Dunelm Regulatory News (DNLM)

Latest time and date for receipt of Forms of Proxy for the General Meeting

9.00 am 16 March 2010

General Meeting

 9.00 am 18 March 2010

Ordinary Share Record Date for participation in the Return of Capital

6.00 pm 18 March 2010

Latest time for receipt of Election Forms from certificated Shareholders and TTE Instructions from CREST holders in relation to the B Share Alternatives

4.30 pm 25 March 2010

Initial B Share Redemption and Single B Share Dividend Date

26 March 2010

Final B Share Redemption Date

24 June 2010

Proposed Return of Capital to Shareholders of 21.5 pence per Ordinary Share

1. Introduction

The Board is proposing to return 21.5 pence per Ordinary Share to Shareholders (equivalent to approximately £43.2 million of capital). This is in addition to the ordinary dividend announced with the Interim Results on 25 February 2010. The background to and reasons for the Return of Capital are detailed in paragraph 2 below.

The precise aggregate amount of the Return of Capital will depend on the number of Ordinary Shares in issue at 6.00 pm on 18 March 2010. However, based on the number of Ordinary Shares in issue on 22 February 2010, the Return of Capital would amount to £43.2 million in total.

The Return of Capital requires the approval of Shareholders which will be sought at a General Meeting to be held on 18 March 2010. Notice of the General Meeting will be sent to Shareholders with the Circular.

2. Background to and reasons for the Return of Capital

Dunelm Group has consistently generated significant positive cashflow and as a result has built up a material cash balance in recent years. In the first half of the current financial year, the Group's average net cash position was £40.1 million, with net cleared funds at the end of the period being £45.9 million. In the absence of the proposed Return of Capital the Board would expect the Group's positive cash position to continue to increase further.

Given the above, the expected cash requirements of the Group going forward and the other funding available to the Group, the Board has decided that the Company should return approximately £43.2 million to Shareholders. The Board believes that as a result, the Group will have a more appropriate capital structure whilst still being in a position to invest in and grow the Group in line with the current stated strategy, being to (i) open more superstores; (ii) further develop Dunelm Group's specialist position; (iii) grow Dunelm Direct; and (iv) develop and exploit the Group's infrastructure.

3. Summary of the Proposals

The Board is mindful of the fact that it has a range of institutional, corporate and individual shareholders and therefore proposes a flexible mechanism by which the capital is returned. Having considered the available options, the Board is proposing that the Return of Capital is effected via a B share scheme under which Shareholders will receive a bonus issue of a newly created class of shares, B shares, pro rata to their holding of Ordinary Shares.

This method of return has been chosen as it allows Shareholders (where eligible under the laws of their jurisdiction) to be treated equally on a pro rata basis, gives each Shareholder the choice to receive their return of capital in the form of a redemption of their B Shares, a dividend thereon or a combination of both and provides some flexibility as to the timing of any capital that they elect to receive. Whichever alternative is chosen, the Return of Capital will amount to 21.5 pence per Ordinary Share and, based upon the number of Ordinary Shares in issue, will total approximately £43.2 million.

At the closing middle-market price of 381.7 pence per Ordinary Share on 22 February 2010 (being the latest practicable date prior to the publication of the Circular), the proposed Return of Capital to Shareholders represents approximately 5 per cent. of Dunelm Group's market capitalisation at that date.

4. Return of Capital

4.1 B Shares

Under the Return of Capital, Shareholders will receive:

One B Share for each Ordinary Share held on the Ordinary Share Record Date.

4.2 The B Share Alternatives

Under the Return of Capital, Shareholders (where eligible under the laws of their jurisdiction) will have the following alternatives in relation to the B Shares they hold on the B Share Record Date. Each alternative will have different UK tax consequences.

The Alternatives available to Shareholders are summarised below and explained in further detail in the Circular.

Shareholders who are in any doubt as to their tax position should consult an appropriate professional adviser.

Alternative 1: Initial Redemption

Shareholders who elect for this alternative (or are deemed to have chosen this alternative) in respect of some or all of their B Shares, will have those B Shares redeemed by Dunelm Group on the Initial Redemption Date at 21.5 pence per B Share, free of all dealing expenses and commissions. It is expected that the proceeds from this redemption will be treated as capital for United Kingdom tax purposes. It is also expected that Shareholders who choose this alternative will have their cheques dispatched or CREST accounts credited (as appropriate) on 31 March 2010.

In the event that a Shareholder (other than those not eligible under the laws of their jurisdiction) fails to make a valid election for one or more of the B Share Alternatives, such Shareholder will be deemed ( unless the Directors determine otherwise) to have elected for the Initial Redemption alternative in respect of his entire holding of B Shares.

Alternative 2: Single B Share Dividend

Shareholders who elect for this alternative (or are deemed to have chosen this alternative) in respect of some or all of their B Shares, will receive a single dividend of 21.5 pence per B Share in respect of those B Shares. It is expected that this will become payable on 26 March 2010, following which those B Shares will be automatically converted into Deferred Shares and then redeemed by the Company on 24 June 2010 (or such other date as the Directors may determine). The Deferred Shares will not be listed and will carry extremely limited rights as Shareholders will have already received a cash pay-out in relation to those shares. It is expected that the Single B Share Dividend will be treated as income for United Kingdom tax purposes. It is also expected that Shareholders who choose this alternative will have their cheques dispatched or mandated bank accounts credited (as appropriate) on 8 April 2010.

US Holders are only entitled to receive the Single B Share Dividend Alternative.

Alternative 3: Final Redemption

Shareholders who elect for this alternative in respect of some or all of their B Shares will hold their B Shares until they are redeemed by Dunelm Group on 24 June 2010 at 21.5 pence per B Share, free of all dealing expenses and commissions. It is expected that the proceeds from the redemption will be treated as capital for United Kingdom tax purposes. It is expected that share certificates and CREST messages in respect of B Shares to be redeemed on the Final Redemption Date will be issued on 31 March 2010. It is expected that Shareholders who choose this alternative will have their cheques dispatched or CREST accounts credited (as appropriate) on 30 June 2010.

Unless prohibited by their local jurisdiction (for example US Holders) Shareholders may elect to receive any one of, or a combination of, the B Share Alternatives. The redemption alternatives ( Alternatives 1 and 3) are not available to US Holders who are only entitled to receive the Single B Share Dividend ( Alternative 2).

Details of how certificated Shareholders should complete and return the Election Form and details of how uncertificated Shareholders should make an election through CREST are set out in the Circular.

The attention of Overseas Shareholders is drawn to paragraph 7 of Part 2 of the Circular. If Shareholders (other than US Holders) do not properly complete and return their Election Form or if they are a CREST holder and do not send a valid TTE Instruction, they will be deemed to have elected for Alternative 1: Initial Redemption in respect of all of their B Shares.

5. General Meeting

Shareholders' approval is sought for the proposed Return of Capital.

A General Meeting has been convened for 9.00 am on 18 March 2010, notice of which together with a Form of Proxy to be used in connection with the General Meeting, will be sent out with the Circular.

6. Summary explanation of the Resolution to be put to the General Meeting

The Return of Capital is conditional upon the Resolution being passed. The Resolution is a special resolution and will be passed if at least 75 per cent. of the votes are cast in favour. The Resolution sets out the formal mechanics and the amendments to the Articles which are required to implement the Return of Capital and provides for:

·; an increase in the authorised share capital of the Company by £43.215 million from £5 million to £48.215 million (an increase of 864 per cent) by the creation of 201 million B Shares;

·; authority for the Directors to:

(a) capitalise a sum not exceeding £43.215 million standing to the credit of the Company's merger reserve to pay up in full the B Shares; and

(b) allot and issue up to 201 million B Shares to Shareholders on the basis of one B Share for each Ordinary Share held on the Ordinary Share Record Date (representing 100.2 per cent. of the total number of issued Ordinary Shares (excluding Ordinary Shares held in treasury) as at 22 February 2010 (being the latest practicable date prior to the publication of the Circular)). The authority granted to the Directors will expire on the earlier of the conclusion of the Annual General Meeting of the Company to be held in 2010 and 15 months from the date of the passing of the Resolution; and

(c) carry out any other act necessary in relation to the Return of Capital; and

·; amendment of the Articles in order to incorporate the terms of the B Shares and the Deferred Shares.

If the Resolution is not passed at the General Meeting, the Return of Capital will not proceed.

7. United Kingdom taxation in relation to the Return of Capital

A tax liability may arise for Shareholders resident in the UK (for tax purposes) in respect of the redemption proceeds and/or dividend received under the Return of Capital depending upon a Shareholder's individual circumstances. A guide to the general tax position of United Kingdom Shareholders is set out in the Circular. Shareholders should note that the Company has not applied for any tax clearances with respect to the Return of Capital in the UK or in any other jurisdiction.

8. Share Option Schemes

Holders of options under the Share Option Schemes are not the beneficial owners of Ordinary Shares and so will not be entitled to participate in the Return of Capital. At this stage the Board does not consider that any adjustments to the terms of the Share Option Schemes are necessary to preserve the value of options that have been granted under the Share Option Schemes following the Return of Capital. The Board will reconsider this once the Return of Capital has been implemented. Should the Board determine that adjustments are so required, any adjustment proposed by the Board to the Group Share Option Plan and the Group Savings Related Share Option Plan will be subject to the consent of HM Revenue & Customs.

9. Interim Results

For information purposes, Shareholders' attention is drawn to the interim results of the Company for the period to 2 January 2010 published on 25 February 2010 and which can be found at www.dunelm-mill.com.

10. Action to be taken

A Form of Proxy for use at the General Meeting will be sent to Shareholders with the Circular. Whether or not Shareholders intend to be present at the meeting, they are requested to complete, sign and return the Form of Proxy to Equiniti Limited, Aspect House, Spencer Road, Lancing, West Sussex, BN99 6ZX, as soon as possible but in any event so as to be received no later than 9.00 am on 16 March 2010.

Shareholders who hold their Ordinary Shares in CREST may appoint a proxy by completing and transmitting a CREST Proxy Instruction to Equiniti so that it is received no later than 9.00 am on 16 March 2010.

The appointment of a proxy will not prevent a Shareholder from attending the General Meeting and voting in person if he wishes to do so.

The Circular contains instructions on the completion of the Election Form sent to Shareholders with the Circular if their shares are in certificated form, or if their shares are in uncertificated form (that is in CREST), how to make their election through CREST.

11. Recommendation

The Board considers the Return of Capital and the Resolution to be proposed at the General Meeting to be in the best interests of Shareholders as a whole.

Accordingly the Board unanimously recommends that Shareholders vote in favour of the Resolution to be proposed at the General Meeting as the Directors intend to do in respect of their own beneficial holdings amounting to 70,730,696 Ordinary Shares in aggregate, representing approximately 35.37 per cent. of the current voting share capital of the Company.

"Articles"

the articles of association of the Company

"B Share Alternatives" or "Alternatives"

the alternatives of the Single B Share Dividend (Alternative 2), the Initial Redemption (Alternative 1) or the Final Redemption (Alternative 3)

"B Share Record Date"

6.00 pm on 18 March 2010 (or such other time and/or date as the Directors may determine)

"B Share Scheme"

the transaction comprising the B Share Alternatives

"B Shares"

the unlisted non-cumulative redeemable preference shares of 21.5 pence each in the capital of the Company, the rights and restrictions of which are set out in Part 4 of the Circular

"Board" or "Directors"

the board of directors of the Company

"Circular"`

the circular to Shareholders dated 25 February 2010 containing details of the Return of Capital

"Company" or "Dunelm Group"

Dunelm Group plc

"CREST"

the system for the paperless settlement of trades in securities operated by Euroclear UK & Ireland Limited in accordance with the Uncertificated Securities Regulations 2001 (SI 2001/3755) (as amended)

"Deferred Shares"

the unlisted deferred shares of 21.5 pence each in the capital of the Company (the rights and restrictions of which are set out in Part 5 of the Circular) created on the automatic conversion of each B Share in respect of which the Single B Share Dividend is paid

"Election Form"

the form enclosed with the Circular by which Shareholders may choose one of the B Share Alternatives

"Election Period"

the period from 25 February 2010 until 4.30 pm on 25 March 2010, during which time Shareholders may make elections pursuant to the B Share Alternatives

"Equiniti"

a trading name of Equiniti Limited

"Final Redemption Date"

24 June 2010 or such other date as the Directors may determine

"Final Redemption"

the redemption by the Company of B Shares on the Final Redemption Date

"Form of Proxy"

the form enclosed with the Circular for use by Shareholders in connection with the General Meeting

"General Meeting"

the general meeting of the Company to be held at 9.00 am on 18 March 2010, notice of which is set out at the end of the Circular

"Group"

the Company and its subsidiary undertakings

"Initial Redemption Date"

26 March 2010 or such other date as the Directors may determine

"Initial Redemption"

the redemption by the Company of B Shares on the Initial Redemption Date

"London Stock Exchange"

London Stock Exchange pIc or its successor

"Ordinary Share Record Date"

6.00 pm on 18 March 2010 (or such other time and/or date as the Directors may determine)

"Ordinary Shares"

ordinary shares of 1 pence each in the capital of the Company

"Overseas Shareholders"

Shareholders resident in, or citizens of, jurisdictions outside the United Kingdom, including without limitation US Holders

"Registrars" or "Equiniti"

the registrars of the Company

"Resolution"

the resolution set out in the notice of General Meeting in the Circular

"Return of Capital"

the transaction comprising the issue of B Shares and the B Share Alternatives

"Share Option Schemes"

the Company's Long Term Incentive Plan, Group Share Option Plan and Group Savings Related Share Option Plan

"Shareholder(s)" or "Ordinary Shareholder(s)"

(a) holder(s) of Ordinary Shares

"Single B Share Dividend Date"

26 March 2010 (or such other date as the Directors may determine)

"Single B Share Dividend"

the dividend of 21.5 pence per B Share

"subsidiary undertaking"

shall, unless otherwise stated, be construed in accordance with the Companies Act 2006 (but for these purposes ignoring paragraph 19(1)(b) of Part 1 of Schedule 6A to the Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008)

"TTE Instruction"

Transfer to Escrow Instruction

"UK Listing Authority"

the Financial Services Authority acting in its capacity as the competent authority for listing under Part VI of the Financial Services and Markets Act 2000 and in the exercise of its functions in respect of admission to the official list of the London Stock Exchange

"United Kingdom" or "UK"

the United Kingdom of Great Britain and Northern Ireland

"US Holder"

(i) a Shareholder with an address in the US on the Company's register of members; (ii) any person resident in the US who holds Ordinary Shares including directly, or as or through, a nominee, trustee or custodian; and (iii) persons who appear at any time to the Directors to fall within paragraph (ii) of this definition

"US"

the United States of America (including the states of the United States and the District of Colombia), its possession and territories and all areas subject to its jurisdiction

Dunelm Group plc

0116 2644 356

Will Adderley, Chief Executive

David Stead, Finance Director

Hogarth Partnership

020 7357 9477

John Olsen

Simon Hockridge