Last checked at 29 Jul 2015 17:17
29 July 2015
Verdes Management PLC ("VMP" or "the Company")
Publication of Admission Document
Proposals for: Acquisition of REACT, Placing and Open Offer, Buy Back of Deferred Shares, Share Consolidation, Change of Name and Notice of General Meeting
Verdes Management plc (AIM: VMP), announces that a circular, comprising an admission document ("Admission Document") and a notice of general meeting, has been posted to shareholders. Defined terms in this announcement have the same meaning as those in the Admission Document.
A copy of the Admission Document may be downloaded from the Company's website at www.verdes-group.com
1. Introduction
The Company has today announced conditional proposals to acquire REACT SC Holdings Limited for shares to the value of £1.56 million (at the Issue Price). In addition, it has conditionally raised £1.75 million in a placing of new equity at an issue price of 1.68p per New Ordinary Share, following a consolidation of every
25 Existing Ordinary Shares into 1 New Ordinary Share. Existing Shareholders have the opportunity to participate in an Open Offer on the basis of 2 New Ordinary Shares for every 75 Existing Ordinary Shares at the Issue Price.
Further details of the terms and conditions of the Acquisition are set out below under the heading "Principal terms of the Acquisition". The Acquisition will constitute a reverse takeover under the AIM Rules and therefore requires Shareholders' approval in general meeting. The Acquisition is conditional, inter alia, on the passing of the Resolutions numbered 1, 2, 3 and 4 at the General Meeting, and First Admission. The General Meeting is scheduled for 12 noon on 14 August 2015 at which all the resolutions to effect the above are being proposed.
2. Background to and reasons for the Acquisition
History and overview of Verdes
Verdes joined the AIM Market in 2005 when it operated as an independent record label and media management business. It disposed of its principal trading subsidiaries in September 2010, and at which point it changed its name to Verdes Management plc, and became an investing company on AIM. Verdes raised nearly £1.5 million between 2010 to 2012 in new equity and sought to act as a "turnaround" advisory business offering services to stakeholders, as well as facilitating investment opportunities in companies in need of restructuring. This strategy failed as the then management team failed to either execute a single successful deal or generate any revenue for the Company.
In September 2013 it was announced that the Company was working with a Gibraltar-based investment management team to develop Verdes as a strategic investment company, specifically to build an investment management group. A £125k convertible loan was issued in March 2013 to Westminster Asset Management
Limited ("Westminster"). Mr David Breith acquired Westminster's shareholding in the Company in March
2014, a fundraising of £0.75 million was conducted with Helium and all outstanding monies drawn under the Company's loan agreements were repaid. The previous directors, Mr van den Aker and Mr van den Noort, left the board in March 2014 and at the same time Gill Leates joined as Chairman. Stephen Foster and Adam Reynolds joined the board as non-executive directors in July 2014 and August 2014 respectively.
As the Company is deemed to be an investing company under Rule 15 of the AIM Rules, it had until
14 February 2015 to implement its investing policy or to make an acquisition which constituted a reverse takeover under the AIM Rules. As this requirement was not met by that date, the Company's shares were suspended from trading on AIM with effect from 16 February 2015. Since becoming an investing company the Board has reviewed around twenty different investment opportunities, and reached an advanced stage with two of these, before they were aborted. In January 2015 £0.25 million of loan capital was provided by Helium in the form of the Helium Convertible Loan. On 27 July 2015 Helium formally requested exercise of its conversion rights under this loan, conditional upon the First Admission. On 29 July 2015 the conditional acquisition of REACT was announced.
AIM Rules
As a result of becoming an investing company under the AIM Rules, Verdes sought and obtained (in March
2014) Shareholders' approval of an investing policy. Verdes is obliged to either fulfil this investing policy or make an acquisition constituting a reverse takeover under the AIM Rules. The Board believes that the acquisition of REACT will fulfil this latter requirement.
3. Information on REACT
Overview
REACT is a specialist provider of rapid response deep cleaning and emergency decontamination services, providing a 24 hour 7 days a week fast response service to a range of industries such as Network Rail, HM Prison Service, Local Authorities and a large number of UK Police Services. REACT also works closely with a number of facilities management companies and the Highways Agency.
History
Until recently REACT was operated as a separate trading business within Autoclenz. Autoclenz's primary business is as an outsourced car valeting and vehicle preparation services provider, and Autoclenz was until November 2012 a division of an AIM-quoted company, Autoclenz Holdings PLC, at which point it was bought out by its current shareholders. In June 2015 the REACT business was transferred to a newly-formed limited company, REACT Specialist Cleaning Limited, which, following a re-organisation of the Autoclenz group, became a subsidiary of REACT SC Holdings Limited.
Nature of Business
REACT is a specialist cleaner capable of dealing with diverse and extreme cleaning problems whose common factor is typically that they are beyond the "usual" cleaning tasks of facilities managers and other sub-contractors or in-house service providers. REACT's service offering typically supplements these cleaners for those tasks which:
- require specialist capital equipment or clothing;
- are in hard to reach, hazardous or difficult locations;
- require operatives to undergo specialist health & safety training; and
- require specialist accreditation (either to ensure legal compliance or because access is to restricted or high-security locations).
A recently introduced service, which REACT is able to offer is an infection control service providing protection against MRSA, Swine Flu, C. difficile and Norovirus. In addition, a process for dealing with Ebola has been put in place.
REACT is also a licensed waste carrier with a completely traceable disposal system.
Services
REACT's services are provided either directly to end customers, or to facilities management ("FM") companies serving end customers. Such FM service providers, whether in-house or out-sourced, are often generalists, and able to tackle the everyday needs of large offices, public buildings and industrial and manufacturing units. REACT is able to complement these providers as a sub-contractor for the specialist tasks within their service contracts.
REACT is able to provide a wide range of services. These include: High level cleaning, kitchen cleaning.
Graffiti removal.
"Deep cleans", sometimes whilst the production units are still running or during a shut-down period, or "builders cleans" or "handover cleans" following a site re-organisation or development prior to the premises being handed back to their client.
Sharp (i.e needle) searches, waste removal, decontamination and removal of hazardous waste prior to the more general services being provided by the facilities management company.
Clearing up sites after rail fatalities.
Fly tipping removal.
Removal of spillages following a road traffic accident or other hazardous substances from vehicles.
"Squat" clearances, clearing up following an eviction or death, removal of property left by a previous tenant. In some instances a "rapid" response is required, for which REACT provides 24 hour call out.
Sectors
REACT's services are applicable to a wide range of sectors including:
Transportation
The transport sector has a diverse set of specialist needs because its areas of operation often come into contact with the general public. REACT carries out a number of services for this sector which require care to ensure a thorough job of cleaning whilst minimising disruption of services. REACT's largest customer base is within the railway network.
Emergency Services/Custodial
REACT was originally formed to provide a dedicated 24/7 specialist service to the Police Service, and this customer remains one of its most important business sectors. Over the last 20 years REACT has provided a rapid response decontamination service for cleaning cells, vehicles and crime scenes. REACT has extended its customer base across Police Constabularies in England & Wales as well as servicing Fire Brigades and Ambulance Services.
Commercial/Manufacturing
REACT provides services to manufacturers, warehouses, industrial units, distribution centres and the retail sector.
Housing
Local authorities, housing associations and private landlords often need specialist cleaning contractors to respond quickly and effectively, whatever the nature or scale of a job. REACT has for many years worked with local authorities and housing associations.
Education
REACT has worked for schools and universities. The education sector presents particular problems because services have to be carried out without disruption to the learning process.
Healthcare
REACT works across many levels of the sector, including NHS and private hospitals and dentist surgeries. REACT delivers its services to this sector in most cases outside of normal working hours, and in conjunction with the customers' own maintenance programmes to ensure minimal impact on patients.
REACT's specialist services
REACT employs eight full time trained Technical Operators who provide 24 hour 7 day a week cover and are ready to respond to requirements anywhere in England and Wales. Each Operator has a vehicle which is equipped to be a stand-alone working unit, containing a generator, a water tank, pressure washer, electrical inverter, air flow equipment, light beacons and hand basins. Each unit contains divided load areas to enable removed clinical waste to be carried. In addition, all vehicles are equipped with sensitive theft alarms and a traffic light tracker system which allows REACT management to monitor the operator's driving habits. All are linked to REACT's help desk by ipads, mobile phone and various safe driving systems.
If a contract requires more resources, REACT sub-contracts suitably qualified agency staff to supplement its permanent workforce. All sub-contractors have the necessary security clearances, Health & Safety training and accreditations, as appropriate, for the client or task for which they are engaged, and are supervised by REACT's permanent staff. In this way REACT is able to keep its fixed cost base relatively low, and only take on additional overhead when there are jobs to justify it.
Other characteristics include:
Accreditation/Standards
REACT holds ISO9001:2008 and ISO14001:2004 accreditations for Management of Specialist Cleaning and Decontamination Services. Possession of such accreditations is often a pre-requisite for tendering for much of REACT's business.
Capital Equipment
Specialist equipment is often required and it may not be economic to acquire by a non-specialist who does not have the same level of utilisation. REACT's Technical Operators utilise service vehicles which are equipped to cater for a wide variety of cleaning tasks.
Security clearances
A significant proportion of REACT's customers operate in sectors in which there is a requirement for security clearances - for example the Prison Service, Police, Highways. As such, operational staff are required to be security checked and are subject to ongoing monitoring and renewal. All the Company's Technical Operators have the appropriate clearances.
Nature of competition
REACT's services are specialist in nature and many competitors tend to be smaller privately owned businesses operating in specific areas, although the larger FM companies often have specialist cleaning divisions of their own.
Nature of business
Most of the business conducted by REACT is one-off in nature, though often this represents repeat work from existing clients who mainly comprise large FM companies and public sector operators.
Financing
The business of REACT has until recently operated as a separate trading division within Autoclenz Limited, and has been financed by the business' cash generation and support from the Autoclenz group. Moving forwards the Enlarged Group will be financed by the proceeds of the Placing.
Financial Commentary
For the financial periods reported on in Part 4 of the Admission Document, REACT has been operated as a division of Autoclenz Limited, and as such a proportion of Autoclenz's central overhead costs have been charged to REACT in its profit and loss account. These reflect REACT's share of these costs attributable to its operation. In the most recent financial period, REACT achieved profits before tax of £281k (2013: £196k) on turnover of £1.55 million (2013: £1.56 million).
Services Agreement
All of the administration and accounting functions (including payroll, sales ledger and invoicing, debt collection) for REACT's business have previously been provided by Autoclenz. Following Admission, Autoclenz will continue to perform certain of these administrative functions for REACT under the terms of the Services Agreement (details are set out in paragraph 10.2.3 of Part 6 of the Admission Document). The Services Agreement is for an indefinite period and terminable on 6 months' notice by either party. Any future alteration to this agreement will be treated as a related party transaction under the AIM Rules.
The Board will decide over time whether REACT will continue to buy-in these services or to take them in- house.
Future Strategy for REACT
To date REACT has been a relatively small part of Autoclenz's business, comprising less than 5 per cent. of that company's turnover, and the Directors and Proposed Directors believe it to be non-core relative to the rest of the businesses within Autoclenz which relate to car valeting services. As such, the Directors and Proposed Directors believe that there has not been as much focus on investing in the REACT business compared to a situation in which it is an independent entity. This is seen by the Directors and Proposed Directors as an opportunity.
The Enlarged Group intends to pursue a two pronged strategy:
(1) To build on existing long-term relationships to grow the business organically; and
(2) Growth by acquisition - the Directors and Proposed Directors believe REACT operates in a sector which contains many small specialist companies that should provide opportunities to consolidate selected quality operations under the REACT umbrella. Any future acquisition is likely to be funded by a mixture of existing cash resources, together with a share issue or equity fundraising.
The Directors and Proposed Directors will use their respective networks of advisers and contacts to assist in
sourcing appropriate deal opportunities.
4. Current Trading and Prospects
Verdes does not have any active trading business at present and hence has no form of trading income. As an investing company it has sought to keep its costs contained as far as practicable whilst seeking a suitable reverse takeover target. In its recent interim results for the 6 months ended 31 March 2015 it reported a loss of £0.179 million on turnover of £nil.
The REACT business posted profits of £281k on sales of £1.56 million in the year ended 31 December2014. Since the year end its current trading has been in line with expectations.
5. Summary financial information on the Company and REACT
Financial Information on Verdes and REACT is set out in Part 4 of the Admission Document.
6. Principal terms of the Acquisition
On 28 July 2015, the Company entered into the Acquisition Agreement pursuant to which it has conditionally agreed to acquire the entire issued share capital of REACT, for a total consideration to be satisfied by the issue of 92,857,142 New Ordinary Shares. Based on the Issue Price at which the Placing ise being conducted, the Acquisition is valued at £1.56 million.
The Acquisition is conditional upon, inter alia, the Resolutions numbered 1, 2, 3 and 4 being passed at the General Meeting. Further details of the Acquisition Agreement are set out in paragraph 10.1.12 of Part 6 of the Admission Document.
7. Placing
The Company has conditionally raised a total of £1.75 million (before expenses) through the Placing at the
Issue Price by the issue of 104,166,666 New Ordinary Shares.
The Placing is conditional, inter alia, upon:
● The Placing Agreement becoming unconditional in all respects;
● the passing of the Resolutions at the GM; and
● admission of the Placing Shares to trading on AIM.
The Placing Shares, when issued and fully paid, will rank equally in all respects with the other Proposal Shares and the Existing Ordinary Shares (post the Share Consolidation) including the right to receive all dividends and other distributions declared, made or paid after First Admission.
It is expected that First Admission will become effective and dealings in the Placing Shares will commence on 17 August 2015.
A summary of the Placing Agreement is set out in paragraph 10.1.9 of Part 6 of the Admission Document.
8. Open Offer
The Company proposes to raise up to £0.416 million in the Open Offer (before expenses) through the issue of up to 24,798,759 New Ordinary Shares, at the Issue Price of 1.68p per share.
The Offer Shares will be offered to Qualifying Shareholders on the following basis:
2 New Ordinary Shares for every 75 Existing Ordinary Shares held in their name(s) on the Record Date for the Offer
Shareholders should carefully consider the "Risk Factors" set out in Part 3 of the AdmissionDocument before deciding whether or not to proceed with an investment in the Company.
Qualifying Shareholders are being offered the opportunity to apply for additional Offer Shares in excess of their Open Offer Entitlement to the extent that other Qualifying Shareholders do not take up their Open Offer Entitlement in full. In the event that applications are received for in excess of the 24,798,759 Offer Shares available, excess applications will be scaled back pro rata to Qualifying Shareholders' existing shareholdings.
The latest time and date for receipt of completed Application Forms and payment in full under the Open Offer is 11.00 a.m. on 12 August 2015. Admission and commencement of dealings in Offer Shares is expected to take place at 8.00 a.m. on 17 August 2015.
Full details of the Open Offer, together with the terms and conditions of the Open Offer, are set out in Part 2 of the Admission Document.
To the extent that the Open Offer is not fully subscribed by Shareholders, the Company retains the right post Admission to place up to 24,798,759 New Ordinary Shares (less any New Ordinary Shares validly subscribed under the Open Offer) for cash at the Issue Price.
9. Use of Placing and Open Offer funds
REACT is a business which is growing, and has a requirement for new funds not only to fund working capital but also to develop new markets and to grow by acquisition of suitable targets, in line with the Enlarged Group's proposed strategy. The funds received under the Placing and Open Offer will be used for these purposes, as follows:
Purchase of fixed assets under the Acquisition Agreement | £150,735 |
Working capital and partial consideration for acquisition(s)(*)† | £1,261,264 |
Expenses of the Proposals | £338,000 |
Buy Back funding | £1 |
Total † | £1,750,000 |
* this amount will be used to fund the ongoing working capital needs of the business, together with capital that can be used to partially fund investment in any future acquisitions.
† If the Open Offer is fully subscribed these figures will increase by £416,619
10. Implications of the Proposals under the Code
Background to the Concert Party
The Vendors are deemed under the Code to be acting in concert in relation to the Proposals. These parties are referred to as the Concert Party throughout the Admission Document. Further details of the Concert Party are set out in Part 5 of the Admission Document.
The table below shows the shareholding structure of the Company immediately after completion of the Proposals (including the conversion of the HC Loan) and assumes that no Shareholders take up shares in the Open Offer and that no further Ordinary Shares will be issued from the date of this document until Admission:
Name | New Ordinary Shares | % of Enlarged Share Capital |
Concert Party (see table below) | 93,452,380 | 37.29 |
Helium | 62,630,951 | 24.99 |
Other shareholders | 94,507,663 | 37.72 |
Total | 250,590,995 | 100.00 |
Concert Party
The holdings of the Concert Party immediately after completion of the Proposals (including the conversion
of the HC Loan) and assuming no Shareholders take up shares in the Open Offer are as follows:
Name | No of Consideration Shares | No of Placing Shares | New Ordinary Shares in the Enlarged Group | % of the Enlarged Share Capital % |
T Clingo | 13,928,571 | - | 13,928,571 | 5.56 |
G Rummery | 13,928,571 | 595,238 | 14,523,809 | 5.80 |
A Reynolds | 18,571,429 | - | 18,571,429 | 7.41 |
P Foulger | 18,571,429 | - | 18,571,429 | 7.41 |
M Ward | 13,928,571 | - | 13,928,571 | 5.56 |
D Worrall | 13,928,571 | - | 13,928,571 | 5.56 |
| 92,857,142 | 595,238 | 93,452,380 | 37.29 |
Note: † following Second Admission
As at the date of the document, the members of the Concert Party together are not interested in any Existing Ordinary Shares. In aggregate, the Concert Party will be interested in 93,452,380 New Ordinary Shares, representing a maximum of 37.29 per cent. of the Enlarged Share Capital following Second Admission assuming: (a) no exercise of any outstanding options or warrants (b) no other share issues (c) conversion of the Helium Convertible Loan into New Ordinary Shares and (d) no issue of Offer Shares.
The issue of the Consideration Shares and the Placing Shares to the Concert Party would ordinarily incur an obligation under Rule 9 of the Code for the Concert Party to make a general offer for the remainder of the entire issued share capital of the Company. However, the Panel has agreed to waive these obligations subject to the approval of the Independent Shareholders voting on a poll at the General Meeting.
Further details regarding the provisions of the Code, the Whitewash Resolution and the interests of the Concert Party in the Company are set out below in the section headed "Waiver of Rule 9 of the Code" and in Part 5 of the Admission Document.
Intentions of the Concert Party
At present Verdes is an "investing company" with no trading business. The Company's objective has been to acquire a trading business, and the Board believes that the Acquisition fulfils this objective. The Concert Party has confirmed that following completion of the Proposals its intention is that the business of the Company is changed to that of developing the REACT business as described under "Future Strategy for REACT" above.
Other than as stated above, the Concert Party has confirmed that no changes will be made regarding:
- the future business of the Company;
- the location of the Company's places of business;
- the continued employment of the Company's employees and management, including any material changes in employment;
- employer contributions into the Company's pension schemes, the accrual of benefits for existing members and the admission of new members; or
- the maintenance of any existing trading facilities for the Ordinary Shares (i.e. the trading of the
Company's shares on AIM),
nor will there be any redeployment of the fixed assets of the Company as a result of the Proposals.
Waiver of Rule 9 of the Code
The Code is issued and administered by the Panel. The Company is a company to which the Code applies and its Shareholders are entitled to the protections afforded by the Code. Under Rule 9 of the Code, any person who acquires an interest (as defined in the Code) in shares which, taken together with shares in which he is already interested and in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights of a company which is subject to the Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares.
Rule 9 of the Code further provides that where any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of a company but does not hold shares carrying more than 50 per cent. of such voting rights and such person, or any such person acting in concert with him, acquires an interest in any other shares which increases the percentage of shares carrying voting rights in which he is interested, such person or persons acting in concert with him will normally be required to make a general offer to all remaining shareholders to acquire their shares.
An offer under Rule 9 of the Code must be made in cash at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interest in shares of the company during the 12 months prior to the announcement of the offer.
Under the Code a concert party arises when persons acting together pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of, or frustrate the
successful outcome of an offer for, a company to which the Code applies. Control means an interest or interests in shares carrying an aggregate of 30 per cent. or more of the voting rights of the company irrespective of whether the holding or holdings give de facto control. The members of the Concert Party are deemed to be acting in concert for the purpose of the Code.
Shareholders should note that upon the issue of the Consideration Shares and the Placing Shares the Concert Party will hold Ordinary Shares carrying 37.29 per cent. of the voting rights of the Company and (for so long as they continue to be treated as acting in concert) the Concert Party (and any person acting in concert with them) will not be able to acquire any further Ordinary Shares without incurring an obligation to make a general offer to Shareholders under Rule 9 of the Code.
Subject to the approval of Independent Shareholders, the Panel has agreed to waive the obligation to make a general offer for the entire issued share capital of the Company that would otherwise arise as a result of the issue of the Consideration Shares, and the participation of Grahame Rummery in the Placing. Accordingly, the Whitewash Resolution being proposed at the General Meeting will be taken by means of a poll of Independent Shareholders attending and voting at the General Meeting. None of the members of the Concert Party are permitted to exercise their voting rights in respect of the Whitewash Resolution but may exercise their voting rights in respect of the remainder of the Resolutions. (No member of the Concert Party currently holds any Ordinary Shares).
The waiver to which the Panel has agreed under the Code will be invalidated if any purchases are made by any member of the Concert Party, or any person acting in concert with it, in the period between the date of this document and the General Meeting. Furthermore, no member of the Concert Party, nor any person acting in concert with it, has purchased Ordinary Shares in the 12 months preceding the date of this document.
The Concert Party will not be restricted from making an offer for the Ordinary Shares which it will not own post-Admission.
In each case above it is assumed that no other person has converted any convertible securities or exercised any option or any other right to subscribe for shares in the Company following the date of the Admission Document.
Independent Advice
SPARK Advisory Partners have provided advice to the Independent Directors (i.e. the Directors other than Adam Reynolds), in accordance with the requirements of paragraph 4(a) of Appendix 1 of the City Code, in relation to the granting of the waiver by the Panel of the obligation that could arise on the Concert Party to make an offer under Rule 9 of the City Code in relation to the Proposals. The advice was provided by SPARK Advisory Partners to the Independent Directors only and in providing such advice SPARK Advisory Partners have taken into account the Independent Directors' commercial assessment as well as the confirmations from the Concert Party's future intentions that it has provided to the Company as set out above.
Management arrangements
Conditional upon Admission, Grahame Rummery has been appointed as Chief Executive of the Company, details of which are set out in his letter of appointment in paragraph 8.1.5 of Part 6 of the Admission Document. As required under the Code, SPARK, as independent adviser to the Company, confirms that in its opinion, these arrangements are fair and reasonable.
11. Related Party Transactions
Certain elements of the Proposals are related party transactions for the purposes of the AIM Rules and require the relevant Independent Directors to confirm that, having consulted with SPARK, they consider the terms of such transactions to be fair and reasonable insofar as the Shareholders are concerned.
(i) Acquisition and Services Agreement
As Adam Reynolds, a Director of the Company, is also a major shareholder of REACT, he is treated as a related party under the AIM Rules. The terms of the Acquisition and the Services Agreement have therefore been considered by the Independent Directors (i.e. those Directors excluding Mr Reynolds) in consultation with SPARK Advisory Partners, the Company's nominated adviser. The Independent Directors consider, having consulted with its nominated adviser, that the terms of the Acquisition Agreement and the Services Agreement are fair and reasonable insofar as its Shareholders are concerned. It is proposed that the Acquisition Agreement (Resolution 2 in the GM) is approved by Shareholders at the General Meeting. The Services Agreement is conditional upon completion of the Acquisition Agreement. Mr Reynolds holds no shares in the Company at present.
(ii) Placing
The Placing of £1.75 million is being participated in by Helium (£710,000), myself (£10,000), and Proposed
Directors Grahame Rummery (£10,000) and Mark Collingbourne (£25,000).
Helium currently owns 100,000,000 Existing Ordinary Shares in the Company, and as such is a substantial shareholder, and therefore a related party under the AIM Rules. Helium has agreed to subscribe £710,000 in the Placing, which is being conducted at 1.68p per New Ordinary Share, the same price as the Open Offer and the price at which the Consideration Shares are deemed to be issued. This price represents an effective discount of 57 per cent. to the (suspended) share price (of 0.0155p per Existing Ordinary Share) (equivalent to 3.875p per New Ordinary Share post Share Consolidation), the closing mid-market price on the day before this document was issued.
The participation of Helium in the Placing is a related party transaction. As I am not treated as being independent of Helium, the Independent Directors (in this case Stephen Foster and Adam Reynolds) consider, having consulted with SPARK Advisory Partners, the Company's nominated adviser, that the terms of this subscription by Helium in the Placing are fair and reasonable insofar as the Shareholders are concerned.
Helium has indicated its intention not to take up its entitlement as an existing Shareholder in the Open Offer. As part of the Placing, I have agreed to subscribe for New Ordinary Shares as set out below:
| Ordinary |
| ||
| Placing Shares | Total (£) | Shares held | % of Enlarged |
Name
Gill Leates | Subscribed
595,238 | subscribed
£10,000 | post Proposals
595,238 | Share Capital
0.24 |
As a Director of the Company I am deemed to be a related party under the AIM Rules. I have agreed to subscribe in the Placing on the same terms as all the other placees in the Placing. The Independent Directors (in this case Adam Reynolds and Stephen Foster) consider, having consulted with SPARK Advisory Partners, that the terms of this subscription are fair and reasonable insofar as the Shareholders are concerned.
(iii) HC Loan Shares
Helium entered into the Helium Convertible Loan on 14 January 2015, in which £0.25 million was advanced to the Company in a related party transaction and on which the fair and reasonable opinion required by the AIM Rules was provided by the Independent Directors, following consultation with the Company's nominated adviser, at the time. This loan has conversion rights in certain circumstances, and on 27 July 2015 Helium served notice of its intention to exercise these conversion rights (including premium of £25,000 attached to the loan), which will, conditional on Admission, result in the issue to Helium of 16,369,047 New Ordinary Shares at the Issue Price.
Helium's shareholding is, and will be following Admission, as follows:
| Existing Ordinary Shares | % of current Issued Share Capital |
Current Shareholding | 100,000,000 | 10.75% of Enlarged Share Capital |
| New Ordinary Shares | % of Enlarged Share Capital |
Equivalent to | 4,000,000 | Post Share Consolidation |
Placing Shares | 42,261,904 |
|
| 46,261,904 | 19.75% (post First Admission†) |
Conversion of HC Loan | 16,369,047 |
|
Total | 62,630,951 | 24.99% (post Second Admission) |
† If the Open Offer is fully subscribed these figures will be 17.86% (rather than 19.75%) and 22.74% (rather than 24.99%)
(iv) Amendment to warrants
The Remuneration Committee (excluding myself) has proposed to amend the exercise price of the existing warrants held by myself. The exercise price (for the 2 million Existing Ordinary Shares over which these warrants exist) was previously 2p per Existing Ordinary Share, and it is proposed (conditional upon Admission) to cancel and replace these warrants with warrants over 2,380,000 New Ordinary Shares at an exercise price of 1.68p per New Ordinary Share. The warrants will be exercisable at any time from 12 months post Admission.
This transaction has been treated as a related party transaction under the AIM Rules as I am a Director and deemed to be a related party. The Independent Directors (in this case Adam Reynolds and Stephen Foster) consider, having consulted with SPARK Advisory Partners, that the terms of this subscription are fair and reasonable insofar as the Shareholders are concerned.
This award is subject to approval by Shareholders of Resolution 7 at the GM.
12. Organisational structure
The Enlarged Group will be run at operational level by an operations board which will comprise executive members of the Board and the senior management referred to below.
13. Board of Directors
Grahame Rummery will join the Board as Chief Executive, and Mark Collingbourne as Financial Director, conditional on the Acquisition being approved at the GM, and First Admission. Adam Reynolds will stand down from the Board on Admission. Brief details of the Board, post Admission, are set out below.
Gillian ("Gill") Leates (Non-Executive Chairman) aged 57
Gill brings with her a wealth of public market experience having served as Investment Director on the main Board of Majedie Investments PLC from 1999 to 2008, and as a non-executive director of Majedie Asset Management Limited during that period, where she played a key role in setting up the UK pension fund management business in 2002. Since 2009 Gill has been a non-executive director of AIM-quoted Hydrodec PLC, and is currently chairman of its Audit Committee, and member of its Remuneration and Nomination Committees. She is also a non-executive director of InnoVenn UK Limited, a subsidiary of Venn Life Science Holdings plc. Gill also acts as a business consultant, through Freeton Limited.
Stephen Foster (Non-Executive Director) aged 63
Stephen Foster has 40 years' experience in General Management, Sales, Marketing and Operations, mainly in IT and Communications industries, over 18 of which have been spent managing business in Europe, the Middle East and Africa. Originally starting with IBM before moving on to Unisys, Norsk Data and Amdahl, he has latterly held executive positions with Exide (now Invensys), NYNEX, BellSouth, Eyretel (now Verint), Dendrite (now Cegedim), SunGard AS and Siemens. He was until June 2015 a non-executive director at COMS Plc where he sat on both the Remuneration Committee (as Chair) and the Audit Committee. He holds a BSc from Birmingham University and is a member of the British Computer Society. He joined the Board in July 2014.
Grahame Rummery (Chief Executive) aged 67
Grahame joined Autoclenz Holdings PLC as its managing director in June 1990 following its acquisition by Yule Catto. He has subsequently overseen the growth of Autoclenz and has played a key role in the development of its business. He led the management buy-out of Autoclenz Limited and Autoclenz Services Limited from Autoclenz Holdings PLC in November 2012, and continues to act as its Chief Executive. Prior to Autoclenz he spent 12 years at Arrow Chemicals, where he undertook various roles culminating in his promotion to Sales Director, at the time of the acquisition by Yule Catto plc in 1984. He will become Chief Executive of the Company with effect from Admission.
Mark Collingbourne FCCA (Financial Director) aged 49
Mark is a fully qualified accountant with significant experience in financial management, particularly in the area of publicly quoted companies. He has dealt with all aspects of plc development from bringing small companies to flotation to supervising the ongoing accountancy and ensuring the good governance of international businesses. Mark was until June 2015 the Chief Financial Officer of AIM-quoted Premaitha Health plc, and currently acts as CFO for AIM-quoted Optibiotix Health plc, as well as finance director and company secretary for a number of other small private companies. Previously, after periods with ITV Network Centre and Mechanical Copyright Protection Society Limited. Mark was appointed Finance Director of Curtis Brown Group Limited, one of the UK's leading literary agencies, in 1996, where he managed the financial implications of the management buyout in 2001.
Senior Management
Chris Taylor (Managing Director designate - REACT Specialist Cleaning Limited) aged 57
Prior to working for Autoclenz, Chris was Business Development Manager for Mercedes Benz Sheffield. Previously he spent a number of years within various marketing companies as Sales Development Manager developing marketing materials and campaigns for a number of blue chip organisations.
Chris joined REACT in 2012 and has been a key driver behind its development into new markets and creation of new services. Chris has developed good relationships with both existing and new customers, and has been instrumental in managing REACT's accreditations and Health and Safety policies, working closely with customers' compliance teams to ensure that the company builds credibility with those organisations to maintain existing, and win new, business. Chris has a good working relationship with REACT's operator base and salesforce and works closely with them to drive for new business and to ensure that the quality of the work delivered enables REACT to generate repeat business. He is currently Divisional Manager of REACT. Post Admission he will be appointed as managing director of REACT Specialist Cleaning Limited.
14. Governance
The Board recognises the importance of sound corporate governance and intends to ensure that, following Admission, the Company adopts policies and procedures which reflect the Corporate Governance Code for Small and Mid-Size Quoted Companies published by the Quoted Companies Alliance.
The Board will meet monthly to review key operational issues and the strategic development of the Enlarged Group. The financial performance of the Enlarged Group will be reported and monitored. All matters of a significant nature will continue to be discussed in the forum of a board meeting. The Board will be responsible for internal controls to minimise the risk of financial or operational loss or material misstatement. The controls
established will be designed to meet the particular needs of the Company having regard to the nature of its business.
The Company has also established an Audit Committee and a Remuneration Committee with formally delegated duties and responsibilities. Each committee consists of Gill Leates and Stephen Foster, with Gill Leates chairing the Audit Committee and Stephen Foster chairing the Remuneration Committee.
The Audit Committee will determine the terms of engagement of the Enlarged Group's auditors and will determine, in consultation with the auditors, the scope of the audit. The Audit Committee will receive and review reports from management and the Enlarged Group's auditors relating to the interim and annual accounts and the accounting and internal control systems in use throughout the Enlarged Group. The Audit Committee will have unrestricted access to the Enlarged Group's auditors.
The Remuneration Committee will review the scale and structure of the executive directors' and senior employees' remuneration and the terms of their service or employment contracts, including share option schemes, the issue of warrants and other bonus arrangements. The remuneration and terms and conditions of the non-executive directors will be set by the entire Board.
The Enlarged Group will ensure, in accordance with Rule 21 of the AIM Rules, that the Board and applicable employees follow an adopted share dealing code, and do not deal in Ordinary Shares during a close period (as defined in the AIM Rules) and will take all reasonable steps to ensure compliance by the Directors, the Proposed Directors and applicable employees.
The Directors and the Proposed Directors believe that the Company has sufficient experience in accounting systems and controls which will provide a reasonable basis for them to make proper judgements as to the financial position and prospects of the Enlarged Group.
15. Share Option Scheme
The Board believes that the recruitment, motivation and retention of key employees is vital for the successful growth of the Enlarged Group. The Board considers that an important element in achieving these objectives is the ability to incentivise and reward staff (including executive directors) by reference to the market performance of the Company in a manner which aligns the interests of those staff with the interest of shareholders generally. Post-Admission the Company will look to put in place a new employee share incentive scheme (under the Enterprise Management Incentive legislation) pursuant to which options to acquire Ordinary Shares may be granted to Directors, Proposed Directors and employees of the Enlarged Group. It is expected that the total number of Ordinary Shares that may be committed under the scheme, if implemented, will represent a maximum of 10 per cent. of the Enlarged Group's issued ordinary share capital from time to time.
16. Lock-in and orderly market arrangements
Helium has, and the Vendors have, undertaken to the Company, SPARK Advisory Partners and SI Capital that, save in certain limited circumstances, they will not dispose of any interest they hold in Ordinary Shares for a period of 12 months following First Admission and that, for a further period of 12 months thereafter, save in certain limited circumstances, they shall only dispose of an interest in Ordinary Shares through the Company's broker with a view to ensuring an orderly market in the Company's shares. Further details of lock-in and orderly market arrangements are set out in paragraph 10.1.10 of Part 6 of the Admission Document.
17. Change of Name
The Directors propose that, conditional on the passing of Resolutions 1, 4 and 8, the name of the Company be changed to REACT Group PLC with effect from the date of the General Meeting. Upon the change of name being registered at Companies House, the Company's AIM symbol will be changed to REAT and its website address will be changed to www.reactbeyondcleaning.co.uk.
18. Buy Back
The Deferred Shares were created due to the earlier losses of capital which had arisen on the Company's earlier activities. The Board can see no reason for the Deferred Shares to remain on the balance sheet and recommends that the Deferred Shares are purchased by the Company.
Under the provisions of the Act, a public limited company may not fund the purchase of its shares except out of its distributable reserves or the proceeds of a fresh issue of shares made solely for the purpose of such Buy Back. The Company has no distributable reserves in order to fund the Buy Back and therefore it is proposed that the Buy Back is funded out of the Placing.
The Buy Back is conditional upon Shareholders' approval. At the General Meeting, Shareholders will be asked to approve, if thought fit, the Buy Back.
Under the provisions of the Articles, the Company has the power to buy back the Deferred Shares for £1 in aggregate. In addition, the Company has the power to appoint anyone to sign the Buy Back Agreement on behalf of all the holders of the Deferred Shares and the Company proposes that any one of its Directors be authorised to carry out this function.
Under the Act a copy of the Buy Back Agreement must be made available for inspection at the Company's registered office by the Shareholders at least 15 days prior to the meeting approving the Buy Back. A copy of the Buy Back Agreement is currently available for inspection on the Company's website at www.verdes- group.com and at its registered office. A copy of the Buy Back Agreement will also be available for inspection at the General Meeting.
19. Share Consolidation
The Placing and Open Offer are conditional upon the approval and completion of the Proposals, including the Share Consolidation. The Company's Existing Ordinary Share Capital comprises 929,953,462 Existing Ordinary Shares.
Resolution 3 to be proposed at the General Meeting proposes that every 25 Existing Ordinary Shares of the Company are consolidated into one New Ordinary Share. Holders of fewer than 25 Existing Ordinary Shares will not be entitled to receive a New Ordinary Share following the Share Consolidation. Shareholders with a holding in excess of 25 Existing Ordinary Shares, but which is not exactly divisible by 25, will have their holding of New Ordinary Shares rounded down to the nearest whole number of New Ordinary Shares following the Share Consolidation. Fractional entitlements, whether arising from holdings of fewer or more than 25 Existing Ordinary Shares, will be aggregated and sold in the market and the proceeds will be retained for the benefit of the Company.
The New Ordinary Shares will continue to carry the same rights as attached to them immediately prior to the Share Consolidation and will continue to be traded on AIM. The Company will issue new share certificates to those Shareholders holding shares in certificated form to take account of the Change of Name and the Share Consolidation. Following the issue of new share certificates, share certificates in respect of Existing Ordinary Shares will no longer be valid. Shareholders will still be able to trade in Ordinary Shares during the period between the passing of the Resolutions and the date on which Shareholders receive new share certificates.
Further details of the Share Consolidation are set out in paragraph 17 of Part 6 of the Admission document.
20. Dividend Policy
The Board's objective is to grow the Enlarged Group's business. Whilst in the short term income generated by the Enlarged Group will likely be re-invested to implement its growth strategy, the Board wishes to be in a position to start paying dividends at the earliest practical opportunity.
At present the Company does not have distributable reserves, as it has a deficit on its profit and loss account. The Company would need to undertake a capital reduction, or generate sufficient cumulative profits to eradicate this deficit, to be in a position to make dividend payments legally.
21. Risk Factors
Shareholders and other prospective investors in the Company should be aware that an investment in the Company involves a high degree of risk. Your attention is drawn to the risk factors set out in Part 3 of the Admission Document.
22. Enterprise Investment Scheme (EIS) and Venture Capital Trust (VCT) status
The Company has obtained advance assurance from HMRC that it should be a qualifying company for EIS purposes and that the Placing Shares and Offer Shares should be eligible shares under the relevant VCT provisions. However, investors should be aware that, whilst advance assurance has been obtained from HMRC, the Directors cannot guarantee that the Placing Shares, the Offer Shares or the Company will satisfy, and will continue to satisfy, the requirements for tax relief under EIS and VCT rules.
The continuing status of the Placing Shares and Offer Shares as qualifying for EIS purposes will be conditional on the qualifying conditions being satisfied throughout the relevant period of ownership.
Neither the Company, nor the Directors or the Proposed Directors give any warranty, representation or undertaking that any investment in the Company by way of Placing Shares or Offer Shares will be or will continue to be a qualifying investment for EIS or VCT purposes. EIS eligibility is also dependent on a Shareholder's own position and not just that of the Company. Accordingly, investors should take their own advice in this regard. Investors are also referred to the risk factors set out in Part 3 of the Admission Document.
23. Taxation
General information regarding UK taxation is set out in paragraph 16 of Part 6 of the Admission Document. These details are intended only as a guide to the current tax position under UK taxation law. If an investor is in any doubt as to his tax position he should consult his own independent financial adviser immediately. Investors subject to tax in other jurisdictions are strongly urged to contact their tax advisers about the tax consequences of holding Ordinary Shares.
24. CREST
The Existing Ordinary Shares are eligible for CREST settlement. Accordingly, following Admission, settlement of transactions in the New Ordinary Shares may take place within the CREST system if the relevant shareholder so wishes. CREST is a voluntary system and Shareholders who wish to receive and retain share certificates will be able to do so. New share certificates will be issued to all Shareholders (who wish to receive share certificates) following the Share Consolidation, whether or not they participate in the Offer.
25. Admission and dealings
Applications will be made to the London Stock Exchange for the Existing Ordinary Shares and the Proposal Shares and separately for the HC Loan Shares to be admitted to trading on AIM. It is expected that First Admission of the Existing Ordinary Shares and the Proposal Shares will become effective, and that dealings in these shares will commence, on or about 17 August 2015 and that the Second Admission (of the HC Loan Shares) will become effective, and that dealings in these shares will commence, on or about 18 August
2015.
26. General Meeting
The General Meeting is being convened at which Shareholders will be asked to approve the Resolutions. Set out at the end of the Admission Document is a notice convening the General Meeting to be held on
14 August 2015, commencing at 12 noon.
Resolution 1
An ordinary resolution, to be taken on a poll of Independent Shareholders, to approve the Rule 9 Waiver.
Resolution 2
An ordinary resolution (subject to and conditional upon the passing of Resolutions 1, 3 and 4) to approve the Acquisition.
Resolution 3
An ordinary resolution to consolidate the Company's ordinary share capital, so that every 25 Existing Ordinary
Shares held by a Shareholder are consolidated into 1 New Ordinary Share.
Resolution 4
An ordinary resolution (subject to and conditional upon the passing of Resolutions 1 and 2) to grant the Directors authority (i) to allot New Ordinary Shares with a nominal value of £595,479.04 in relation to the Acquisition, the Placing and Open Offer, and the conversion of the HC Loan and (ii) to allot New Ordinary Shares with a nominal value of up to £100,000 otherwise.
Resolution 5
An ordinary resolution (subject to and conditional upon the passing of Resolutions 1, 2 and 4) to appoint
Mr G Rummery as a director of the Company, subject to and, with effect from Admission.
Resolution 6
An ordinary resolution (subject to and conditional upon the passing of Resolutions 1, 2 and 4) to appoint
Mr M Collingbourne as a director of the Company, subject to and with effect from Admission.
Resolution 7
An ordinary resolution (subject to and conditional upon the passing of Resolutions 4 and 8, and Admission)
to issue warrants over 2,380,000 New Ordinary Shares to Ms G Leates.
Resolution 8
A special resolution (subject to and conditional upon the passing of Resolutions 1, 2 and 4) to dis-apply statutory pre-emption rights in respect of the authority sought pursuant to Resolution 4.
Resolution 9
A special resolution (subject to, and conditional upon, the passing of Resolutions 1 and 4) to change the name of the Company to "REACT Group PLC".
Resolution 10
A special resolution to authorise the Buy Back.
Resolution 11
A special resolution to delete the objects formerly contained in the Company's Memorandum of Association from the Articles.
Resolution 12
A special resolution to adopt new Articles. The new Articles will be identical to the Company's existing Articles except for the removal of all references to the Deferred Shares.
27. Irrevocable Undertaking
An irrevocable undertaking has been received to vote in favour of the Resolutions at the General Meeting as set out below:
Name | Resolutions 1 -12 (inclusive) |
Helium | 100,000,000 |
As a % of shares eligible to vote | 10.75% |
The Form of Proxy for use at the GM is enclosed with this Admission Document. Whether or not you intend to be present at the GM, you are requested to complete the Form of Proxy and return it to the Company's Registrars, Neville Registrars, Neville House, 18 Laurel Lane, Halesowen, West Midlands B63 3DA as soon as possible and, in any event, so as to arrive not later than 12 noon on 12 August 2015. Alternatively, CREST members who wish to appoint a proxy or proxies via CREST may do so in accordance with the procedures set out in the notice of GM and the Form of Proxy. The return of the Form of Proxy or appointment of a proxy via CREST will not prevent you from attending the GM and voting in person should you so wish.
29. Recommendation
As Adam Reynolds is one of the Vendors and a member of the Concert Party, he has not taken part in any decision of the Directors relating to any proposal to seek a Rule 9 Waiver, since it is his potential shareholding (together with those of other members of the Concert Party) which is the subject of the Waiver. No members of the Concert Party are allowed to vote on the Waiver. No Concert Party member holds any Ordinary Shares at present.
The Directors (excluding Adam Reynolds), who have been so advised by SPARK Advisory Partners, consider that the approval of the Waiver is fair and reasonable and in the best interests of Shareholders and the Company as a whole and recommend that Shareholders vote in favour of Resolution 1 to be proposed at the General Meeting. In providing advice to the Directors (excluding Adam Reynolds) SPARK Advisory Partners has taken account of the Directors' (excluding Adam Reynolds) commercial assessment.
Additionally, Mr Reynolds (as a Vendor of REACT) has not taken part in the Board's consideration of Resolution 2 which relates to the Acquisition. The Directors (with the exception of Adam Reynolds) recommend that Shareholders vote in favour of Resolution 2 to be proposed at the General Meeting.
Additionally I have not taken part in the Board's consideration of Resolution 4 - which relates to the Placing in which I am participating - nor Resolution 7 - which relates to the issue of new warrants to myself. The Directors (with the exception of myself) recommend that Shareholders vote in favour of Resolutions 4 and
7 to be proposed at the General Meeting.
All of the Directors unanimously recommend that Shareholders vote in favour of Resolutions 3, 5, 6 and 8 to 12 (inclusive) to be proposed at the General Meeting.
Shareholders should be aware that if the Proposals are not approved at the GM, admission of the Company’s securities to trading on AIM will be cancelled.
Yours faithfully
Gill Leates
Chairman
For further information, please contact:
Verdes Management PLC
Gill Leates - Chairman 07799 662642
SPARK Advisory Partners Limited
Neil Baldwin 0113 370 8974
Mark Brady 0113 379 8971
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
2015
Record Date for the Open Offer close of business on 29 July
Announcement of the Placing and Open Offer, publication and posting of
this document and posting of the Application Form to Qualifying Shareholders 29 July
Ex-entitlement date for the Open Offer 30 July
Open Offer Entitlements and Excess CREST Open Offer Entitlements credited to
stock accounts in CREST of Qualifying CREST shareholders 30 July
Recommended latest time for requesting withdrawal of Open Offer Entitlements
from CREST 4.30 pm on 4 August
Latest time for depositing Open Offer Entitlements in CREST 3.00 pm on 6 August
Latest time and date for splitting of Application Forms (to satisfy bona fide market
claims only) 3.00 pm on 10 August
Latest time and date for receipt of Forms of Proxy 12 noon on 12 August
Latest time and date for completion of completed Application Forms and payment in full under the Open Offer or settlement of relevant
CREST instruction 11.00 am on 12 August
Time and date for General Meeting 12 noon on 14 August Record Date for the Share Consolidation 5.00 pm on 14 August Change of Name effective 14 August Completion of Buy Back 17 August Acquisition of REACT completed 17 August Admission of Proposal Shares 8.00 am on 17 August
Expected date for crediting of New Ordinary Shares to CREST stock accounts
in uncertificated form 8.00 am on 17 August
Admission of the HC Loan Shares 8.00 am on 18 August
Despatch of share certificates in respect of New Ordinary Shares
in certificated form (including in respect of Existing Ordinary Shares
post the Share Consolidation) w/c 24 August