that the Placingand Open Offer and Waiver can be implemented.
17. Irrevocable undertakings and Relationship Agreement
17.1 Those Independent Directors who hold Ordinary Shares, have given an irrevocable undertaking to vote or, where applicable, to procure the casting of votes by his connected persons (as defined in section 252 of the Act), in favour of the Resolutions in respect of his own (or, as applicable, his connected persons') beneficial holding of Existing Ordinary Shares together totalling 42,325, representing in aggregate 0.08 per cent. of the issued Existing Ordinary Shares. 
17.2 Roger Canham, a Director and a member of the Concert Party, has given an irrevocable undertaking:
(a) not to vote in favour of the Whitewash Resolution; 
(b) to vote in favour of Resolutions 2 and 3; and 
(c) not to take up any of his Open Offer Entitlement under the Open Offer,
in respect of his own (or, as applicable, his connected persons') beneficial holdings of Existing Ordinary Shares together totalling 40,000 Existing Ordinary Shares, representing in aggregate 0.07 per cent. of the Existing Ordinary Shares.
17.3 Phoenix, a member of the Concert Party, has:
(a) given an irrevocable undertaking to:
(i) vote or, where applicable, to procure the casting of votes by its connected persons (as defined in section 252 of the Act), in favour of Resolutions 2 and 3; 
(ii) not to vote in favour of the Whitewash Resolution; and
(iii) not to take up any of its Open Offer Entitlement under the Open Offer,
in respect of its own (or, as applicable, his connected persons') beneficial holdings of Existing Ordinary Shares together totalling 16,257,323 Existing Ordinary Shares, representing in aggregate 29.58 per cent. of the Existing Ordinary Shares; and
(b) contractually agreed with Numis Securities, as the Company's agent, to subscribe as a Firm Placee for 8,765,554 New Ordinary Shares at the Issue Price pursuant to the Placing and as a Conditional Placee for up to 8,110,944 additional New Ordinary Shares also at the Issue Price pursuant to the Placing, subject to the clawback under the Open Offer.
17.4 The Firm Placees, other than Phoenix, have each given an irrevocable undertaking:
(a) to vote in favour of the Resolutions; and
(b) not to take up any of their respective Open Offer Entitlement under the Open Offer,
in respect of their own (or, as applicable, their respective connected persons') beneficial holdings of Existing Ordinary Shares together totalling, in aggregate, 23,627,280 Existing Ordinary Shares, representing in aggregate 42.99 per cent. of the Existing Ordinary Shares.
17.5 Phoenix has entered into a relationship agreement dated 22 June 2016 with the Company and Numis Securities (the "Relationship Agreement"), conditional on Admission occurring. The purpose of the Relationship Agreement is to ensure that, for so long as Phoenix holds 25 per cent. or more of the issued voting share capital of the Company, the relationship between the Company and Phoenix is appropriately regulated between them to ensure that, amongst other things, (a) the Group will be capable at all times of carrying on its business independently of Phoenix (and/or its associates) and (b) all transactions, arrangements, relationships and arrangements entered into between Phoenix (and/or its associates) and the Group will only be made on an arm's length basis and on normal commercial terms. 
18. Actions to be taken
18.1 Please check that you have received, together with the Circular, a Form of Proxy for use in respect of the General Meeting and, if you are a Qualifying Non-CREST Shareholder, an Application Form for use in connection with the Open Offer. 
General Meeting
18.2 Whether or not you propose to attend the General Meeting in person, you are urged to complete, sign and return your Form of Proxy in accordance with the instructions printed thereon as soon as possible, but in any event so as to be received, by post or, during normal business hours only, by hand, by the Registrar, Capita Asset Services, PXS 1, 34 Beckenham Road, Beckenham, Kent BR3 4TU, by no later than 9.00 a.m. on 6 July 2016 (or, in the case of an adjournment of the General Meeting, not later than 48 hours before the time fixed for the holding of the adjourned meeting (excluding any part of a day that is not a Business Day)). If you are posting your completed Form of Proxy in the UK, you may do so using the reply-paid card printed on the reverse of the Form of Proxy. 
18.3 Appointing a proxy in accordance with the instructions set out above will enable your vote to be counted at the General Meeting in the event of your absence. The completion and return of the Form of Proxy will not prevent you from attending and voting at the General Meeting, or any adjournment thereof, in person should you wish to do so. 
Open Offer
18.4 If you are a Qualifying Non-CREST Shareholder you will have received an Application Form which gives details of your entitlement under the Open Offer (as shown by the number of Open Offer Entitlements allocated to you). If you wish to apply for Open Offer Shares under the Open Offer (whether in respect of your Open Offer Entitlement or both your Open Offer Entitlement and any Excess Open Offer Entitlement), you should complete the accompanying Application Form in accordance with the procedure for application set out in Part 3 of the Circular and on the Application Form itself.
18.5 If you are a Qualifying CREST Shareholder and do not hold any Existing Ordinary Shares in certificated form, no Application Form is enclosed with the Circular and you will receive a credit to your appropriate stock account in CREST in respect of the Open Offer Entitlements representing your entitlement under the Open Offer except (subject to certain exceptions) if you are an Overseas Shareholder who has a registered address in, or is a resident in or a citizen of a Restricted Jurisdiction. Applications by Qualifying CREST Shareholders for Excess Open Offer Entitlements in excess of their Open Offer Entitlements should be made in accordance with the procedures set out in Part 3 of the Circular, unless you are an Overseas Shareholder. Shareholders should note that Excess Open Offer Entitlements will not be subject to Euroclear's market claims process. Qualifying CREST Shareholders claiming Excess Open Offer Entitlements by virtue of a bona fide market claim are advised to contact the Receiving Agent to request a credit of the appropriate number of entitlements to their CREST account.
18.6 The latest time for applications under the Open Offer to be received is 11.00 a.m. on 7 July 2016. The procedure for application and payment depends on whether, at the time at which application and payment is made, you have an Application Form in respect of your Open Offer Entitlements or have Open Offer Entitlements credited to your stock account in CREST in respect of such entitlement. The procedures for application and payment are set out in Part 3 of the Circular.
18.7 Qualifying Non-CREST Shareholders are advised to return the Application Form using the enclosed reply-paid envelope, which can also be used for return of completed Forms of Proxy. Qualifying CREST Shareholders who are CREST sponsored members should refer to their CREST sponsors regarding the action to be taken in connection with the Circular and the Open Offer.
18.8 If you are in any doubt as to what action you should take, you should immediately seek your own personal financial advice from your stockbroker, bank manager, solicitor, accountant or other independent professional adviser duly authorised under the FSMA if you are resident in the United Kingdom or, if not, from another appropriately authorised independent financial adviser.
19. Overseas Shareholders
It is the responsibility of any person receiving a copy of the Circular, the Open Offer Entitlements and/or the Application Form outside of the United Kingdom to satisfy himself/herself as to the full observance of the laws and regulatory requirements of the relevant territory in connection therewith, including obtaining any governmental or other consents which may be required or observing any other formalities required to be observed in such territory and paying any other issue, transfer or other taxes due in such territory. Such persons should consult their professional advisers as to whether they require any governmental and/or other consents or need to observe any other formalities to enable them to take up their entitlements. Persons (including, without limitation, nominees and trustees) receiving the Circular, the Open Offer Entitlements and/or the Application Form should not, in connection with the Placing and Open Offer, distribute or send them into any jurisdiction when to do so would, or might, contravene local securities laws or regulations. Any person who does forward the Circular into any such jurisdictions should draw the recipient's attention to the contents of Part 3 of the Circular regarding Overseas Shareholders. If you are an Overseas Shareholder, it is important that you read that part of the Circular.
20. Recommendations
20.1 Shareholders should note that if the Resolutions are not passed by Shareholders at the General Meeting, the Placing and Open Offer and Waiver will not proceed and that, as explained in paragraph 4 above, the Company will not receive the full amount of the anticipated proceeds of the fundraising. Without the full anticipated proceeds of the Placing and Open Offer, the consequences described at paragraph 4 of this announcement will apply and which include that the Company is expected to be unable to comply with one or more covenants that are in place under the terms of its Existing Bank Facility, may find itself unable to prepare accounts on a going concern basis and the Board will need to consider further external bank finance and/or other alternative sources of financing which may or may not be forthcoming. 
20.2 The Directors consider that the Placing and Open Offer are in the best interests of the Company and Shareholders as a whole. Accordingly, the Directors recommend that Shareholders vote in favour of the share authority resolutions (Resolutions 2 and 3) at the General Meeting as they intend to do in respect of their entire holdings which amount to interests in 82,325 Ordinary Shares, representing approximately 0.15 per cent. of the existing issued ordinary share capital of the Company. 
20.3 The Independent Directors, who have been so advised by the Company's financial adviser, Numis Securities, consider the terms of the Placing and Open Offer and Waiver to be fair and reasonable and in the best interests of Independent Shareholders and of the Company as a whole. In providing its advice to the Independent Directors, Numis Securities has taken into account the Independent Directors' commercial assessments. Accordingly, the Independent Directors recommend that the Independent Shareholders vote in favour of the Whitewash Resolution (Resolution 1) at the General Meeting as they intend to do in respect of their entire holdings which amount to interests in 42,325 Ordinary Shares, representing approximately 0.08 per cent. of the Existing Ordinary Shares.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Open Offer Record Date
5.00 p.m. on 20 June 2016
Existing Ordinary Shares marked 'ex-entitlement' by the London Stock Exchange
8.00 a.m. on 22 June 2016
Announcement of the Placing and Open Offer, the date of the Circular and of the posting of the Circular, Application Forms and Forms of Proxy
22 June 2016
Open Offer Entitlements and Excess Open Offer Entitlements credited to CREST stock accounts of Qualifying CREST Shareholders
8.00 a.m. on 23 June 2016
Recommended latest time and date for requesting withdrawal of Open Offer Entitlements and Excess Open Offer Entitlements from CREST
4.30 p.m. on 1 July 2016
Latest time and date for depositing Open Offer Entitlements and Excess Open Offer Entitlements into CREST
3.00 p.m. on 4 July 2016
Latest time and date for splitting Application Forms (to satisfy bona fide market claims in relation to Open Offer Entitlements only)
3.00 p.m. on 5 July 2016
Last time and date for receipt of completed Forms of Proxy
9.00 a.m. on 6 July 2016
Last time and date for receipt of completed Application Forms and payment in full under the Open Offer or settlement of the relevant CREST instructions (as appropriate)
11.00 a.m. on 7 July 2016
General Meeting
9.00 a.m. on 8 July 2016
Results of General Meeting and the Placing and Open Offer expected to be announced through a Regulatory Information Service
8 July 2016 
Admission and commencement of dealings in the New Ordinary Shares on AIM expected to commence
8.00 a.m. on 11 July 2016 
Expected date for CREST accounts to be credited with New Ordinary Shares in uncertificated form
11 July 2016
Expected date for dispatch of definitive share certificates in respect of New Ordinary Shares to be issued in certificated form
by 19 July 2016
Each of the times and dates in the table above is indicative only and may be subject to change. If any of the details contained in the timetable above should change, the revised times and dates will be notified by means of an announcement through a Regulatory Information Service. References to times in this announcement are to Greenwich Mean Time ("GMT") unless stated otherwise. The timetable above assumes that the Resolutions are all passed at the General Meeting without adjournment. 
Note:
If you have any questions on how to complete the Form of Proxy and, in the case of Qualifying Non-CREST Shareholders, the Application Form, please contact the Registrars, Capita Asset Services, on +44 (0)371 664 0321. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open between 9.00 a.m. - 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Capita Asset Services cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.
The ISIN code for the Existing Ordinary Shares and, following Admission, the New Ordinary Shares will remain GB00B01CZ652. 
The issue of, Admission and commencement of dealings in the New Ordinary Shares on AIM are conditional on, amongst other things, the passing of the Resolutions at the General Meeting. Neither the Placing nor the Open Offer will proceed if Admission does not occur. 
PLACING AND OPEN OFFER STATISTICS
Number of Existing Ordinary Shares in issue at the date of the Circular
54,953,574 


Issue Price per New Ordinary Share
27 pence 


Number of New Ordinary Shares being issued pursuant to the Placing and Open Offer
29,629,630 


Number of Placing Shares being issued to Firm Placees pursuant to the Placing
21,518,686 


Maximum number of Placing Shares being issued to Conditional Placees pursuant to the Placing (i)
8,110,944 


Maximum number of Open Offer Shares being issued pursuant to the Open Offer (ii)
8,110,944 


Enlarged Share Capital
84,583,204


Number of Placing Shares being issued to Firm Placees as a percentage of the Enlarged Share Capital
25.44% 


Maximum number of Placing Shares being issued to Conditional Placees as a percentage of the Enlarged Share Capital (i)
9.59%


Open Offer Shares as a percentage of the Enlarged Share Capital (ii)
9.59% 


New Ordinary Shares as a percentage of the Enlarged Share Capital
35.03%


Gross proceeds of the Placing to Firm Placees
5,810,045.22


Maximum gross proceeds of the Placing to Conditional Placees (i)
2,189,954.88


Maximum gross proceeds of the Open Offer (ii)
2,189,954.88


Gross proceeds of the Placing and Open Offer 
8,000,000.10 


Expected market capitalisation of the Company on Admission at the Issue Price
22,837,465.08
(i) Subject to clawback under the Open Offer
(ii) Subject to the Open Offer being taken up in full

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