Marlowe Regulatory News (MRL)

29 February 2016

Marlowe Holdings Limited

("Marlowe Holdings" or "MHL")

Conditional Acquisition of Fire & Security (Group) Limited ("Swift") for £13 million, Merger with Marlowe plc, Subscription of £3 million;

Notice of Special General Meeting;

Proposed Cancellation to trading on AIM of Marlowe Holdings Limited; and

Proposed Admission to trading on AIM of Marlowe plc ("Marlowe")

Marlowe Holdings (AIM: MRL) is pleased to announce its intention to merge with Marlowe, to effect a re-domicile to the UK, and the conditional acquisition, by Marlowe, of Swift, a leading national provider of fire protection and security systems services in the UK, for a total consideration of £13.0 million. Marlowe also announces an underwritten subscription with new and existing shareholders to raise £3.0 million in order to part finance the consideration for Swift and provide resources to support Marlowe's acquisitive growth strategy.

Highlights

The acquisition of Swift represents the first major step for Marlowe towards building a dynamic business-to-business service group focused on critical asset maintenance services:

· Swift is one of the UK's leading national fire protection and security systems service providers with revenues of approximately £21m and EBITDA before one-off non-recurring costs of approximately £1.8m for the year ended 31 May 2015;

· £3.0 million of new equity raised through an oversubscribed subscription (the "Subscription") with new and existing investors;

· Merger with Marlowe, a new company incorporated in the UK;

· Proposed cancellation of MHL's ordinary shares to trading on AIM and admission of Marlowe's ordinary shares to trading on AIM;

· Nigel Jackson, Managing Director of Swift, to be appointed to the Board of Marlowe as an Executive Director;

· In advanced discussions to implement £4.5m of debt, either upon or shortly after admission, with leading commercial banks; and 

· Marlowe intends to make further strategic acquisitions in the future and has identified a number of companies which the Directors believe are complementary to Swift. 

Alex Dacre, Chief Executive of Marlowe Holdings and Marlowe plc, commented:

"The acquisition of Swift is the first step for Marlowe as we start to build a leading support services company focussed on critical asset maintenance services. Since May 2015, when Charles Skinner, Derek O'Neill and I joined Peter Gaze on the Board we have, I believe, developed a deeply considered and tested strategy. During our search for targets we came to realise that Swift, led by industry veteran Nigel Jackson, was an ideal platform for growth in our chosen markets. Swift benefits from a broad base of annuity-type recurring revenues in a market which is underpinned by stringent legislation and is displaying growing barriers to entry. I am confident that Swift will form the foundation of a dynamic business-to-business service group as we look to enhance shareholder value and generate consistent returns."

This summary should be read in conjunction with the full text of this announcement, the Admission Document and the Circular. The Admission document and Circular will both be published and posted to Shareholders today and will be available to view on the Company's website at www.marloweplc.com. It is expected that trading in the Ordinary Shares of Marlowe Holdings Limited will recommence following publication of the Admission Document.

Unless otherwise defined, defined terms within this announcement have the same meanings as those within the Admission Document.

Expected Timetable of Principal Events

Transformational Acquisition of Swift

Founded in 1982 and headquartered in Manchester, Swift is a leading national fire protection and security systems installation and maintenance business with a broad range of capabilities to design, install and service fire protection & security solutions. For the year ended 31 May 2015, Swift generated revenues of approximately £21.0 million and EBITDA of approximately £1.5 million.

Swift offers an integrated solution for fire and security systems and the business is categorised into three main divisions:

- Service: recurring planned and preventative maintenance of fire and security systems, associated remedial and small installation work, non-scheduled call out maintenance work;

- Systems: installation of a broad range of fire and security systems; and

- Monitoring: contracted fire, security and CCTV monitoring services and remote systems diagnostics.

Approximately 57 per cent. of Swift's revenues for the year ended 31 May 2015 were derived from recurring service or monitoring contracts.

The total consideration for the Acquisition is £13.0 million, to be satisfied by the payment of £8.5 million payable in cash on Completion, £1.0 million in cash on 31 May 2016 and the issue of 3,500,000 Consideration Shares (equal to 16.6 per cent. of the Enlarged Share Capital). Upon Admission, Nigel Jackson, the sole shareholder of Swift, will be appointed to the Board as an Executive Director and will continue in his role of Managing Director of Swift.

The Directors believe that Swift has the following attractive properties:

· a senior management team with extensive experience in the industry. Over 270 employees, of whom 129 are service engineers and 34 sales managers;

· national coverage from four regional offices;

· long-standing relationships with blue-chip customers which include national high street retailers, universities, banks, well-known hotel chains, local authorities, large NHS hospitals and facilities management companies;

· a significant level of recurring revenue through a well-diversified base of long-term and rolling contracts;

· IT infrastructure that drives efficiencies in route density, sales, service, inventory management and customer relations;

· an established financial record:

o 2013 - 2015 revenue CAGR of 13.8 per cent;

o 2013 - 2015 adjusted EBITDA CAGR of 11.2 per cent;

o 2013 - 2015 strong cash flow generation: 71.2 per cent. conversion;

Background to and reasons for the Acquisition

Since new appointments were made to the Board of MHL in May 2015 the Board of MHL's focus has been on targets that provide installation and maintenance services to assets and systems within a customer's place of business and which are essential to their ability to operate in a manner which keeps their employees and members of the public safe and enables business continuity. Most pertinently, these services ensure that customers are compliant with regulation and the law.

Following Admission, Marlowe will continue to be focussed on investment targets within the business services sector in areas where companies possess annuity-type recurring revenues which are underpinned by long-term contracts and a degree of operational complexity that the Board believes can provide attractive margins and high barriers to entry.

The Directors believe that Swift and the potential targets currently under consideration all share the following attractive key characteristics:

· they possess predictable annuity-type recurring revenues, typically with long-term customer relationships;

· they occupy legislative and regulatory driven markets and provide services which could be described as 'essential' or 'critical' to the customer which results in a high level of non-discretionary customer spend which the Board believes should be relatively resilient to both a change in ownership and economic cycles;

· they provide services which customers invariably prefer to outsource rather than conduct in-house because of their specialist and technical nature, the levels of regulatory compliance which govern them, and the cost savings and the improved efficiency which can result from outsourcing;

· they occupy fragmented markets which the Directors believe present the potential for a quickly executed consolidation;

· they exhibit a high degree of conversion of profit to cash;

· they share the same channel to market which could present potentially attractive cross-selling opportunities; and

· they occupy markets which have growing barriers to entry for the following reasons:

o some customers wish to consolidate their supplier base and for their suppliers to possess a national footprint;

o customers and suppliers require service providers to meet stringent industry accreditations and standards;

o there are economies of scale presented by large volume relationships with suppliers;

o there is a need for well-invested and complex operating systems in order to comply with higher regulatory standards and customer demands; and

o there are significant advantages presented by increased route density as a result of increased scale.

The Board believes that the type of targets they are focussing on provide services which demonstrate a level of complexity that typically results in the customer displaying a degree of reliance upon their suppliers to provide specialist and technical services. Typically, the Board believes that if customers are content that the levels of service are high and cost-effective they will show a level of inertia and be less likely to switch provider. The Directors believe that these types of businesses are well suited to support growth, over and above the long-term organic revenue growth rate, through acquisition. The Board expects that synergies can be achieved, post-Acquisition, through effective integration, the benefits of scale, increased geographical footprint, tight cost-control and effectively managed and implemented cross-selling structures and systems.

Information on Swift

Swift was co-founded in 1982 by Nigel Jackson, the current shareholder and Managing Director, and is a leading private national fire protection and security systems installation and maintenance business with a broad range of capabilities to design, install and service fire protection and security solutions. Nigel Jackson will become an Executive Director of Marlowe on Admission.

Summary financial information on Swift

The Financial information on Swift set out below has been extracted without material adjustment from the historical financial information for the three years ended 31 May 2015 set out in the Admission Document.

Current Trading and Prospects

On 30 October 2015 MHL announced its unaudited interim results for the six months ended 30 September 2015. Since that date MHL has been progressing with due diligence on Swift and other investment opportunities and incurred professional fees in relation to the acquisition of Swift. MHL's cash balance at 31 January 2016 was £8.3 million.

The audited historical financial information of Swift to 31 May 2015 is set out in Part IV of the Admission Document. The business has been trading broadly in line with Swift's management's expectations. In the seven months to 31 December 2015, Swift's revenues were £11.8 million (0.3% lower than the same period in the prior year).

During Marlowe's negotiations with Swift, Swift acquired an attractive new contract and on 23 December 2015 Swift Fire and Security (Northern) Limited (''SFSN'') entered into a Sub-Contract Agreement with a blue-chip national facilities management provider (the "Provider") under which SFSN will provide fire and security services for certain of this Provider's clients (''the SFSN Agreement''). Services under the SFSN Agreement commenced on 1 February 2016 and expire on 31 January 2019 but may be varied. According to the terms of the SFSN Agreement, SFSN paid a one off "set up" fee of £500,000 to the Provider on 24 December 2015. For the first contract year under the SFSN Agreement the Provider will pay SFSN £2,382,960 for the provision of agreed core services in addition to remuneration for variable services. The SFSN Agreement may be terminated by the Provider, inter alia, for convenience by the Provider on 3 months' notice or immediately if any superior client contract is suspended, terminated or discharged.

In late February 2016, Marlowe received approval from a leading commercial bank for a 3 year Term Loan Facility for £3 million and Revolving Credit Facility of £1.5 million with an interest rate of 2.75 plus 3 month LIBOR per cent per annum. Marlowe intends to enter into this facility on, or shortly after Admission.

Fire Protection and Security Markets

Fire Protection Market

The UK fire protection market is estimated to be worth £1.8 billion, according to the Fire Industry Association. The market is fragmented with over 1,000 operators.

The diminishing role of public authorities in UK public services has resulted in fire safety increasingly becoming the responsibility of the private sector. As such, laws and regulations continue to be tightened. The Regulatory Reform (Fire Safety) Order 2005 (''FSO'') came into effect in October 2006 and replaced over 70 sets of fire safety regulations. The FSO applies to all non-domestic premises in England and Wales and places the responsibility on individuals within an organisation to carry out risk assessments to identify, manage and reduce the risk of fire. The potential exists for prosecution for individuals and companies failing to comply. Additionally, the Corporate Manslaughter Act 2007 can place responsibility on the directors of non-compliant companies.

The Directors consider that four of the main operators in the UK commercial fire protection market are Tyco Corporation, Chubb Fire & Security (a subsidiary of United Technologies Corporation), Protec Fire & Security and ADT Fire and Security (a subsidiary of Tyco International).

Security Systems Market

The UK security systems market, like the fire protection market, is fragmented and is host to many small private companies. A recent BSRIA report shows the market for CCTV, access control and intruder alarms, in the UK, was worth more than £2.16 billion. A briefing from BSRIA in 2015 estimates there are 4.25 million CCTV cameras deployed in the UK and states that improved technology, such as networked and digital systems, is driving demand for technological improvement.

Wide-ranging application of CCTV extends from simple scene monitoring to facial-recognition technology, remote video monitoring, video smoke detection, mobile systems and automatic number-plate recognition. Customers are beginning to demand video analytic software, which can be programmed to intelligently analyse and respond to a changing scene. This software is also being used to improve retail operations, such as queue monitoring, people counting and measuring traffic patterns to drive sales and customer satisfaction. Internet protocol network-based systems continue to gain share as a result of offering enhanced flexibility and versatility, but also remote viewing and control of video data from one or more interfaces in different locations.

The Directors consider that four of the key operators in the UK security systems market are ADT Fire and Security (a subsidiary of Tyco International), Chubb Fire & Security, Stanley (a subsidiary of Black & Decker) and Secom.

Market Opportunity

In the markets that the Directors are currently focused on, there exists stringent and enforced regulation. For instance, many of Swift's customers have obligations to provide assessments, systems and equipment to protect their employees and the public from the threat of fire.

Current national building regulations require that fire detection and fire alarm systems are installed in many buildings at the time of construction. In addition, legislation requires that, where necessary to safeguard relevant persons in case of fire, existing premises are equipped with appropriate fire detection and fire alarm systems. These systems require ongoing recurring periodic maintenance.

Failure to demonstrate that compliant and regular testing and maintenance of fire protection equipment has been conducted by a competent person can lead to enforcement and potentially prosecution.

In the security systems market, The National Police Chiefs' Council (''NPCC'') of England, Wales and Northern Ireland dictate that the police will only respond to a remotely monitored security system in cases where businesses are compliant with the NPCC Requirements for Security Systems. Businesses must comply with the NPCC Policy on Police Response to Security Systems in addition to a recognised standard or code of practice controlling manufacture, installation, maintenance and operation (any systems installed after June 2012 must conform to PD6662: 201 and BS 8243).

Nigel Jackson, Managing Director of Swift, proposed Executive Director of Marlowe plc commented:

"Joining Marlowe offers all of us at Swift the opportunity to develop to the next level as part of a public company with access to financial resources and the support of an experienced board of directors. I am very much looking forward to working with Alex Dacre and my new colleagues to ensure Swift achieves its ambition to become the market leader in the fire safety and security sector."

The Circular, the Merger and the Delisting

The Circular contains details of the Delisting and the proposed Merger between Marlowe and MHL.

It is proposed that MHL be delisted from AIM shortly after the Merger, in accordance with the AIM Rules prior to the Company being admitted to trading.

Prior to the Acquisition it is proposed that MHL will merge with the Marlowe, a newly incorporated public limited company, so that the Enlarged Group has a holding company incorporated in England & Wales. The Merger will be effected under the IBCA, on the terms set out in in the Circular and summarised in the Admission Document and is subject to the approval of MHL Shareholders. Conditional upon the Merger becoming effective, MHL Shareholders will receive new Ordinary Shares on the basis of:

One new Ordinary Share for each MHL Share held immediately prior to the Merger.

The Acquisition is conditional, inter alia, on Admission. Further details of the Merger are set out in the Circular. Following Admission, Marlowe will not be treated as an investing company, as defined by the AIM Rules.

The MHL Directors believe that the Delisting and the Merger are in the best interests of MHL Shareholders and that MHL Shareholders will be afforded greater protections as shareholders of a UK domiciled company and that Marlowe will be a more attractive investment proposition facilitating greater liquidity in the Ordinary Shares. Marlowe will fall under the jurisdiction of The City Code on Takeovers and Mergers, thereby affording additional protections to Shareholders.

Action to be taken by Shareholders 

The Merger is conditional on Shareholder approval at a Special General Meeting of MHL to be held at 11.00 a.m. on 22 March 2016 at the Manchester offices of Brabners LLP, 55 King Street, Manchester, M2 4LQ. The Circular sets out further details of the Merger and should be read in full. Shareholders are requested to complete the form of proxy or (if appropriate) form of direction which accompany the Circular and return to Capita Asset Services, PXS1, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU England by no later than, in the case of a form of proxy, 11.00 a.m. on 18 March 2016 and, in the case of a form of direction, 11.00 a.m. on 17 March 2016.

The directors of MHL have confirmed their intention to vote in favour, or to use reasonable endeavours to procure that the legal holders of their shares vote in favour, of the Resolutions in respect of their aggregate holdings of 4,301,958 MHL Shares representing approximately 29.5 per cent of the shares eligible to vote at the Meeting.

The Acquisition Agreement

Marlowe is to acquire Swift pursuant to the Acquisition Agreement conditional inter alia on Admission. The consideration to be paid on Completion pursuant to the Acquisition Agreement will be £8.5 million payable in cash on Completion, £1 million in cash on 31 May 2016 and the allotment of the Consideration Shares valued at the Issue Price (equal to £3.5 million). Marlowe is protected against movements in the Swift's working capital between 31 October 2015 and Completion by a 'locked box' mechanism pursuant to which the Seller indemnifies Marlowe and the Swift Group in relation to any value extracted from the Swift Group by the Seller or certain persons connected to him.

The Seller gives warranties customary in a transaction of this nature on both the signing of the Acquisition Agreement and Completion, subject on both occasions to any matters fairly disclosed by him and subject to certain customary limitations on Marlowe's right to claim for breach. The Seller indemnifies Marlowe, Swift and its subsidiaries in respect of a small number of issues highlighted by Marlow during its due diligence process. The Seller indemnifies Marlowe, Swift and its subsidiaries in relation to any tax which has not been paid or provided for appropriately. The Seller is to be subject to certain restrictive covenants about his commercial activities for periods of three years and in some instances a further two years following Completion subject to certain other existing commercial activities.

Directors and Proposed Director

The Board currently comprises of the following directors:

Alex Dacre, Chief Executive

Alex has a background in the quoted business-to-business services sector and an expertise in executing buy-and-build growth strategies. Prior to his appointment at MHL, he directed Impellam Group plc's corporate development activities, completing a number of significant acquisitions including the transformational £73 million acquisition of Lorien Resourcing, a £350 million revenue UK market leader in technology recruitment. During an 18 month period of acquisitive growth, Impellam saw its market capitalisation more than double and it become the UK's second largest temporary staffing business. Prior to this, he worked with Charles Skinner to turn AIM-listed Restore plc into one of the UK's leading office services companies and a leading consolidator in the document management and commercial relocation sectors.

Derek O'Neill, Group Finance Director

Derek was Chief Executive and a majority shareholder of Lorien Resourcing, a £350 million revenue UK market leader in technology recruitment, until its recent sale to Impellam Group plc. He has previously been on the board of two listed companies including Deltron Electronics plc. He spent 12 years as an executive director of a number of private equity backed businesses and also as an executive director in a diverse range of sectors, including house building, electronics, engineering, telecommunications, logistics and recruitment. He is currently a non-executive director of Impellam Group plc. Derek will Chair the Board as Interim Chairman before a permanent Chairman is selected.

Charles Skinner, Independent Non-executive Director

Charles is Chief Executive of Restore plc, the AIM-listed provider of office services. Under his leadership, its market capitalisation has grown from less than £2 million in 2009 to over £290 million today. He was previously Chief Executive of Johnson Services Group plc and Brandon Hire plc, prior to which he was at SG Warburg and 3i plc and was Editor of Management Today. He has 17 years' experience as chief executive of quoted companies, all operating in the business-to-business service sector. He Chairs the Remuneration Committee.

Peter Gaze, Independent Non-executive Director

Peter has been a non-executive director of MHL since 2006. He was recently the Chief Financial Officer and a Director of BCB Holdings Limited and of Waterloo Investment Holdings Limited. Peter was an executive at ADT Group plc during its expansion in the UK and US, in the period leading up to its acquisition by Tyco International for £3.7 billion in 1997. He chairs the Audit committee and will be a member of the Remuneration Committee.

It is proposed that on Admission Nigel Jackson will join the Board on Admission.

Proposed Director

Nigel Jackson, Proposed Executive Director, Managing Director Swift

Nigel has a background in developing support service businesses and has operated in the service sector since 1980. Nigel qualified as a chartered accountant in 1978 whilst working for Price Waterhouse (now PricewaterhouseCoopers). Nigel co-founded Swift in 1982 and for the last 10 years, as Managing Director, has spearheaded its growth into one of the leading independent businesses in the sector during a period which has seen consistent growth in revenue and profit. Prior to running Swift Group, Nigel ran his own accountancy practice, Jacksons Chartered Accountants, from 1985 to 2005 before it was sold to the other partners. He is a director of a number of other private businesses.

The Subscription

Marlowe proposes to raise £3 million gross proceeds (approximately £2,995,000 net of expenses related to the Subscription) through the issue of the Subscription Shares to the Placees at the Issue Price. Marlowe has conducted the Subscription on a private basis; Cenkos has not conducted the Subscription.

£2,298,000 of the Subscription is underwritten by Talisman Holdings Limited, a company owned by Lord Ashcroft KCMG PC.

The Issue Price of 100 pence per new Ordinary Share represents a discount of 27.27 per cent. to the share price of MHL, being 137.50 pence per MHL Share, on 30 October 2015 when trading in the MHL Shares was suspended.

The Directors have agreed to subscribe for an aggregate of 727,000 Subscription Shares as follows:

Use of the proceeds of Subscription

The net proceeds of the Subscription of approximately £2,995,000 million will be used to:

- fund a portion of the cash consideration payable on Completion (£1.8 million);

- provide funds for the Enlarged Group's working capital requirements (£1.145 million); and

- redeem the Redeemable Shares (£49,999.50)

Lock-in Agreement

Each of Alex Dacre and the Proposed Director (together the ''Locked-in Shareholders'') have entered into a lock-in agreement with the Company and Cenkos pursuant to which they have agreed that, in the case of Alex Dacre, 3,333,333 Ordinary Shares and, in the case of the Proposed Director, 3,500,000 Ordinary Shares will be subject to lock-in arrangements.

Those lock-in arrangements prevent the Locked-in Shareholders from disposing of any interest in the Ordinary Shares subject to the lock-in agreement in the three years after Admission, subject to customary exceptions and as described below.

One third of the Ordinary Shares subject to the lock-in arrangements held by each Locked-in Shareholder will be released from the lock-in arrangements on the first anniversary of Admission, and a further third will be released on the second anniversary of Admission.

Any Ordinary Shares subject to the lock-in arrangements may, in the year after their being released from those arrangements, only be disposed of through Cenkos or, if Cenkos is no longer the broker to the Company, another broker nominated by the Company.

Introduction Agreement

Each of (1) the Company, (2) MHL (3) Cenkos, (4) the Directors and (5) the Proposed Director have entered into an agreement dated 29 February 2016 pursuant to which Cenkos agrees to facilitate Admission. Pursuant to this agreement, the Company, the Directors and the Proposed Director give certain warranties and indemnities to Cenkos about the Enlarged Group. Further details are set out in the Admission Document.

Incentive Arrangements

The Directors believe that the success of the Company will depend to a significant degree on the future performance of the management team. Accordingly, arrangements have been put in place to create incentives for those who are expected to make key contributions to the success of the Enlarged Group. A long term incentive scheme has been created to reward the key contributors for the creation of shareholder value. In order to make these arrangements most efficient, they are based around a subscription for B Shares in Marlowe 2016 by the B Shareholders.

The B Shareholders have subscribed for B Shares. In certain circumstances, detailed below, the B Shareholders can give notice to the Company and Marlowe 2016 to redeem their B Shares in exchange for the issue by the Company of Ordinary Shares.

On such redemption, the aggregate value of the B Shares is to be 10% of the result of the following

· the market value of Ordinary Shares that were in issue at Admission (being 21,084,998 Ordinary Shares), in addition to the market value of any Ordinary Shares issued following Admission in relation to net shareholder investments of up to £40 million (any Ordinary Shares issued where net shareholder investments exceed £40 million will be excluded); less

· the Ordinary Shares in issue at Admission (being 21,084,998 Ordinary Shares) multiplied by the Issue Price of 100 pence (equalling £21,084,998); less

· net shareholder investments of up to £40 million in the Company raised by way of a share placing following Admission; plus

· the amount of any dividends declared by the Company following Admission.

The market value of the Ordinary Shares for these purposes will be the average closing price of the Ordinary Shares over the 10 Business Days immediately preceding the day on which notice of redemption is given by a B Shareholder.

The B Shareholders may only give notice to redeem their B Shares in any of the following circumstances:

· a sale of all or a material part of the business of the Enlarged Group;

· a sale of more than 51% of the Ordinary Shares to an unconnected person;

· a winding up of the Company, or any other return of capital;

· not earlier than the third anniversary of the relevant agreement relating to the B Shares and

· not later than the fifth anniversary of the relevant agreement relating to the B Shares (the ''Measurement Period'').

The B Shareholders have agreed that if they cease to be involved with the Enlarged Group in the three years after Admission for a reason other than death, long-term disability, injury or ill-health, redundancy, retirement at or after the date on which the B Shareholder would normally be expected to retire, dismissal other than for gross misconduct, or being voted off a board of the Enlarged Group other than for poor performance, Marlowe 2016 will have the ability to redeem that B Shareholder's B Shares for the amount subscribed for those B Shares.

The B Shareholders have agreed that if they cease to be involved with the Enlarged Group in the three years after Admission by reason of death, long-term disability, injury or ill-health, redundancy, retirement at or after the date on which the B Shareholder would normally be expected to retire, dismissal other than for gross misconduct, or being voted off a board of the Enlarged Group other than for poor performance, Marlowe 2016 will have the ability to redeem that B Shareholder's B Shares for an amount calculated on the same basis as used if the B Shareholders give notice to redeem their B Shares.

Any B Shares not redeemed on the seventh anniversary of the relevant B Shares agreement will either be redeemed by Marlowe 2016, or purchased by the Company, in each case for £0.01 in aggregate.

Alex Dacre, Derek O'Neill, Nigel Jackson and Charles Skinner are participating in the incentive scheme described above, and have subscribed for B Shares in Marlowe 2016 as follows:

* Nigel Jackson's subscription is subject to Admission

Related Party Transaction

The incentive arrangements described above may fall within the definition of a related party transaction falling outside the Director's standard remuneration package. Peter Gaze, an independent director in relation to the incentive arrangements, having consulted with Cenkos Securities plc, as the Company's Nominated Adviser, considers the terms of this transaction to be fair and reasonable in so far as the Company's shareholders are concerned.

Admission, settlement and CREST

Further to the Merger and Admission, new Ordinary Shares will be issued to MHL Shareholders in place of their MHL Shares. It is anticipated that MHL Shares will be cancelled from trading on AIM on 31 March 2016. The last day of dealings in MHL Shares is expected to be on 30 March 2016.

Application will be made for the Merger Shares, the Subscription Shares and the Consideration Shares to be admitted to trading on AIM. It is anticipated that Admission will take place on 31 March 2016. Following Admission the total number of voting rights of the Ordinary Shares will be 21,084,999. The Merger Shares, the Subscription Shares and the Consideration Shares will rank pari-passu in all respects, including the right to receive all dividends and other distributions declared, made or paid after the date of Admission.

These dates may be deferred if there is any delay in obtaining approval of the Merger or Admission. In the event of a delay, the application for cancellation of MHL Shares will be deferred until the Business Day immediately prior to the effective date of the Admission.

On the effective date of the Merger, all certificates representing MHL Shares will cease to be valid and binding in respect of such holdings and should be destroyed. Definitive share certificates for new Ordinary Shares allotted to MHL Shareholders who held MHL Shares in certificated form are expected to be despatched within ten days of Admission. In the case of joint holders, certificates will be despatched to the joint holder whose name appears first in the register of members. All certificates will be sent by pre-paid first class post at the risk of the person entitled thereto. MHL Shares held in uncertified form will be disabled in CREST on the effective date of the Merger.

For MHL Shareholders who hold their MHL Shares in electronic form in a CREST account by way of Depositary Interests, Ordinary Shares will be credited to their CREST accounts on Admission. The ISIN for the Company's Ordinary Shares on Admission will be GB00BD8SLV43.

The Company has applied for the Ordinary Shares to be admitted to CREST with effect from Admission. CREST is a paperless settlement procedure enabling securities to be evidenced otherwise than by a certificate and transferred otherwise than by a written instrument. The articles of association of the Company permit the holding of Ordinary Shares under the CREST system.

Accordingly, settlement of transactions in Ordinary Shares following Admission may take place within the CREST system if any shareholder so wishes. CREST is a voluntary system and holders of Ordinary Shares who wish to receive and retain share certificates will be able to do so.

Qualified Opinion on Stock Balance

The Swift audited historical financial information for the three years ended 31 May 2015 is set out in the Admission Document. The statutory accounts of Swift for the three years ended 31 May 2015 have been delivered to the Registrar of Companies and unqualified auditor's reports have been made on those accounts by Cowgill Holloway LLP, and those audit reports did not contain any statement under section 498(2) (accounting records or returns inadequate or accounts or directors' remuneration report not agreeing with records and returns), or section 498(3) (failure to obtain necessary information and explanations).

However, for the purposes of the Company's Admission to AIM, Grant Thornton UK LLP have provided an opinion on this financial information that includes a qualification as to the stock balance for each of the three years and the potential impact that it may have on the profit and loss statement of Swift. Grant Thornton UK LLP have not qualified the accounts in any other way. The basis for Grant Thornton UK LLP's qualification is extracted from the Accountant's Report on the historical financial information set out in the Admission Document as below:

With respect to inventory having a carrying amount of £203,493, £229,881, £365,305 and £473,310. at 31 May 2012, 31 May 2013, 31 May 2014 and 31 May 2015 respectively, the evidence available to us was limited because we did not observe the counting of physical inventories on those dates. As a consequence we have been unable to obtain sufficient appropriate evidence concerning opening and closing inventory balances. As opening balances relating to inventory form part of the determination of the statement of comprehensive income, we were also unable to determine whether adjustments might have been necessary in respect of profits or losses for the years reported in the statement of comprehensive income. Owing to the nature of the company's records, we were unable to obtain sufficient appropriate audit evidence regarding the inventory quantities by using other audit procedures.

Notwithstanding the qualified opinion, the Directors believe that the financial information is an appropriate representation of the business. Swift is a company that provides security and fire prevention services to companies including large high street retail chains. It is not stock intensive.

During the period covered by the Historical Financial Information the stock balance at each year end represented approximately 4% of gross assets annually during the three year track record, and approximately 2% of turnover. In the highly unlikely event that none of the stock was in existence at each of the balance sheet dates, the maximum impact on gross assets would have been a reduction of the total stock value at year end to nil and the maximum impact on profit before tax would have been a reduction during each year of £26,388, £135,424 and £108,005 for the years ended 31 May 2013, 31 May 2014 and 31 May 2015 respectively, being the movement in the stock balance in each period. However, the Directors have undertaken a diligence exercise to gain comfort that the stock balance as at the date of this document is materially correct and that Swift has appropriate systems and controls in place to accurately record and manage stock.