Lennox Holdings PLC
Notice of Extraordinary General Meeting
to approve Rescue Funding and adoption of a Share Option Scheme
Lennox Holdings PLC ("Lennox" or the "Company") has today posted an EGM
circular to Shareholders seeking approval for the Rescue Funding as announced
on 24 April 2006.
Introduction
To effect the Rescue Funding, the Company needs to undertake a capital
restructuring, details of which are set out below. In addition the Board is
seeking Shareholder approval for the adoption of the Share Option Scheme, as
detailed in the EGM Circular.
The Refinancing Resolutions include special resolutions which require a 75 per
cent. majority of those Shareholders present in person or by proxy at the EGM
to vote in favour. The Company has secured irrevocables to vote in favour of
the Refinancing Resolutions from Shareholders holding 63.5 per cent of the
Company's ordinary share capital.
If the Refinancing Resolutions are not approved, then the existing Loan Stock
holders would be able to seek repayment of the first tranche of rescue funding
at 15p for each 10p of Loan Stock invested. This would require a repayment of �
1.125 million. In these circumstances it is the Directors' opinion that the
Company would not be solvent and would have to cease to trade. Accordingly, in
these circumstances, it is likely that receivers would have to be appointed.
Background
The core business of Lennox is European Supplies, which was established in 1992
and floated on AIM through a reverse takeover by Lennox in December 2004.
In October 2005 the Company became aware of a possible material warranty claim
relating to the acquisition of European Supplies. This led the Board to request
a suspension in trading in the Company's shares.
Following an extensive internal investigation, the Directors identified an
amount of approximately Euro1.7 million (excluding penalties and interest), which
relates to a cumulative under-declaration of Spanish corporation tax in the
European Supplies businesses spread over several years prior to the acquisition
by Lennox of those companies.
The under-declaration was not disclosed to Lennox at the time of acquisition.
It is the opinion of your Directors, after taking legal advice, that this
represented a prima facie breach of the warranties given by the vendors under
the terms of the Sale and Purchase Agreements.
In full settlement of all warranty claims brought by the Company, the European
Supplies vendors have irrevocably but conditionally agreed to surrender a
proportion of the Ordinary Shares they received when Lennox acquired European
Supplies, whilst Peter Voller and Farm Holdings (Spain) Limited have agreed,
without conditions, to surrender a proportion of Ordinary Shares owned by them.
The aggregate number of shares to be so surrendered is 5,704,108 and represents
some 21.4 per cent of the Company's current issued share capital. Of these
shares surrendered, it is proposed that 3,204,108 are cancelled and 2,500,000
are retained by the Company.
Background to and reasons for the Rescue Funding
Investigating the warranty claim placed a significant burden on the Company's
management team and its other resources. This had adverse effects on
practically all aspects of the business, including sales and gross margins,
credit control and cash flow. As a consequence both sales and profitability
suffered, leading the Company to a position where it was in urgent need of
additional working capital as well as funds to meet the under-declared Spanish
tax liability.
Principal Terms of the Rescue Funding
The Company, with its brokers, has conditionally raised �2.94 million for the
business, as announced on 24 April 2006. Of this, �995,000, being the amount
raised under the First Placing, was paid to the Company, net of certain
expenses, on 3 May 2006. The amount to be raised under the Second Placing of �
1.945m is dependent on Shareholder approval of the Refinancing Resolutions..
The First Placing comprised �750,000 of Loan Stock and 2,450,000 Ordinary
Shares issued at 10 pence per share. The Second Placing comprises �1.945m of
Loan Stock.
In the event that the Refinancing Resolutions are not approved by Shareholders,
then the proceeds of the Second Placing will not be available to the Company.
Holders of Loan Stock issued under the First Placing will be entitled to
request repayment of the �750,000 already paid together with a premium of �
375,000.
Full details of the Loan Stock are given in the EGM Circular and the principal
terms are as follows:
The Loan Stock is secured by a debenture over the assets of the Company. In
addition it is intended that it will be secured by a proposed charge, to be
registered as soon as is practicable, over the Group's freehold property in
Benissa, Spain. Such charge will rank after a mortgage of Euro1.5 million and any
charge to the Spanish tax authorities in relation to the tax liability referred
to above. The Loan Stock carries a coupon of 8% per annum commencing in May
2007, payable quarterly in arrears.
The Loan Stock is convertible at the holder's option at any time until 31 July
2011 at the rate of one New Ordinary Share for every 10p nominal of Stock. In
addition, subscribers of Stock will receive one Warrant for every 10p nominal
of Stock subscribed, which will, conditionally on Shareholder approval of the
Capital Reorganisation, entitle the holder to subscribe for one New Ordinary
Share at a price of 1p per share for each Warrant held, at any time in the
three years commencing 1 August 2006.
Upon any of the Stock becoming redeemable, it will be redeemable at the rate of
15p per 10p nominal of Stock then held. The Stock is redeemable on the earlier
of liquidation of the Company or on 31 July 2011 if not previously converted.
The subscribers of Placing Shares pursuant to the First Placing will also
receive one Warrant for each share subscribed, which will, conditionally on
Shareholder approval of the Capital Reorganisation, entitle the holder to
subscribe for one New Ordinary Share at a price of 1p per share for each
Warrant held, at any time in the three years commencing 1 August 2006.
Application will not be made for the Loan Stock or the Warrants to be admitted
to trading on AIM.
Use of Funds
The Rescue Funding has conditionally raised �2.74m, net of expenses. This will
be used to provide additional working capital and to pay the tax liability as
it falls due.
The under-declaration of Spanish corporation tax totals some Euro1.7m (�1.2m) and
has been reported to the Spanish Tax Authority. Agreement has yet to be reached
although management expect to settle the liability on the basis of instalments,
spread over four to five years. Including penalties and interest, the Directors
estimate that the total liability is likely to be Euro2.2m (�1.5m).
Working capital
In the opinion of the Directors and Proposed Directors, having made due and
careful enquiry, taking into account the bank and other facilities available to
the Group and the net proceeds of the Rescue Funding, the working capital
available to the Group will be sufficient for its present requirements, that is
for at least the next 12 months from the date of this document.
Strategy
The fundamental strategy of the business has not changed. The present
management team is looking to build on the two platforms of the business, the
ex-patriate/tourist market and the Spanish domestic market.
With the investigation of the warranty claim now largely complete the
management team is seeking to focus on operational matters and rebuild
shareholder value.
Management has already significantly strengthened the Company's financial and
reporting systems, opened a leased warehouse in Mallorca and introduced a new
range of own label products, early indications of which are encouraging. The
Company's relationships with its major trading partners are strong and
unprofitable business relationships are being discontinued.
This has all been achieved against a backdrop of severe financial constraints
and managerial uncertainty.
Current trading
Despite the strong market position that the Company holds, trading has been
significantly constrained by lack of working capital. This will be addressed by
the Rescue Funding, which includes the proceeds of the Second Placing which are
expected to be received shortly. The Company continues to form distribution
alliances with food manufacturers looking to promote and distribute their
products to the Spanish market. The Board looks forward to building on the
opportunity available to the Company.
Management team
Current directors
Lennox currently has two directors, Ray Greenwood and Nigel Barton.
Ray Greenwood, Managing Director, has over 30 years of experience in the food
industry and has extensive business connections throughout the European food
sector. In 1983 he founded Riverside Holdings, a private company supplying
frozen poultry products to wholesale customers across Europe. He is resident in
Spain and became a Director of Lennox in July 2005.
Nigel Barton has been a Non-Executive Director since June 2005. He has a
background in commercial property in the UK and was formerly Logistics Director
of the Company.
Proposed Directors
Following approval of the Rescue Funding, Nigel Terry and Rolf Silver have
agreed to become directors of Lennox. Both have been instrumental in securing
the Rescue Funding and, with Ray Greenwood, form the heart of the current
management team.
Nigel Terry has over 30 years business experience within the food industry and
of the procurement, distribution and sales industries, including Brakes Food
Service and Fisher Foods Limited. He is currently on the boards of the
Harpenden Building Society, Pinguin Foods UK and Universal Salvage plc. Mr
Terry has been assisting the Company since October 2005 and has agreed to
become Executive Chairman.
Rolf Silver, ACCA, has been an accountant in private practice for over ten
years. He has worked as a financial consultant for the last eight years for
companies such as Computerland PLC and Experian Group Limited. Mr Silver, who
is based in Spain, has been working as financial controller of the Company
since July 2005 and has agreed to become Finance Director.
It is the Board's intention to appoint a further non-executive director in due
course and will consider further executive positions when appropriate for the
size of the business.
Principal terms of the Capital Reorganisation
UK company law prevents a company from issuing shares at a discount to their
nominal, or par, value. Accordingly, so as to facilitate the issue of shares at
1p per share pursuant to the exercise of the Warrants, it is necessary to
reduce the nominal value of the Company's Ordinary Shares from the present
level of 10p per share.
To give effect to this it is proposed that each Ordinary Share be sub-divided
into:
* One New Ordinary Share (with a nominal value of 1p); and
* Nine Deferred Shares (with a nominal value of 1p each).
* Of the 660,135,132 unissued Deferred Shares so created, it is proposed to
redesignate 100,000,000 of such Deferred Shares as New Ordinary Shares.
The rights attaching to the New Ordinary Shares would, save for the change in
nominal value, be identical in all respects to those of the Ordinary Shares.
The Deferred Shares would have no voting rights and would not carry any
entitlement to attend general meetings of the Company. They would carry only
the right to participate in any return of capital on a liquidation to the
extent of 1p per share but only after each New Ordinary Share has received in
aggregate capital repayments totalling �100,000 per share. The holders of
Deferred Shares would have no right to receive any dividend or other
distribution.
Accordingly, the Deferred Shares would, for all practical purposes, be
valueless and it is the Board's intention, at an appropriate time, to make
application to the High Court for the Deferred Shares to be cancelled.
Existing share certificates would continue to be valid for the New Ordinary
Shares arising from the Capital Reorganisation but no certificates would be
issued in respect of Deferred Shares.
Resolutions 1 and 2 in the attached notice of EGM are to give effect to the
proposed Capital Reorganisation. The Refinancing is conditional, inter alia, on
the passing of these resolutions.
Share Option Scheme
In recognition of the contribution made to date and to further incentivise
management and employees, it is proposed that the Company adopts an unapproved
share option scheme. Details of the proposed scheme are given in the EGM
Circular.
As part of the Refinancing, and conditional on it taking place, the management
team agreed to take a proportion of their salary as Management Loan Stock. Ray
Greenwood, Nigel Terry and Rolf Silver have agreed to sacrifice a third of
their salary for the period from 1 May 2006 to 1 September 2006. This totals
approximately �21,600 and will be converted into Management Loan Stock. The
terms of the Management Loan Stock are identical to those of the Loan Stock and
have Warrants attached on the same basis. It is proposed that the Share Option
Scheme be put in place to incentivise management and employees.
Extraordinary General Meeting
The EGM to be held at offices of JM Finn at 11am on 26 July 2006 and the
following resolutions will be proposed:
(a) a special resolution to approve the subdivision of Ordinary Shares into New
Ordinary Shares and Deferred Shares and the rights attaching to the Deferred
Shares;
(b) an ordinary resolution to redesignate 100,000,000 of the 660,135,132
unissued Deferred Shares created by the first resolution, as New Ordinary
Shares;
(c) an ordinary resolution to authorise the Directors to allot relevant
securities (as defined in section 80 of the Act);
(d) a special resolution to empower the Directors, pursuant to section 95(2) of
the Act, to issue New Ordinary Shares for cash on a non-pre-emptive basis
pursuant to conversion of the Loan Stock and the Management Loan Stock and
exercise of the Warrants;
(e) an ordinary resolution to approve the terms of the Share Option Scheme.
Recommendation
The Board unanimously recommends Shareholders to vote in favour of the
Resolutions, as it believes they are in the best interests of the Company and
Shareholders taken as a whole.
The Refinancing Resolutions include special resolutions which requires a 75 per
cent. majority of those Shareholders present in person or by proxy at the EGM
to vote in favour.
If the Refinancing Resolutions are not approved, then the existing Loan Stock
holders would be able to seek repayment of the first tranche of rescue funding
at 15p for each 10p of Loan Stock invested. This would require a repayment of �
1.125 million. In these circumstances it is the Directors' opinion that the
Company would not be solvent and would have to cease to trade. Accordingly, in
these circumstances, it is likely that receivers would have to be appointed.
Irrevocable Commitments
Irrevocable commitments have been received to vote in favour of the Refinancing
Resolutions from Shareholders beneficially owning 16,920,105 Ordinary Shares,
representing 63.5 per cent of the issued ordinary share capital.
30 June 2006
Enquiries:
Nexus Financial Ltd 020 7451 7068
Nicholas Nelson nicholas.nelson@nexusgroup.co.uk
KEY STATISTICS
Existing Ordinary Shares of 10p each in issue 26,651,652
New Ordinary Shares of 1p each in issue following the 26,651,652
Capital Reorganisation
New Ordinary shares to be cancelled (3,204,108)
New Ordinary Shares issued if Loan Stock converted 26,950,000
New Ordinary Shares issued if Management Loan Stock 216,000
Converted
Total Warrants in issue following the Capital 31,728,617
Reorganisation
New Ordinary Shares under Option 12,500,000
New Ordinary Shares in issue on a fully diluted basis 94,842,161
Deferred Shares of 1p each in issue following the 239,864,868
Capital Reorganisation
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Record date for Capital Reorganisation Friday, 14 July
2006
Latest time and date for receipt of forms of proxy 11am on Monday,
24 July 2006
Extraordinary General Meeting 11am on
Wednesday, 26
July 2006
Dealings commence in New Ordinary Shares 8 am on Thursday,
27 July 2006
The following definitions apply throughout this announcement, unless the
context otherwise requires:
"Act" the Companies Act 1985 (as amended)
"AIM" AIM, a market of the London Stock Exchange
"Articles" the articles of association of the Company
"Capital the proposed capital reorganisation of the share
Reorganisation" capital of the
Company whereby each Ordinary Share is split into one
New
Ordinary Share and nine Deferred Shares and 100,000,000
of the
unissued Deferred Shares so created are redesignated as
New
Ordinary Shares
"Deferred Shares" the deferred shares of 1p nominal value to be created
following
approval of their terms at the EGM and pursuant to the
proposed
Capital Reorganisation
"Directors" or Ray Greenwood and Nigel Barton
"the Board"
"EGM" the extraordinary general meeting of the Company to be
held at
the offices of JM Finn at 11am on 26 July 2006 to
consider the
Resolutions
"European European Supplies Group, comprising European Supplies
Supplies" S.L., Mediterranean Supplies S.L. and Milenio Foods
S.L.
"First Placing" the placing by JM Finn of �750,000 Loan Stock and the
Placing Shares, pursuant to the Placing Agreement
"Group" the Company and its subsidiary undertakings
"JM Finn" JM Finn & Co, the Company's broker
"JMF Warrants" the 1,845,950 warrants to subscribe for New Ordinary
Shares granted to JM Finn as described in paragraph 4
(c) of Part III of this document
"KBR Warrants" warrants to subscribe for 266,667 Ordinary Shares at
the flotation price of 45 pence were granted to Keith,
Bayley, Rogers and Co. Limited under the terms of a
placing agreement dated 8 December 2004
"Loan Stock" or the �2.695 million convertible redeemable secured loan
"Stock" stock with Warrants attached, of which �750,000 was
issued pursuant to the First Placing and �1.945 million
is to be issued pursuant to the Second Placing
"London London Stock Exchange plc
Stock Exchange"
"Management The �21,600 of convertible redeemable secured loan
stock with Warrants attached to be issued in lieu of �
Loan Stock" 21,600 of salary sacrificed in aggregate by Ray
Greenwood, Nigel Terry and Rolf Silver
"Management Loan the 216,000 warrants to subscribe for New Ordinary
Stock Warrants" Shares to be issued in relation to the Management Loan
Stock
"New Ordinary ordinary shares of 1p each in the capital of the
Shares" Company, following the Capital Reorganisation
"Ordinary Shares" ordinary shares of 10p each in the capital of the
Company as at the date of this document
"Placings" the First Placing and the Second Placing
"Placing the conditional agreement dated 27 April 2006 and made
Agreement" between (1) the Company (2) ARM (3) JM Finn and (4) the
Directors and Proposed Directors, relating to the
Placings, further details of which are set out in
paragraph 4 of Part III of the document
"Placing Shares" the 2,450,000 Ordinary Shares issued at 10p per
Ordinary Share pursuant to the First Placing
"Proposed Nigel Terry and Rolf Silver
Directors"
"Rescue Funding" the issue of the Loan Stock and the Placing Shares for
a total of
�2.94 million announced on 24 April 2006 of which the
issue of �1.945 million Loan Stock remains subject to
Shareholder approval
"Refinancing" the proposed Capital Reorganisation and Rescue Funding
"Refinancing Resolutions 1, 2, 3 and 4 as set out in the notice of
Resolutions" EGM
"Resolutions" the resolutions to be proposed at the EGM to approve
the
Refinancing and the Share Option Scheme
"Sale and the agreements dated 4 November 2004, under which
Purchase Lennox
Agreements" acquired the issued share capital of European Supplies
"Second Placing" the conditional placing by JM Finn of �1,945,000 Loan
Stock
"Shareholder" a holder of Ordinary Shares
"Unapproved the proposed Lennox unapproved employee share option
Scheme" or scheme,
"Share Option further details of which are set out in paragraph 3 of
Scheme" Part III of this document
"Warrants" the KBR Warrants, the JMF Warrants, the Management Loan
Stock Warrants and the 29,400,000 warrants to subscribe
for New Ordinary Shares at 1p per share, further
details of which are set out in paragraph 4 of Part III
of the document
END
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