SAF.L Regulatory News (SAF)

31 January 2014

SAFELAND PLC

(the "Company" or "Group")

Proposed Reduction of Capital

Demerger of Safeland's interest in the Safestay Business

and

Notice of General Meeting

Safeland is pleased to announce that it will post later today to Shareholders a circular and Notice of General Meeting seeking the necessary authorities from Shareholders to conduct a reduction of capital of the Company and demerger of its interest in the Safestay Business.

The General Meeting will be held on 20 February 2014 at 10.00am at the offices of Dechert LLP, 160 Queen Victoria Street, London, EC4V 4QQ.

Copies of the circular will be available on the Company's website at: www.safeland.co.uk

Capitalised terms used herein have the meaning given to them in the circular.

Contacts:

Proposed Reduction of Capital

Demerger of Safeland's interest in the Safestay Business

and

Notice of General Meeting

1. Introduction

The Company announces that WXYZ2, a wholly owned subsidiary of the Company, has entered into a conditional purchase agreement to acquire the Moorfield Funds' interest in the Safestay Business and that the Board is proposing that WXYZ2 be demerged from Safeland to Newco, a new company incorporated in order to facilitate that demerger.

The circular to be posted to Shareholders sets out the background to and reasons for the Demerger and the reasons why the Board considers the Demerger to be in the best interests of Shareholders as a whole.

The Demerger requires the approval of Shareholders, and therefore Shareholders are being asked to vote in favour of the Resolutions to be proposed at the General Meeting. Notice of the General Meeting is set out in the circular to be posted to Shareholders today.

The Directors recommend that Shareholders vote in favour of the Resolutions as they have irrevocably undertaken to do in respect of a total of 953,570 Safeland Ordinary Shares, representing in aggregate 5.66 per cent. of the Company's issued share capital. In addition, Safeland Holdings, which holds 10,854,386 Safeland Ordinary Shares, representing approximately 64.41 per cent. of the Company's issued share capital, has irrevocably undertaken to vote in favour of the Resolutions.

Accordingly, the Company has received irrevocable undertakings to vote in favour of the Resolutions in relation to a total of 11,807,956 Safeland Ordinary Shares, representing in aggregate 70.07 per cent. of the Company's issued share capital.

2. The Proposals

In April 2011, the Safestay Business, a new brand of contemporary hostels, was created as a joint venture between the Moorfield Funds and the Company (through its wholly owned subsidiary, WXYZ2).

The Safestay Property, at Elephant & Castle in London, is the first hostel which has been developed, and is operated, by the Safestay Business. It is designed to appeal to a broad range of guests, from solo travellers to families and larger groups.

Safeland, through its wholly owned subsidiary, WXYZ2, holds a 20 per cent. interest in the Safestay Business at the date of this announcement with the Moorfield Funds holding an 80 per cent. interest (subject to the effect of the Promote which is described below).

Completion of the Moorfield Acquisition and the Demerger is conditional upon the outcome of a number of matters which are described in the circular to Shareholders. The Directors have had detailed and satisfactory discussions with relevant third parties in relation to these matters; but at this stage it is not possible to say with any certainty that the relevant conditions will be satisfied.

Pursuant to the terms of the Acquisition Agreement, WXYZ2 has agreed to acquire the Moorfield Funds' entire interest in the Safestay Business for approximately £6.2 million in cash (subject to an adjustment if completion occurs after 14 March 2014). WXYZ2 has also agreed (pursuant to that agreement) to acquire Larry Lipman's interest in the Promote for £25,353 in cash. Following completion of the Acquisition Agreement, the Safestay Business will be wholly owned by WXYZ2. It is proposed that the consideration payable pursuant to the Acquisition Agreement will be funded using a combination of the net proceeds from the Newco Placing (further details of which are set out below) and bank financing. Further details of the Acquisition Agreement are contained in the circular to be posted to Shareholders today.

Upon completion of the Demerger, Shareholders will be issued with the Newco Demerger Shares so that Shareholders will also become shareholders in Newco. Immediately following the completion of the Demerger, the Newco Group will comprise of Newco and WXYZ2 (and its subsidiaries which form part of the Safestay Business).

Once the Newco Placing has been completed, the Newco Demerger Shares will constitute a minority of the issued share capital of Newco. However, since the terms of the Newco Placing have not yet been finalised, it is not possible to say at this stage precisely what proportion of the issued share capital the Newco Demerger Shares will then represent.

Accordingly, at Newco Admission, the proportion of the issued share capital of Newco which each Shareholder shall hold shall be smaller than the proportion of the issued share capital of Safeland which that same Shareholder shall have held on the Demerger Record Date. This reflects the fact that at Newco Admission, Newco will have undertaken the Newco Placing and WXYZ2 will hold the entire interest in the Safestay Business (whereas as at the date of the circular WXYZ2 has a 20 per cent interest in the Safestay Business, excluding the Promote).

If the various transactions described in the circular are completed, the Newco Ordinary Shares will be admitted to trading on AIM which will allow Newco and the Safestay Business to pursue their strategic objectives and Shareholders will benefit from the governance and transparency of an AIM quoted company and the liquidity that AIM provides. Following its publication, a copy of the AIM admission document relating to Newco and Newco Admission will be sent to all Shareholders and will be available on Safeland's website, www.safeland.co.uk.

Following completion of the Demerger, the Safeland Ordinary Shares will continue to be admitted to and traded on AIM.

In order to provide part of the consideration payable pursuant to the Acquisition Agreement and to provide additional working capital for the demerged Safestay Business, it is envisaged that Newco will raise up to approximately £7.0 million (before commission and expenses) by way of the Newco Placing of new Newco Ordinary Shares. The placing price for each Newco Ordinary Share and the number of Newco Ordinary Shares to be issued to placees pursuant to the Newco Placing will be determined by the directors of Newco in due course, assuming that the Newco Placing can be successfully implemented. The remaining funds required to complete the Acquisition Agreement are expected to be provided by way of bank finance.

3. The Promote

When the joint venture with the Moorfield Funds was established in April 2011, it was agreed by Safeland and the Moorfield Funds that WXYZ2 and Larry Lipman (who is a director of both Safeland and Newco) would be entitled to the Promote, being a priority share of the profits of the joint venture (to be shared in the proportion 83:17 by WXYZ2 and Larry Lipman respectively) if the cash returns paid to the Moorfield Funds and WXYZ2 exceeded certain levels.

The price to be paid to the Moorfield Funds for their interest in the Safestay Business has been calculated after taking into account the value of the Promote; and in order to enable WXYZ2 to own the Safestay Business outright it has also been agreed among the parties to the Acquisition Agreement that Larry Lipman will sell his right to the Promote to WXYZ2 conditional upon the completion of the acquisition of the interests of the Moorfield Funds. The price to be paid to him will be the amount to which he would be entitled under the Promote if the Moorfield Funds had received a distribution from the joint venture equal to the price to be paid for its interest by WXYZ2 and WXYZ2 had received a pro rata distribution. On this basis, the price to be paid to Larry Lipman by WXYZ2 in return for his share of the Promote will be £25,353 in cash.

4. Information on the Safestay Business

Hostels provide relatively inexpensive overnight accommodation in beds which are normally placed in dormitories. Hostels typically appeal to young travellers, for example, those who may be on school educational trips or students, or who might be on a budget. The Directors believe that there is a need for dormitory style accommodation which is of a better quality than that generally offered in traditional hostels and at more attractive rates than budget hotels. The Safestay Business is aimed at this market, which is known as the boutique hostel market.

The first Safestay hostel was opened in July 2012 in Elephant & Castle, Central London. The hostel has 413 beds in rooms ranging from 2 bed private rooms to 8 bed dormitories. Beds are sold at a rate between £12 and £72 per night, with the average rate being approximately £20 per night. Bookings are typically made online or through European group tour operators. During its first full calendar year of trading, the hostel operated in line with management's expectations

As at 30 September 2013, the Safeland Group's 20 per cent. investment in the Safestay Business was valued by the Safeland Group in its books at £1.5 million (excluding the Promote).

On 21 January 2014, Safeland and WXYZ2 entered into the Loan Capitalisation Agreement pursuant to which in full and final satisfaction of WXYZ2's liabilities to Safeland pursuant to the WXYZ2 Loan, WXYZ2 issued to Safeland one WXYZ2 Share credited as fully paid. The effect of the Loan Capitalisation Agreement was the extinguishment of the WXYZ2 Loan and an increase in the net asset value of WXYZ2 (equal to the value of the WXYZ2 Loan) in advance of the Demerger.

5. Background to and reasons for the Demerger

The Safeland Group was founded in 1986 by Raymond Lipman and his three sons, Larry, Errol and Steven.

In addition to carrying on its own traditional activities in relation to property, Safeland has successfully demerged a number of companies in the past. These included Hercules Property Services Plc, a property services provider, which was demerged in 1996, Safestore plc, the self storage business which was demerged in 1998 and Bizspace plc, the specialty provider of managed workspace in the UK which was demerged in 2000. Each of these businesses was demerged while in its infancy and grew significantly after it was demerged by Safeland.

The Directors believe that the Demerger will increase the potential of the Safestay Business enabling it, as an independent group, to exploit more fully the opportunities available to it in the hostel chain sector.

Following the Demerger, the intention is to create a branded hostel group which provides safe, stylish and affordable accommodation and to expand the Safestay Business, by a combination of the development and acquisition of hostels.

6. Information on Newco

Newco was incorporated on 29 January 2014 in order to facilitate the demerger of WXYZ2 from the Safeland Group. Immediately following completion of the Demerger, the Newco Group will comprise of Newco, WXYZ2 and WXYZ2's subsidiaries and subsidiary undertakings (including the Safestay Limited Partnership). In order to complete the transactions described in the circular, the Newco Ordinary Shares will be admitted to AIM.

7. Summary of the Demerger and the Reduction of Capital

The Demerger is conditional, inter alia, on:

(a) the approval by Shareholders of the Resolutions;

(b) the confirmation of the Reduction of Capital by the Court;

(c) the Acquisition Agreement becoming unconditional in all respects;

(d) arrangements, satisfactory to the Board, being made in relation to the Newco Placing;

(e) Newco Admission; and

(f) no other events or developments shall have occurred or shall exist that, in the judgment of the Board, in its sole and absolute discretion, would make it inadvisable to effect the Demerger.

In order to implement the Demerger, it will first be necessary for the Reduction of Capital to become effective, so that the share premium account and capital redemption reserve, which amount to £6.2 million in aggregate, will be cancelled. The effect of the Reduction of Capital will be to eliminate the deficit on the Company's profit and loss account and to create distributable reserves in the aggregate amount of £3.2 million which will enable the Company to proceed with the Demerger and have a balance of distributable reserves which can be utilised in the future.

The Demerger will be effected by Safeland declaring a special dividend equal to the market value of the WXYZ2 Shares. The Demerger Dividend will be satisfied, in specie, by the allotment and issue of the Newco Demerger Shares in consideration for the transfer by Safeland to Newco of the WXYZ2 Shares.

The Newco Demerger Shares will (together) have a market value equal to the market value of the WXYZ2 Shares and they will be issued to Shareholders who are registered on Safeland's register of members at the Demerger Record Time.

The Directors believe that the placing price for Newco Ordinary Shares which placees are willing to pay pursuant to the Newco Placing is the best indicator of the market value of the Newco Ordinary Shares (and, indirectly, the market value of WXYZ2). Accordingly, the Directors propose to calculate the number of Newco Demerger Shares to be issued on the basis of the placing price pursuant to the Newco Placing.

Each Shareholder shall be allotted a proportion of the Newco Demerger Shares that is as nearly as practicable equal to the proportion in nominal value of the Safeland Ordinary Shares held by him. Fractions of a Newco Ordinary Share will not be issued.

Following the Demerger, Shareholders will continue to hold their existing Safeland Ordinary Shares.

On 29 January 2014, Safeland subscribed for 50,000 Newco Preference Shares for an aggregate subscription price of £50,000. The Newco Preference Shares do not have voting rights and are entitled to a fixed cumulative preferential dividend at an annual rate of 2 per cent. per annum on the nominal amount of each Newco Preference Share. The fixed cumulative preferential dividend shall only accrue from the first anniversary of the date of issue of the Newco Preference Shares. The Newco Preference Shares may be redeemed, at any time, at the option of Newco for an amount equal to the amount paid up on the Newco Preference Shares (together with the amount of any accrued but unpaid dividends on the Newco Preference Shares) by Newco giving notice of the redemption to the holders of Newco Preference Shares. It is expected that the Newco Preference Shares will be redeemed on or immediately following Newco Admission out of the proceeds of the Newco Placing. Accordingly, as the fixed cumulative preferential dividend shall only accrue from the first anniversary of the date of issue of the Newco Preference Shares, it is expected that no dividend will actually become payable on the Newco Preference Shares.

Further details of the Demerger are set out in the circular to be posted to Shareholders today.

The Directors believe that the Demerger is likely to become effective during March 2014. However, as the Demerger is subject to a number of conditions as detailed above, such date is only indicative and may change.

If the Demerger does not complete during March 2014, then the Demerger might still complete at a subsequent date, although it should be noted that the Acquisition Agreement has a long stop date of 14 June 2014. If completion of the Acquisition Agreement occurs after 14 March 2014 the total consideration payable to the Moorfield Funds will be increased at the rate of £13,000 for every week between 14 March 2014 and completion of the Acquisition Agreement. The increase in consideration may have an effect on the market value of the WXYZ2 Shares (as determined by the Directors) and consequently on the value of the Newco Demerger Shares to be issued pursuant to the Demerger Dividend.

Although it is currently the Directors' intention that the Demerger should be concluded, they may decide not to proceed if they subsequently consider that it would not be in the best interests of Shareholders to do so or if Newco is unable to raise sufficient funds to complete the Acquisition Agreement.

In addition, the Acquisition Agreement will be terminated if both Safeland and the Moorfield Funds decide to accept a third party offer for the Safestay Business which each of them thinks is a preferable alternative to the Acquisition Agreement.

8. Current trading and prospects - Safeland and Newco

On 10 December 2013, Safeland published its unaudited interim results for the six months ended 30 September 2013.

The Safeland Group's profit for the six months ended 30 September 2013 was £215,000 (2012: £104,000). Safeland also reported that the Safeland Group had completed the development work on three projects since 31 March 2013 and that these properties were being marketed. Safeland stated that:

"The outlook remains cautiously optimistic with a number of positive signals of the continuing recovery in the London property market. The Land Registry has reported that in the year to 31 October 2013 the average property value in London has increased by 8.7% along with property sale volumes being up year on year. With Safeland plc well placed to take advantage of this growth, the Board is confident of the growth in value of its property portfolio and future operating profits of the Group."

Safeland also reported that the Safestay Business continued to gain momentum. In the six months ended 30 September 2013, the Safestay Business achieved average occupancy of beds available of 79.2 per cent. (2012: 50.2 per cent.) and had secured a good level of reservations for 2014. It was reported that, as a result, the Safestay Business's hostel was making an operating profit in addition to revaluation gains on the underlying assets.

Newco is a company which was incorporated on 29 January 2014 and has not traded.

9. Financial effects of the Demerger

The Safeland Group holds a 20 per cent. interest in the Safestay Business, and such interest was valued by the Safeland Group at 30 September 2013 in its books at £1.5 million (excluding the Promote).

At completion of the Demerger, Safeland will transfer the WXYZ2 Shares to Newco in exchange for which Newco will issue the Newco Demerger Shares to Shareholders. The net assets of the Safeland Group will reduce by £1.5 million and it will no longer be entitled to a 20 per cent. share of the future profits generated by the Safestay Business.

10. Proposed arrangements between Safeland and Newco

The Safeland Group has a strong and experienced executive management team.

The names of the directors of Safeland are set out in the circular to be posted to Shareholders today.

The directors of Newco are Larry Lipman, Managing Director of Safeland, and Colin Stone, Finance Director of Safeland. It is also expected that in due course an independent non-executive director will be appointed to the Newco Board. However, such appointment has not yet been confirmed.

It is proposed that at completion of the Demerger, Larry Lipman and Colin Stone will enter into service contracts with Newco for an initial term of one year during which they will be paid a nominal amount of remuneration by Newco. It is envisaged that at the end of the one year term Larry Lipman and Colin Stone will renew their service contracts with Newco on terms (including remuneration) to be agreed between them and Newco.

It is also envisaged that in recognition of the support which has been provided to date by Safeland to the Safestay Business and in the light of Safeland agreeing to allow Larry Lipman and Colin Stone to work for Newco, the Directors will seek to negotiate, as part of the arrangements for Newco Admission, an option for Safeland to subscribe for new Newco Ordinary Shares at the Newco Placing price. It is also expected that Larry Lipman and Colin Stone will be granted options over Newco Ordinary Shares. It is not possible at this stage to say if any of these options will be granted or what the terms of the options will be.

The Board (excluding Larry Lipman and Colin Stone) does not consider that Larry Lipman's and Colin Stone's directorships of the Newco Group will conflict with their interests as directors of the Safeland Group. In particular, it is expected that any opportunity which Larry Lipman or Colin Stone obtains to purchase property in the course of their duties as directors of the Newco Group would not be one which the Safeland Group would wish to pursue.

11. General Meeting

Shareholders will find set out at the end of the circular a Notice of General Meeting of the Company to be held at the offices of Dechert LLP, 160 Queen Victoria Street, London EC4V 4QQ on 20 February 2014 at 10.00 a.m. at which the Resolutions will be proposed.

The resolutions that are to be proposed at the General Meeting, both of which will be proposed as special resolutions, are:

(1) Approve the Reduction of Capital

Resolution 1 is to approve the cancellation of share premium account and capital redemption reserve of the Company.

(2) Approve the Demerger

Resolution 2 is to approve (i) the Acquisition Agreement (ii) the Demerger for the purposes of Rule 15 of the AIM Rules and (iii) conditional on the passing of Resolution 1 above and the cancellation of share premium account and capital redemption reserve of the Company being confirmed by the Court the declaration of the Demerger Dividend to give effect to the Demerger (such dividend to be satisfied, in specie, by the transfer of the WXYZ2 Shares to Newco in consideration for the allotment and issue by Newco of such number of Newco Ordinary Share for Safeland Ordinary Share held by Shareholders as is determined by the Board (save that fractions of a Newco Ordinary Share will not be issued) at the Demerger Record Time).

The majority required to pass each of the Resolutions is not less than 75 per cent. of the votes cast.

Shareholders should read the Notice of General Meeting at the end of the circular for the full text of the Resolutions and for further details about the General Meeting.

The attention of Shareholders is also drawn to the irrevocable undertakings given by the Directors and connected parties to the Company as set out in paragraph 12 below and in the paragraph entitled "Recommendation" below.

12. Irrevocable undertakings to vote in favour of the Resolutions

The Directors have irrevocably undertaken to vote in favour of the Resolutions in respect of a total of 953,570 Safeland Ordinary Shares, representing in aggregate 5.66 per cent. of the Company's issued share capital. In addition, Safeland Holdings, which holds 10,854,386 Safeland Ordinary Shares, representing approximately 64.41 per cent. of the Company's issued share capital, has irrevocably undertaken to vote in favour of the Resolutions.

Accordingly, the Company has received irrevocable undertakings to vote in favour of the Resolutions in relation to a total of 11,807,956 Safeland Ordinary Shares, representing in aggregate 70.07 per cent. of the Company's issued share capital.

13. Recommendation

The Directors consider that the Resolutions are in the best interests of the Company and would promote the success of the Company for the benefit of its Shareholders as a whole.

Accordingly, the Directors recommend that Shareholders vote in favour of the Resolutions, as each Director has undertaken to do in respect of his own beneficial shareholdings, amounting in aggregate to 953,570 Ordinary Shares, representing approximately 5.66 per cent. of the Company's issued share capital. In addition, Safeland Holdings, which holds 10,854,386 Safeland Ordinary Shares, representing approximately 64.41 per cent. of the Company's issued share capital, has irrevocably undertaken to vote in favour of the Resolutions.

Therefore, the Company has received irrevocable undertakings to vote in favour of the Resolutions in relation to a total of 11,807,956 Safeland Ordinary Shares, representing in aggregate 70.07 per cent. of the Company's issued share capital.

Yours faithfully

Raymond LipmanChairman

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

(1) Safeland will give notice of any change(s) to these times and dates by issuing an announcement through a Regulatory Information Service.

(2) All references in this timetable to times are to London time unless otherwise stated.

* These dates are indicative only and will depend, among other things, upon the dates on which the Court sanctions the Reduction of Capital and the Acquisition Agreement becomes unconditional.