Crawshaw Group Regulatory News (CRAW)

18 Mar 2008 07:13

Felix Group PLC18 March 2008 18 March 2008 Felix Group plc ("Felix" or the "Company") Proposed Related Party Acquisition of Crawshaw Group Limited ("Crawshaw") Issue of 10,666,667 Subscription Shares at 37.5 pence per share to raise £4 million Capital Reorganisation and Capital Reduction Admission of the Enlarged Issued Share Capital to trading on AIM Change of name to Crawshaw Group plc Approval of waiver of Rule 9 of the Takeover Code Change of Nominated Adviser and Broker The board of Felix today announces that it has conditionally agreed to acquireCrawshaw, the ultimate holding company of the Crawshaw Butchers Limited("Crawshaw Butchers"), through the issue of 31,200,000 Consideration Shares inFelix. In conjunction with the Acquisition, Gartmore and Schroders, two existinginstitutional Shareholders of the Company, have agreed to subscribe for anaggregate of 10,666,667 New Ordinary Shares at 37.5p per New Ordinary Share(equivalent to 0.75p per Ordinary Share), raising in aggregate £4.0 million(before expenses). The Company will change its name to Crawshaw Group plc. Crawshaw's business comprises a chain of meat focussed retail stores operatingfrom fourteen retail outlets and two processing and distribution centres inYorkshire, Lincolnshire and Humberside. Crawshaw's success has been achieved by selling a range of good quality freshmeat, cooked meat and "deli" products at competitive prices from a variety ofretail outlets. The Proposed Directors believe that Crawshaw has significant potential toincrease the number of retail outlets using its current business model. The Independent Directors believe that Crawshaw represents an attractiveacquisition target that meets the criteria set out in the Company's investingstrategy which was agreed by shareholders on 14 January 2008. The Acquisition will be treated as a reverse takeover under the AIM Rules. Uponcompletion of the Acquisition and the Subscription, the Existing Ordinary ShareCapital will represent approximately 10.3 per cent of the Enlarged Issued ShareCapital. The Board also announces the appointment of Investec as Nominated Adviser andBroker to the Company with immediate effect. Richard Rose, Chairman, said: "The Board of Felix Group has determined that this deal is a good outcome forFelix shareholders. Crawshaw is an excellent business, with a good businessmodel which provides a robust platform for future growth." For further information contact: Tulchan Communications 0207 353 4200Susanna Voyle/Celia Gordon Shute Investec Investment Banking 0207 597 5970James Grace/Martin Smith This summary should be read in conjunction with the full text of the AdmissionDocument which is expected to be posted to Shareholders today. The Acquisitionwill be subject to certain conditions including approval of Shareholders at aGeneral Meeting which is expected to be convened for this purpose on 10 April2008. Notice of this meeting is set out in the Admission Document. Certaindefinitions and terms used in this Announcement are set out at the end of thisannouncement. Investec, which is authorised and regulated by the Financial Services Authorityin the United Kingdom, is acting exclusively as Nominated Adviser and Broker toFelix in connection with Admission and the Acquisition and is not acting for anyother person and will not be responsible to any other person for providing theprotections afforded to customers of Investec or for advising on the transactionand arrangements proposed in the Admission Document. This announcement does not constitute, or form part of, an offer or invitationto purchase or subscribe for any securities in any jurisdiction. The AdmissionDocument is expected to be published by the Company on the date of thisannouncement and any acquisition of New Ordinary Shares in the Company should bemade only by reference to such Admission Document. This announcement contains statements about Felix and the Enlarged Group thatare or may be forward-looking statements. All statements other than statementsof historical facts included in this announcement may be forward-lookingstatements. Any statements preceded or followed by or that include the words"targets", "plans", "believes", "expects", "aims", "intends", "will", "may","anticipates" or similar expressions or the negative thereof are forward-lookingstatements. Forward-looking statements include statements relating to thefollowing: (i) future capital expenditures, expenses, revenues, economicperformance, financial condition, dividend policy, losses and future prospects;(ii) business and management strategies and the expansion and growth of Felixand/or the Enlarged Group; and (iii) the effects of government regulation onFelix's and/or the Enlarged Group's business. These forward-looking statementsinvolve known and unknown risk, uncertainties and other factors which may causethe actual results, performance or achievements of any such entity, or industryresults, to be materially different from any results, performance orachievements expressed or implied by such forward-looking statements. Theseforward-looking statements are based on numerous assumptions regarding thepresent and future business strategies of such entity and the environment inwhich each will operate in the future. Except as required by law, neither Felixnor Investec nor any other party intends to update these forward-lookingstatements, even though the affairs of Felix and/or the Enlarged Group maychange from time to time. Felix Group plc Proposed Related Party Acquisition of Crawshaw Issue of 10,666,667 Subscription Shares at 37.5 pence per share to raise £4 million Capital Reorganisation and Capital Reduction Admission of the Enlarged Issued Share Capital to trading on AIM Change of name to Crawshaw Group plc Approval of waiver of Rule 9 of the Takeover Code Change of Nominated Adviser and Broker The Board of Felix announces that the Company has conditionally agreed toacquire the entire issued share capital of Crawshaw for a consideration of £11.7million. Crawshaw is the holding company of Crawshaw Butchers which operates achain of meat focussed retail food stores in Yorkshire, Lincolnshire andHumberside. The consideration payable by Felix under the terms of the Acquisition will besatisfied in full by the issue, credited as fully paid, of 31,200,000Consideration Shares which will represent, after the Subscription describedbelow, approximately 66.8 per cent. of the Enlarged Issued Share Capital. By virtue of its size, the Acquisition will constitute a reverse takeover underthe AIM Rules for Companies and, as such, requires the approval of Shareholders.Furthermore, various vendors of Crawshaw, who are deemed to be acting in concertwith each other, will following Admission between them be interested inapproximately 38.9 per cent. of the Enlarged Issued Share Capital. The TakeoverPanel has agreed, however, to waive the obligation to make a general offer thatwould arise on the part of the Concert Party Members, either collectively orindividually, as a result of the Acquisition, subject to the relevant Resolutionbeing passed on a poll by the Independent Shareholders. Richard Rose, Executive Chairman of Felix, is also Chairman of Crawshaw andtherefore the Acquisition is classified as a related party transaction under theAIM Rules for Companies. In addition, for the same reason, the Acquisition willrequire the approval of Shareholders pursuant to section 190 of the 2006 Act. The Board has also today announced that, in conjunction with the Acquisition,Gartmore and Schroders, two existing institutional Shareholders of the Company,have agreed to subscribe for an aggregate of 10,666,667 New Ordinary Shares at37.5p per New Ordinary Share (equivalent to 0.75p per Existing Ordinary Share),raising in aggregate £4.0 million (before expenses). The Company is also implementing a Capital Reorganisation whereby each ExistingOrdinary Share of 1p each will be divided into one Deferred Share (with no sharerights) of 0.9p and one ordinary share (with all the share rights) of 0.1p. Thenew ordinary shares of 0.1p thereby created will then be consolidated on thebasis of 1 New Ordinary Share of 5p for every 50 new ordinary shares of 0.1peach, and such shares will be issued pursuant to the Acquisition and theSubscription. Application will be made for the Enlarged Issued Share Capital to be admitted totrading on AIM which it is anticipated will occur on 11 April 2008. At thatpoint the Acquisition will complete and Lynda Sherratt, Michael Masters and AlanUren will stand down from the Board and Kevin Boyd, Andrew Richardson and ColinCrawshaw will join the Board. The Company will also change its name to CrawshawGroup plc. In anticipation of the Acquisition, Felix has changed its accountingreference date to 31 January to conform with that of Crawshaw. The resolutions necessary to implement the Proposals will be proposed at theGeneral Meeting of the Company which is expected to be held on 10 April 2008.The Company has received irrevocable undertakings from Shareholders who hold inaggregate 172,198,541 Existing Ordinary Shares (representing 71.5 per cent. ofthe Existing Issued Share Capital of the Company) to the effect that they willvote in favour of the Resolutions. Information on Felix In February 2004, the Company (which at that time was a cash shell with the nameChestnut Prospects Plc) acquired the entire issued share capital of FelixCorporation and changed its name to Felix Group plc. The business of Felix was established in June 2001 and had developed a salespromotion format with data collection capacity through a direct consumerinteractive medium called "Everyone's a Winner" which, by utilising retailers'advertising and sales promotion budgets, enabled participants to be allocated anon-cash prize guaranteed to have a retail value of at least twice the cost ofparticipating. The concept was delivered through a number of channels andultimately via digital kiosks. Between February 2004 and July 2007, approximately £17.2 million was raised byequity fundraisings which was used to fund further research and development todiversify and develop Felix's product offering. The resulting product was theMAX BOX, a range of kiosks offering various functionalities including digitaland media products such as mobile "top-ups", music downloads, digital photoprinting and ATM facilities in addition to the original concept, "Everyone's aWinner". On 30 November 2007, following disappointing results from Felix's trials withhigh street multiple retailers, the termination of a trading relationship with aUS partner and an aborted acquisition, the Board announced it had commissionedindependent consultants to conduct a detailed review of the viability of Felix'sbusiness model. That review concluded that the business model was not viable andtherefore the Board determined it would no longer fund its trading subsidiary,Felix Corporation. On 12 December 2007, it was announced that Felix Corporationhad entered administration and that David Costley-Wood and Brian Green of KPMGLLP had been appointed joint administrators. On 18 January 2008, it wasannounced that Felix Corporation, acting through its administrators, had soldits assets to Cobco 868 Limited, a company controlled by Mr. Andrew Egan, theex-chief executive of the Company whose employment with the Company wasterminated on 14 December 2007. Under the AIM Rules for Companies where a company whose shares are traded on AIMdivests itself of all or substantially all of its trading business activities itwill be treated as an "investing company". Such a company must then state itsinvestment strategy going forwards and implement such strategy, to thesatisfaction of the London Stock Exchange, within 12 months of shareholdersapproving the investing strategy. By virtue of the fact that Felix Corporation had been placed intoadministration, the London Stock Exchange confirmed that the Company hadeffectively divested itself of its trading business and should therefore betreated as an investing company. Accordingly, on 20 December 2007 the Companywrote to Shareholders with details of its proposed investing strategy.Specifically, it would seek to acquire a trading business displaying one or moreof the following characteristics: currently and historically profitable, cashgenerative and capable of organic growth or growth by acquisition. Thisinvesting strategy was approved by Shareholders at a general meeting held on 14January 2008. After consulting with major Shareholders of the Company, the IndependentDirectors have determined that Crawshaw meets the criteria set out in itsinvesting strategy. With support from major Shareholders in the Company, theVendors, who had intended that Crawshaw should ultimately be taken public in itsown right, have agreed to sell Crawshaw to the Company with the expectation thatthis will assist in the acceleration of their business plans for Crawshaw. Information on Crawshaw Background and history Crawshaw is the holding company for a privately owned group whose businesscomprises a chain of meat focussed retail food stores operating from fourteenretail outlets and two processing and distribution centres. The retail outletsare situated through Yorkshire, Lincolnshire and Humberside and the distributioncentres are in Grimsby and Rotherham. Crawshaw was founded in 1989 by Colin Crawshaw and since that time has grown toits current size through selected acquisitions, new store openings and thecontinuous management and upgrading of its outlets. A major refurbishment of a key outlet in 2001 enabled the product range to beexpanded both in respect of its fresh meat offering and the ability to sell hotfood and sandwiches for the first time. The new format and the increase in theproduct range proved to be successful and since the refurbishment of the firstoutlet a further two existing outlets have been refurbished and five new outletshave been opened (two through organic expansion and three through acquisition).In April 2007, having identified Crawshaw as having potential for rapid organicgrowth, the Crawshaw Investors (including Richard Rose) acquired a majorityshareholding in Crawshaw from Colin Crawshaw, Kevin Boyd, Martin Wilson andRussell Davies. The April 2007 transaction placed an enterprise value of £9.2million on Crawshaw and valued the share capital of Crawshaw at £2.0 million. Prior to April 2007 the internal systems and controls of Crawshaw, as is notuncommon with privately run concerns, left room for improvement. As a result theaccounts of Crawshaw Butchers for the year ended 31 January 2006 were qualifiedto the extent that it was not possible to obtain sufficient evidence to verifycash sales. Since April 2007, the Board of Crawshaw has invested inre-organising the business and improving Crawshaw's internal systems andcontrols and its operational standards and processes. Examples of suchre-organisation and investment include the recruitment of Andrew Richardson asfinance director, the implementation of new accounting software, the adoption ofa performance related bonus scheme for staff and the formalisation of varioushealth and safety processes which includes retaining the services of a healthand safety consultant. In addition, the board of Crawshaw has refined itsorganic growth plans and has identified a number of new sites, the first ofwhich is expected to open shortly. The shareholders of Crawshaw have undertakento retain £9.7 million of the Consideration Shares which they receive for anagreed period as detailed below. Product offering Crawshaw's success has been achieved by selling a range of good quality freshmeat, cooked meat and "deli" products at competitive prices from a variety ofretail outlets. All but two of the outlets trade under the "Crawshaw" brand. Inaddition, Crawshaw also makes some non-retail sales to wholesalers and cateringsuppliers and provides some packing services. Crawshaw's retail outlets sell arange of products including: • pre-packed meats - pre-packaged fresh meats sold in value packs; • served over the counter meats - unpackaged fresh meat that is purchased by thecustomer over the counter and is sold by weight; • hot cooked meats - hot meats prepared at the outlet, for example BBQ chickens; • delicatessen - pies and cooked cold meats; • sandwiches; and • pre-cooked take away products. The Proposed Directors believe that this diverse product offering helpsdifferentiate Crawshaw from traditional butchers businesses. Distribution and retail premises Stock is delivered to Crawshaw's processing and distribution facilities atGrimsby and Rotherham where, as appropriate, it is processed, stored, packagedand then despatched to the retail outlets via Crawshaw's own fleet of vehicles.In the year ended 31 January 2008, the majority of products supplied toCrawshaw's outlets by both value and volume passed through these distributionfacilities. The Proposed Directors believe that this vertical integration of in-houseprocessing and distribution facilities gives Crawshaw a commercial advantageover competitors. The in-house distribution facility also enables quality control to be monitoredclosely and allows purchases to be made from a variety of different sources.Crawshaw has no formal supply contracts and is therefore able to be flexible andopportunistic when making purchasing decisions. The retail outlets, which are typically of between 1,000 and 2,000 square feet,are primarily located in high streets, shopping malls or permanent coveredmarkets. All of Crawshaw's high street and shopping mall outlets have beenrefitted over the past five years. Independent research conducted into theCrawshaw business has revealed that the outlets have each developed a loyalcustomer base which has a positive perception of Crawshaw and its staff. Staff The senior executive management of the Crawshaw business comprises: Kevin Boyd(managing director), Colin Crawshaw (buying director), Andrew Richardson(finance director), Russell Davies (regional director) and Martin Wilson(regional director). On completion of the Acquisition Kevin Boyd, Colin Crawshawand Andrew Richardson will join the Board. As at 31 January 2008, Crawshaw employed in total 183 staff, 155 at the retailoutlets with the rest divided between directors, management and administrativestaff (12) and warehouse staff (16). According to market research conducted byPragma Consulting Limited, Crawshaw is perceived by its customers to havefriendly, well trained and helpful staff. Financial performance The table below summarises the financial results of Crawshaw for each of thefinancial years ended 31 January 2006, 2007 and 2008 together with the value ofits net assets at each of those dates. The financial results for the year ended31 January 2008 reflect the results of Crawshaw Butchers for the period from 1February 2007 to 16 April 2007 combined with the consolidated results ofCrawshaw (including Crawshaw Butchers) for the period from 16 April 2007 to 31January 2008. Year ended 31 January 2006 2007 2008 £m £m £mTurnover 14.2 14.3 14.6EBITDA (before one-off costs ) 1.9 2.1 1.6Profit before income tax 1.7 2.0 0.6Net assets 3.4 4.7 0.6 The Proposed Directors believe that, since the acquisition of Crawshaw Butchersby Crawshaw in April 2007, additional recurring cost has been incurred byCrawshaw in order to ensure that systems and processes are sufficiently robustto allow the Enlarged Group to commence the proposed roll out of additionaloutlets. Key strengths The Proposed Directors believe the key strengths of Crawshaw to be as follows: • purchasing - the flexible manner in which Crawshaw sources, processes anddistributes stock gives it a competitive advantage; • vertical integration - Crawshaw operates its own processing, warehousing anddistribution facilities which enable it to react rapidly to demand and reducesupply chain costs; • value for money - Crawshaw is able to pass on a proportion of the costadvantages from its purchasing strategy and its vertical integration to itscustomers; • product range and quality - Crawshaw's offering of fresh meat, valuepre-packed products, BBQ chicken, hot and cold delicatessen products andsandwiches are more diverse than traditional butchers. Customer feedback praisesthe quality of Crawshaw's product offering; • location of outlets - the outlets themselves are well located in high streets,shopping malls and covered permanent markets; • customer service - Crawshaw benefits from low staff turnover and high staffmorale which contribute to an enhanced shopping experience for customers; • ability to react to changing market conditions - Crawshaw has beenopportunistic both in terms of varying its product offering and its purchasingstrategy; and • tight control of expenditure by management - Crawshaw has been able to tightlycontrol its overhead cost base. Strategy for Growth The Independent Directors believe that Crawshaw represents an attractiveacquisition target that meets the criteria set out in the Company's investingstrategy. The Independent Directors also believe that the existing business of Crawshaw isprofitable, cash generative and well managed. Additionally, the ProposedDirectors believe that although the existing outlets are mature in terms oftheir growth profile, Crawshaw has significant potential to increase the numberof retail outlets using its current business model. Research carried outdemonstrates that the catchment area of each Crawshaw outlet is relatively smalland CACI Limited, which specialises in retail demographic modeling, hasidentified 40 potential sites within Crawshaw's existing geographical area ofoperation which could support a Crawshaw outlet. Furthermore, the ProposedDirectors estimate that the existing processing and distribution centres atGrimsby and Rotherham could cater for double the number of existing Crawshawoutlets that they currently support. The Proposed Directors currently intend to roll out the Crawshaw business modelby opening new Crawshaw outlets in high street and mall locations, initiallywithin Crawshaw's existing geographic area of operation. CACI Limited has alsoidentified approximately 360 further potential locations for new storesnationally. It is the Proposed Directors' intention to expand the Crawshawbusiness from its current geographical footprint at an appropriate time, oncethe roll out referred to above has reached a suitable stage. Market and Competitors Meat is an integral part of the UK diet, consistently accounting for nearly aquarter of total household expenditure on food, according to NationalStatistics. The Proposed Directors believe that in 2005 consumers spentapproximately £13.7 billion on meat and meat products in the UK - more than onany other category of food except for fruit and vegetables. Given the high levels of penetration of meat and meat products in the UK, thetotal market is expected to grow at least in line with inflation to 2010 withadded-value products being partly responsible for this growth. The ProposedDirectors believe that the main threat to the industry's growth prospects is thepossibility of a serious outbreak of disease such as avian flu, foot-and-mouthor other disease. The leading supermarket chains dominate the sale of fresh and frozen meat,accounting for around 82 per cent. of sales in 2007. The Proposed Directorsbelieve that there are 7,500 retail butchers and 600 specialist-cateringbutchers in Britain today. Sales through retail butchers have declined between2004 and 2006 by approximately 7 per cent.. Crawshaw's key competitors include the leading supermarket chains and localindependent butchers. Other competitors include market stalls, farm shops andinternet retailers. Principal Terms of the Acquisition Under the terms of the Acquisition Agreement the Company has conditionallyagreed to purchase the entire issued share capital of Crawshaw for aconsideration of £11.7 million to be satisfied by the issue to the Vendors,credited as fully paid, of 31,200,000 Consideration Shares, which will representapproximately 66.8 per cent. of the Enlarged Issued Share Capital. In connection with the Acquisition, the holders of £3,002,690 nominal of LoanNotes that had been issued by Crawshaw (and which would under their terms havebecome repayable on Completion) have agreed to re-schedule their payment terms(and waive all interest accrued to the date of Completion) such that 25 percent. of the principal amount of the Loan Notes are repaid on 1 August 2008, 25per cent. on 1 February 2009 with the balance of 50 per cent. being repaid on 30June 2009. Interest is payable quarterly on the outstanding principal amount ofthe Loan Notes. All repayments of the principal amount of the Loan Notes due tothe holders of the Loan Notes are subject to the Enlarged Group havingsufficient working capital for its requirements after the relevant payment hasbeen made. Completion of the Acquisition is conditional, inter alia, upon the passing ofResolutions and Admission of the entire issued share capital of the Company(including the Consideration Shares and the Subscription Shares) occurring on or before 30 April 2008. Bank Facilities As at 18 March 2008; Felix does not possess any loan facilities and at 31January 2008 had a cash balance of £2.6 million; the Crawshaw Group had a termloan of £3.0 million, a property term loan of £840,000 and a cash balance of£0.5 million at 31 January 2008. Following Admission, the Enlarged Group willrepay the term loan of £3.0 million but retain the property term loan facilityof £840,000. Felix is in the process of concluding an arrangement with a bankfor the provision of a revolving credit facility and a property term loanfacility. At such time as these facilities are provided to the Enlarged Groupand drawn down then the existing Crawshaw property term loan will be repaid. The Board With effect from Admission: Kevin Boyd, Andrew Richardson and Colin Crawshawwill become Managing Director, Finance Director and Buying Director respectivelyof the Enlarged Group. Lynda Sherratt, Michael Masters and Alan Uren will step down from the Board. Richard Rose will remain asExecutive Chairman of the Company and Philip Kanas will remain as anon-executive director of the Company. It is the intention of the ProposedDirectors to appoint an additional Independent Non-Executive Director as soon asis practicable following Admission. Current Trading and Prospects Felix Felix is a holding company and following its only trading subsidiary, FelixCorporation, being put into administration, has no trade or business. At 31January 2008, Felix had net assets of £1.867 million which comprise mainly cashbalances (net of creditors and provisions), which represents approximately 38.8pence per New Ordinary Share. On 11 December 2007, the directors of Felix Corporation, the trading subsidiaryof the Company, appointed David Costley-Wood and Brian Green of KPMG LLP to actas joint administrators of Felix Corporation (the "Joint Administrators"). On 11January 2008, certain of the business and assets of Felix Corporation were soldto Cobco 868 Limited, a company controlled by Mr. Andrew Egan, the ex-chiefexecutive of Felix whose employment with the Company was terminated on 14December 2007. This sale included the assignment of one of the leaseholdpremises owned by Felix Corporation, subject to the landlord's consent to assignbeing obtained on or before 11 April 2008. The second leasehold premises owned by Felix Corporation was assigned on 29February 2008 and the Company has been released from all guarantee obligationsunder the original lease. The Joint Administrators' proposals were approved by creditors at a creditors'meeting held on 18 February 2008. The Board has been informed by the JointAdminstrators that the balance recoverable by Felix is likely to beapproximately £100,000 and that this amount will be paid over to the Companywithin one year. Crawshaw Crawshaw is trading in accordance with the Proposed Directors' expectations. The Enlarged Group The Proposed Directors believe that the combination of Felix and Crawshaw willenable Crawshaw to better develop its strategy for growth by using the cashwithin Felix to help fund a roll-out of new Crawshaw stores. The ProposedDirectors view the prospects of the Enlarged Group with confidence. City Code on Takeovers and Mergers The Proposals give rise to certain considerations under the Takeover Code. Briefdetails of the Takeover Panel, the Takeover Code and the protections they affordare described below. The Takeover Code is issued and administered by the Takeover Panel. The TakeoverCode applies to all takeover and merger transactions, however effected, wherethe offeree company is, inter alia, a listed or unlisted public company with itsplace of central management and control in the United Kingdom. The Company issuch a company and its shareholders are entitled to the protection afforded bythe Takeover Code. Under Rule 9 of the Takeover Code, any person who acquires an interest (asdefined in the Takeover Code) in shares which, taken together with shares inwhich he is already interested and in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rightsof a company which is subject to the Takeover Code is normally required to makea general offer to all the remaining shareholders to acquire their shares.Similarly, when any person, together with persons acting in concert with him, isinterested in shares which in the aggregate carry not less than 30 per cent. ofthe voting rights of the company but does not hold shares carrying more than 50per cent. of such voting rights, a general offer will normally be required if any further interests are acquired by any such person. An offer under Rule 9 must be made in cash and at the highest price paid by theperson required to make the offer, or any person acting in concert with him, forany interest in shares of the company of that class during the 12 months priorto the announcement of the offer. For the purposes of the Takeover Code, a concert party arises where personsacting in concert pursuant to an agreement or understanding (whether formal orinformal) actively co-operate to obtain or consolidate control of a company orto frustrate the successful outcome of an offer for a company. Control for thepurposes of the Takeover Code is defined as an interest, or interests, in sharescarrying 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 Concert Party Members are the individual vendors of Crawshaw who areinvolved in the business of Crawshaw as directors and/or employees, beingRichard Rose, Colin Crawshaw, Kevin Boyd, Andrew Richardson, Russell Davies,Martin Wilson and John Kelly. The Concert Party Members have agreed with theCompany that they are acting in Concert for the purposes of the Takeover Code.Investec, acting as the Rule 3 adviser, and the Takeover Panel have agreed withthis approach. Upon Admission, the Concert Party will hold, in aggregate, 18,169,453 NewOrdinary Shares representing approximately 38.92 per cent. of the EnlargedIssued Share Capital, which takes into account the sale by Richard Rose of theSale Shares. In addition, certain Concert Party Members have, conditional upon Admission,been granted options over an aggregate of 866,666 New Ordinary Shares. If allthe Concert Party Options were exercised in full, the Concert Party could holdup to approximately 39.37 per cent. of the then enlarged issued share capital. The Takeover Panel has agreed, however, to waive the obligation to make ageneral offer that would otherwise arise on the part of the Concert Party as aresult of the issue of the Consideration Shares to the Concert Party and theexercise of the Concert Party Options, subject to the approval of IndependentShareholders. Accordingly, Resolution 3 is being proposed at the General Meetingand will be taken on a poll. To be passed, Resolution 3 will require a simplemajority of votes cast by Independent Shareholders. On Admission, the Concert Party Members will between them be interested inshares carrying 30 per cent. or more of the Company's voting share capital butwill not hold shares carrying more than 50 per cent. of such voting rights and(for so long as the Concert Party continues to be treated as acting in concert)any further increase in that aggregate interest in shares, other than throughthe exercise of Concert Party Options, will be subject to the provisions of Rule9 of the Takeover Code. Details of the Subscription The Company is raising £4 million through the issue to Schroders and Gartmore ofin aggregate 10,666,667 Subscription Shares at 37.5p per Subscription Share(equivalent to 0.75p per Existing Ordinary Share) pursuant to the terms of theSubscription Agreements. Completion of the Subscription is conditional, interalia, upon the passing of the Resolutions and Admission occurring on or before30 April 2008. The gross proceeds of the Subscription, together with the Company's existingcash resources, will be used to pay the costs of the Proposals incurred by theCompany, to repay the existing term loan of Crawshaw, to fund the workingcapital needs of the Enlarged Group and its growth strategy following Admission. The Subscription is being carried out by the Company. Investec is not acting asa subscription agent or otherwise in relation to the Subscription, which is notunderwritten. In addition, Schroders and Gartmore have entered into separate contractualarrangements with Richard Rose whereby on Admission they will purchase from him5,333,333 Sale Shares at the Subscription Price of 37.5p per New Ordinary Share(equivalent to 0.75p per Existing Ordinary Share). The Subscription Shares will, on Admission, rank pari passu in all respects withthe New Ordinary Shares (including the Consideration Shares) including the rightto receive all dividends and other distributions thereafter declared, made orpaid. Capital Reorganisation The Board believes that it is in the best interests of Shareholders to undertakethe Capital Reorganisation detailed below, which the Directors and ProposedDirectors consider will make the number of ordinary shares in issue moremanageable and the share price more attractive to potential investors andaccordingly the Company proposes to implement the Capital Reorganisation. Savefor the dilution which will result from the issue of the Consideration Sharesand the Subscription Shares, the interests of existing Shareholders (both interms of their economic interest and voting rights) will not otherwise bematerially diluted by the implementation of the Capital Reorganisation. At present the authorised share capital of the Company is £5,000,000 consistingof 500,000,000 ordinary shares of 1p each of which 240,676,350 Existing OrdinaryShares are in issue. In order to implement the Capital Reorganisation a resolution to the followingeffect will be proposed at the General Meeting: - each Existing Ordinary Share of 1p will be divided into one deferred share of0.9p and one new ordinary share of 0.1p; - the new ordinary shares of 0.1p each will be consolidated on the basis of oneNew Ordinary Share of 5p for every 50 new ordinary shares of 0.1p; and - every five authorised but un-issued Existing Ordinary Shares of 1p will beconsolidated and re-designated into one New Ordinary Share of 5p. On implementation of the Capital Reorganisation the holders of the ExistingIssued Share Capital will own 4,813,527 New Ordinary Shares which will representapproximately 10.3 per cent. of the Enlarged Issued Share Capital. At the General Meeting, a Resolution will also be passed to the effect that thedeferred share capital of the Company created by the Capital Reorganisation andthe share premium account of the Company (as enlarged by the issue of NewOrdinary Shares pursuant to the Acquisition and the Subscription) be cancelledsubject, in each case, to confirmation by the Court. Should the Court confirmsuch cancellation this will create a reserve that will be available to offsetthe current deficit of approximately £16.5 million on the profit and lossaccount of the Company. To be effective, the cancellation of the Deferred Shares element of the CapitalReduction must be confirmed by the High Court and the subsequent Court orderregistered with the Registrar of Companies. It is anticipated that beforeissuing the requisite order the Court will require the Company to give certainundertakings for the protection of its creditors. The Company expects to offersuch undertakings as the Court may require. It is anticipated that the Companywill undertake that, so long as there are relevant creditors, it will transfer(i) any excess of the sum arising on the cancellation of the Deferred Sharesover the amount of the accumulated deficit on the profit and loss account of theCompany as at 31 January 2008; and (ii) any profit arising on any revaluation ordisposal of the Company's existing fixed assets (including any receipt of anydividend from existing distributable profits of any of its subsidiaries) to aspecial reserve which will be distributable only in limited circumstances.Subject to the passing of Resolution 7 and the necessary Court order beingobtained and so registered, the cancellation of the Deferred Shares element ofthe Capital Reduction could become effective within 6 weeks of the date of theCourt application having been made (although it is not possible to say withcertainty when the confirmation of the Court would be obtained). To be effective, the cancellation of the amount standing to the credit of theCompany's share premium account element of the Capital Reduction must also beconfirmed by the High Court. Once that confirmation has been obtained, and therelevant court order is registered by the Registrar of Companies, subject to theundertaking referred to above, the new special reserve created by thecancellation will enable the deficit of approximately £16.5 million as at 31January 2008 to be eliminated. Dealing Restrictions The Vendors have each undertaken to the Company and Investec not to dispose ofany New Ordinary Shares held by them for a period of one year from the date ofAdmission and not to dispose of any New Ordinary Shares in the second yearfollowing Admission without Investec's prior written consent, in each casesubject to certain exceptions. These arrangements have been made in respect ofan aggregate 25,866,667 New Ordinary Shares representing approximately 55.4 percent. of the Enlarged Issued Share Capital. The Company and Investec have agreedthat if, following Admission, there is sufficient demand from institutional andother investors identified by Investec at a price acceptable to the Vendors thenthey may dispose of New Ordinary Shares held by them to investors identified byInvestec, however they are under no obligation to do so. Dividend Policy The Proposed Directors' current intention is to maximise Shareholder value byretaining the Enlarged Group's earnings in the foreseeable future to financegrowth and expansion. It is however the Proposed Directors' intention to pay dividends when the Enlarged Group has funds surplusto its expansion requirements and it is prudent to do so. Change of Name To reflect the fact that following Admission the business of the Enlarged Groupwill be that of Crawshaw, a resolution will be proposed at the General Meetingto the effect that the name of the Company be changed to "Crawshaw Group plc". Nominated Adviser and Broker On 18 March 2008, Investec were appointment the nominated adviser and broker tothe Company. Irrevocable Undertakings The Company has received irrevocable undertakings from Shareholders who hold inaggregate 172,198,541 Existing Ordinary Shares (representing approximately 71.5per cent. of the Existing Issued Share Capital) to vote in favour of theResolutions to be proposed at the General Meeting. These undertakings includethose given by Schroders (in respect of their holding of 64,675,616 ExistingOrdinary Shares) and Gartmore (in respect of their holding of 33,288,331Existing Ordinary Shares). Further details of the irrevocable undertakings tovote are set out in paragraph 8.1.7 of Part 6 of this document. Admission, Settlement and Dealings Application will be made to the London Stock Exchange for all of the NewOrdinary Shares to be admitted to trading on AIM. It is expected that Admissionwill take place, and that dealings on AIM in the Enlarged Issued Share Capitalwill commence, on 11 April 2008. The New Ordinary Shares will be capable of being held and settled through CREST.CREST is a paperless settlement system which enables securities to be evidencedother than by certificate and transferred other than by written instrument. TheNew Articles will permit the holding and transfer of shares under CREST. CRESTis a voluntary system and Shareholders who wish to retain share certificateswill be able to do so. The definitions set out below have the following meanings, unless the contextrequires otherwise. "Acquisition" the proposed acquisition by Felix of the entire issued share capital of Crawshaw pursuant to the Acquisition Agreement "Acquisition the share purchase agreement dated 18 March 2008 madeAgreement" between Felix and the Vendors pursuant to which, conditionally, inter alia, upon the passing of the Resolutions and Admission, Felix has agreed to acquire the entire issued share capital of Crawshaw "Admission" the re-admission of the Enlarged Issued Share Capital to trading on AIM becoming effective in accordance with the AIM Rules for Companies "Admission the conditional agreement dated 18 March 2008 made betweenAgreement" the Company and the Proposed Directors and Investec relating to the Admission "AIM" the AIM market operated by the London Stock Exchange "AIM Rules for the rules for companies whose securities are admitted toCompanies" trading on AIM as published by the London Stock Exchange from time to time "AIM Rules for the rules setting out the eligibility, ongoing obligationsNominated Advisers" and certain disciplinary matters in relation to nominated advisers as published by the London Stock Exchange from time to time "Board" the board of Directors of the Company from time to time "Capita Registrars" a trading name of Capita Registrars Limited "Capital the reorganisation of the share capital of the Company byReorganisation" the splitting of each issued Existing Ordinary Share into one ordinary share of 0.1p and one Deferred Share and the consolidation of the new ordinary shares of 0.1p arising therefrom on a fifty for one basis into New Ordinary Shares "Capital Reduction" the cancellation of all of the Deferred Shares arising on the Capital Reorganisation and the cancellation of the amount standing to the credit of the share premium account of the Company (as enlarged by the issue of the Consideration Shares and the Subscription Shares) subject, inter alia, to the approval of the High Court "certificated" or in relation to a share or other security, a share or other"uncertificated security title to which is recorded in the relevantform" register of the share or other security as being held in certificated form (that is, not in CREST) "Completion" completion of the Acquisition Agreement in accordance with its terms "Concert Party" together Richard Rose, John Kelly, Colin Crawshaw, Kevin Boyd, Andrew Richardson, Russell Davies and Martin Wilson (each a "Concert Party Member") "Concert Party the 866,666 options over New Ordinary Shares which haveOptions" been granted, conditional upon Admission to certain Concert Party Members "Consideration the 31,200,000 New Ordinary Shares to be issued to theShares" Vendors as consideration under the terms of the Acquisition Agreement "Crawshaw" Crawshaw, the holding company of Crawshaw Butchers or, as the context may require, the business of the Crawshaw Group "Crawshaw Butchers" Crawshaw Butchers Limited, the wholly owned trading subsidiary of Crawshaw "Crawshaw Group" Crawshaw and its subsidiary, Crawshaw Butchers "Crawshaw Investors" Richard Rose, Unicorn Asset Management Limited, John Kelly, Sagemoss Holdings Limited, Simon Stephenson and Tom Spencer "CREST" the relevant system (as defined in the CREST Regulations) for paperless settlement of share transfers and the holding of shares in uncertificated form which is administered by Euroclear "CREST Regulations" the Uncertificated Securities Regulations 2001 (SI 2001 No. 3755) as amended "Current Articles" the articles of association of the Company in force as at the date here of "Deferred Shares" the deferred shares of 0.9p each in the capital of the Company to be created pursuant to the Capital Reorganisation "Directors" the board of directors of the Company "EBITDA" earnings before interest, taxes, depreciation and amortisation "EMI Scheme" the enterprise management incentive scheme adopted by the Company on 14 July 2006 "Enlarged Group" Felix and its subsidiary undertakings, including the Crawshaw Group, following Completion "Existing Issued the issued share capital of the Company as at the date ofShare Capital" this document "Enlarged Issued the enlarged issued share capital of the Company onShare Capital" Admission (including the Subscription Shares and the Consideration Shares) "Euroclear" Euroclear UK & Ireland Limited, the operator (as defined in the CREST Regulations) of CREST "Existing Group" Felix and its subsidiaries, Felix Corporation and Chestnut Prospects Limited "Existing Ordinary the ordinary shares of 1p each in the capital of theShares" Company in issue at the date of this document "Felix" or the Felix Group plc, a company incorporated and registered in"Company" England and Wales with registered number 4755803 "Felix Corporation" Felix Corporation Limited (in administration), a wholly owned subsidiary of the Company "Form of Proxy" the form of proxy for use by Shareholders in connection with the General Meeting "FSA" the Financial Services Authority "FSMA" the Financial Services and Markets Act 2000 "Gartmore" Gartmore Investment Limited, including funds managed by them "General Meeting" the general meeting of Felix convened for 11 a.m. on 10 April 2008 "IFRS" the International Financial Reporting standards as issued by the Board of International Standards Committee from time to time "Independent Michael Masters, Philip Kanas, Lynda Sherratt and Alan UrenDirectors" "Independent those Shareholders other than the Concert Party membersShareholders" "Investec" Investec Investment Banking, a division of Investec Bank (UK) Limited "Loan Notes" the 5 per cent. £3,002,690 nominal value loan notes issued by Crawshaw pursuant to the terms of loan note instruments dated 16 April 2007 "London Stock London Stock Exchange plcExchange" "New Articles" the new articles of association proposed to be adopted by the Company at the General Meeting "New Ordinary the ordinary shares of 5p each in the capital of theShares" Company to be created pursuant to the Capital Reorganisation and to be issued pursuant to the Subscription and the Acquisition "Official List" the Official List of the UK Listing Authority "Optionholders" the holders of options over Existing Ordinary Shares "Proposals" the Acquisition, the Capital Reorganisation and Capital Reduction, the change of name of the Company to Crawshaw Group plc, the Subscription, the Rule 9 Waiver, the adoption of the New Articles, the adoption of the SAYE Plan and the amendments to the EMI Scheme "Proposed Directors" the directors of Felix immediately following Admission "Prospectus Rules" the prospectus rules published by the FSA "Registrars" Capita Registrars "Related Party" Richard Rose, Executive Chairman of Felix and Chairman of Crawshaw "Resolutions" the resolutions to be proposed at the General Meeting and set out in the notice of General Meeting "Rule 9 Waiver" the waiver of the obligation to make a general offer under Rule9 of the Takeover Code, conditional on the passing of Resolution3 at the General Meeting, which would otherwise arise on the Concert Party Members "Sale Shares" the 5,333,333 New Ordinary Shares to be sold by Richard Rose to Gartmore and Schroders "SAYE Plan" the savings related share option plan to be adopted by the Company as part of the Proposals "Schroders" Schroder Investment Management Limited, including funds managed by them "Share Option together the EMI Scheme, the SAYE Plan and the UnapprovedSchemes" Scheme a holder of Existing Ordinary Shares "Shareholder" or a holder of Existing Ordinary Shares"OrdinaryShareholder" "Subscription" the subscription of the Subscription Shares by Schroders and Gartmore at the Subscription Price on the terms set out in the Subscription Agreements "Subscription the individual subscription agreements each dated 18 MarchAgreements" 2008 made between Felix and each of Gartmore and Schroders pursuant to which, conditionally, inter alia, upon the passing of the Resolutions and Admission, Gartmore and Schroders have agreed to subscribe for the Subscription Shares at the Subscription Price "Subscription Price" 37.5 pence per Subscription Share "Subscription the 10,666,667 New Ordinary Shares to be subscribed underShares" the terms of the Subscription shall have the respective meanings ascribed to them by the 1985 Act "subsidiary" and shall have the respective meanings ascribed to them by the"subsidiary 1985 Actundertaking" "Takeover Code" the City Code on Takeovers and Mergers "Takeover Panel" the Panel on Takeovers and Mergers "UK" or "United the United Kingdom of Great Britain and Northern IrelandKingdom" "UK GAAP" United Kingdom Generally Accepted Accounting Principles"UK Listing a division of the FSA acting as the competent authority forAuthority" the purposes of Part VI of FSMA "Unapproved Scheme" the unapproved executive share scheme adopted by the Company on 14 July 2006 a share or other security title to which it is recorded on the relevant register of the share or security concerned as being held in uncertificated form in CREST, and title to which may be transferred by means of CREST "Uncertificated" or a share or other security title to which it is recorded on"in uncertificated the relevant register of the share or security concerned asform" being held in uncertificated form in CREST, and title to which may be transferred by means of CREST "Vendors" together Richard Rose, Colin Crawshaw, Kevin Boyd, Russell Davies, Martin Wilson, John Kelly, Tom Spencer, Simon Stephenson, Andrew Richardson, Sagemoss Holdings Limited and Unicorn Asset Management Limited "1985 Act" the Companies Act 1985 (as amended) "2006 Act" the Companies Act 2006 This information is provided by RNS The company news service from the London Stock Exchange