RNS Number:5760R
Darwen Capital PLC
03 November 2003
FOR RELEASE 7.30 AM 03 NOVEMBER 2003
DARWEN CAPITAL PLC
("Darwen Capital" or "the Company")
SCOTT TOD DEVELOPMENTS LIMITED TO REVERSE INTO DARWEN CAPITAL
TEMPORARY SUSPENSION OF DEALINGS EXPECTED TO BE LIFTED AT 7.30 AM ON MONDAY,
3 NOVEMBER 2003
Main Proposals
* On 2 October 2003, Darwen Capital announced that it had acquired a 20%
shareholding in Scott Tod Developments Limited ("Scott Tod"), which distributes
and maintains automated teller machines and is also involved in the development
and manufacture of card vending machines and change machines, for #525,000 from
A Cohen & Co PLC.
* On 7 October 2003, Darwen Capital announced that it had agreed to
acquire the outstanding 80% of Scott Tod for:
o An initial consideration of 10 million new ordinary shares in Darwen
Capital
o A deferred consideration of up to 10 million new ordinary shares and
#500,000 in unsecured loan notes, dependent on audited results of the new group.
The maximum amount is payable on profits before tax and amortisation of goodwill
for the year ending 30 June 2005 reaching #1.75 million.
* Placing of 10,000,000 new ordinary shares at 25p per share
* Change of name to Scott Tod Plc
* Nicholas Tod and Lawrence Watts to be appointed Chief Executive and
Operations Director respectively
ATM Market
* Rapid growth
* 45,000 machines in the UK
* 200 million transactions a month
* 94 million LINK enabled cards in circulation
Scott Tod
* Over 900 ATMs deployed
* 1,500 Card Vending Machines
* Over 10,000 Change Machines installed
* Turnover #6.9 million (up 94% from 2002)**
* Profit before tax #158,000 (up 95% on 2002)**
* Market continues to grow
* Current trading encouraging
* 200 ATM machines planned to be deployed in next two months
* Orders for over 500 card vending machines
* Positive about future growth prospects.
**The above unaudited financial information has been extracted from the
accounting records of Scott Tod and compiled on the basis of the accounting
policies of Scott Tod to show, for illustrative purposes only, the turnover and
profit of Scott Tod on an annual basis for the two years ended 2002 and 2003 and
the split of turnover between Scott Tod's principal activities. (see page 2)
David Massie, the Chairman of Darwen Capital, commented:
"Scott Tod is an excellent business with tremendous growth prospects.
The flotation through reversing into Darwen will not only raise its profile in
the City but will enable it to grow more rapidly through carefully targeted
acquisitions.
Trading at Scott Tod is encouraging and, with plans for a further 200 ATM
machines to be deployed over the next two months, I am confident that the
outlook for the business is excellent."
For further information:
Darwen Capital plc
David Massie, Executive Chairman
020 7647 1700
Scott Tod
Nicholas Tod, Chief Executive
01873 811 634
Beattie Financial
Brian Coleman Smith / James Chandler
020 7398 3300
FINANCIAL SUMMARY FOR SCOTT TOD
The following unaudited financial information has been extracted from the
accounting records of Scott Tod and compiled on the basis of the accounting
policies of Scott Tod to show, for illustrative purposes only, the turnover and
profit of Scott Tod on an annual basis for the three years ended 30 June 2001,
2002 and 2003 and the split of turnover between Scott Tod's principal
activities.
Years ended 30 June 30 June 30 June
2001 2002 2003
#'000 #'000 #'000
Turnover:
Change and card machines 1,724 2,684 3,154
ATMs - 866 3,747
---------------------------- --------- --------- ---------
1,724 3,550 6,901
---------------------------- --------- --------- ---------
Operating profit 81 200 488
---------------------------- --------- --------- ---------
Profit on ordinary activities before taxation 15 81 158
---------------------------- --------- --------- ---------
During the year ended 30 June 2003, costs of #110,000 were incurred in
connection with a proposed sale of Scott Tod. The transaction did not proceed
and the costs are regarded as non-recurring.
A CIRCULAR CONTAINING FULL DETAILS OF THE PROPOSED ACQUISITION AND OTHER MATTERS
HAS BEEN POSTED TO SHAREHOLDERS AND ACCORDINGLY THE COMPANY HAS REQUESTED THAT
THE TEMPORARY SUSPENSION OF DEALINGS ON AIM BE LIFTED WITH EFFECT FROM 8.00AM ON
MONDAY, 3 NOVEMBER 2003. COPIES OF THE CIRCULAR TO SHAREHOLDERS ARE AVAILABLE
FROM KEITH, BAYLEY, ROGERS & CO LIMITED, SOPHIA HOUSE, 76/80 CITY ROAD, LONDON
EC1Y 2EQ DURING NORMAL BUSINESS HOURS ON ANY WEEK DAY UP TO AND INCLUDING A
PERIOD OF ONE MONTH FROM THE DATE OF ADMISSION TO TRADING ON AIM OF THE ENLARGED
ISSUED SHARE CAPITAL OF THE COMPANY WHICH IS EXPECTED TO TAKE PLACE AT 8.00AM ON
27 NOVEMBER 2003.
FOR RELEASE 7.30 AM 3 NOVEMBER 2003
DARWEN CAPITAL PLC
("Darwen Capital" or "the Company")
PROPOSED ACQUISITION OF SCOTT TOD DEVELOPMENTS LIMITED
PLACING OF 10,000,000 ORDINARY SHARES AT 25P PER SHARE
ADMISSION OF THE ENLARGED SHARE CAPITAL TO TRADING ON AIM
PROPOSED CHANGE OF NAME TO SCOTT TOD PLC
PROPOSED LONG TERM INCENTIVE PLAN
1. Introduction
On 2 October 2003, the Board announced that the Company had conditionally agreed
to acquire 20 per cent. of the issued ordinary share capital of Scott Tod
Developments Limited from Cohen and was at an advanced stage of negotiations
with the remaining ordinary shareholders of Scott Tod to acquire from them the
remaining 80 per cent. of Scott Tod's issued ordinary shares.
The agreement with Cohen was completed and the purchase consideration of
#525,000 in cash was paid to Cohen on 6 October 2003.
The Company entered into an agreement with Nicholas Tod, Harriet Tod and
Lawrence Watts (the "Vendors") on 3 October 2003. The purchase consideration in
respect of the 160 ordinary shares in Scott Tod will be satisfied by the issue,
credited as fully paid, of 10,000,000 new Ordinary Shares and, depending upon
the audited results of the new group for the financial year ending 30 June 2005,
the Vendors will be entitled to receive deferred consideration comprising the
issue of up to a further 10,000,000 new Ordinary Shares and #500,000 nominal
amount of unsecured loan notes.
A circular explaining the background to and reasons for the Acquisition and
providing information in respect of Scott Tod, the proposed placing of
10,000,000 new Ordinary Shares at 25p per share (the "Placing") and a proposed
long term incentive plan for Massie & Co. (the "Massie LTIP") has been sent to
shareholders and explains why the Board considers that the proposals are in the
best interests of the Company and recommends that shareholders vote in favour of
resolutions to be proposed at an EGM.
It will also be proposed to shareholders at the EGM that, conditional upon
completion of the acquisition of Scott Tod, Darwen Capital changes its name to
"Scott Tod Plc".
Following completion, David Massie will continue as Chairman but in a
non-executive capacity. Nicholas Tod and Lawrence Watts (the "Proposed
Directors"), two of the Vendors, will be appointed Chief Executive and
Operations Director respectively of the New Group. William Wanner and Jimmy
Mills will resign as Directors at completion. Peter Seabrook will continue to
serve as a Non-Executive Director.
2. Background
Darwen Capital was admitted to AIM in November 2002, with the stated prime
objective to select investments having the potential to show a good return to
the Company's shareholders. The Directors believe that the proposals will meet
this objective, albeit through a different approach to that initially
considered. The Directors believe that the acquisition of Scott Tod represents
an excellent opportunity for the Company to enter an exciting sector and give
Darwen Capital shareholders a share in an expanding business in a growing
market.
Darwen Capital was incorporated on 1 October 2002 and having changed its
accounting reference date to 30 June in each year, completed its first statutory
financial period on 30 June 2003.
3. Information on Scott Tod
Scott Tod was founded in 1978 by Chris Scott and Roger Tod, when its core
business was the development, manufacture and operation of change machines. In
1997, Nicholas Tod (Roger Tod's son) purchased Scott Tod and instigated the
diversification of the business into the development and manufacture of card
vending machines and the operation of banking systems, including ATMs.
In January 2001, Scott Tod entered into an agreement with Triton Systems Inc
("Triton") and became a distributor of Triton ATMs in the UK, thereby adding a
third operation to the business. While the distribution and maintenance of ATMs,
and the development and manufacture of card vending machines are the key focus
for expansion of Scott Tod, each of its three operations referred to above,
coupled with the service and maintenance team and the research & development
department are core to the business and are described in more detail below.
Banking Systems
Scott Tod is one of ten independent ATM deployers in the UK and holds one of six
Triton product distribution agreements in the UK. The latter gives Scott Tod
access to the full Triton ATM product range. Triton is the largest provider of
off-banking premises ATMs and ATM management software in North America and has
more than 83,000 installations in 17 countries worldwide. Scott Tod's ATMs are
all free-standing and are situated indoors, typically in pubs, leisure and
retail outlets. Scott Tod currently has an estate of over 900 ATMs in operation,
with revenue generated from a transaction fee of, on average, of #1.43 per
withdrawal and approximately 19p for all other transactions effected on any ATM
owned or operated by Scott Tod. All transaction fees are paid to Scott Tod's
account at the Bank of England on the next banking day.
Scott Tod's customers may choose from two types of ATM service offerings:
Fully Managed - where Scott Tod retains ownership of the ATM, maintains the cash
float within the machine and services it. The withdrawal fee within this type of
ATM is currently set at #1.50 per transaction. Scott Tod has facilities with
National Westminster Bank plc ("NatWest") to provide Scott Tod with up to
#5,000,000 of bank notes for the operation of its Fully Managed ATMs. In order
to fill the Fully Managed ATMs, Scott Tod has a contract with Brink's Limited
("Brink's") which acts as its cash in transit carrier. Brink's is responsible
for collecting the bank notes from a NatWest cash centre for distribution to
specific ATMs, as directed by Scott Tod. However, Scott Tod is currently
developing its own cash in transit business and expects a pilot of this to
become operational in the next two months; or
Merchant refill - where the merchant may either buy, or rent, the ATM from Scott
Tod, and, in either case, is responsible for maintaining the cash float in the
machine. The withdrawal fee for these ATMs is agreed between Scott Tod and the
merchant and for the quarter ended 30 September 2003 averaged #1.39 per
transaction. Merchants are typically tenanted pub landlords and retailers.
Key ATM customers include Scottish & Newcastle plc, Enterprise Inns PLC,
Wolverhampton & Dudley Breweries PLC, Six Continents PLC, The Laurel Pub Company
Limited, Megabowl Limited and Tussauds Group.
Under both above options, Scott Tod is contracted to maintain, service and,
whenever necessary, reconfigure the ATMs. All of Scott Tod's field service
engineers have attended training courses run by Triton on the installation,
configuration, servicing and maintenance of its ATMs. Scott Tod also operates
and staffs its own helpline, 24 hours a day, seven days a week.
In April 2001, Scott Tod became a full member of LINK, the ATM network operated
by LINK Interchange Network Limited. This enables Scott Tod to process all
transactions through its estate of ATMs, both Fully Managed and Merchant Refill,
via the LINK Network and to have them processed in real time with the card
issuer to authorise the transaction. At the same time, Scott Tod signed an
agreement with ATMOS, a division of LINK Interchange Network Limited, which
provides a routing service or "switch" for all transactions on the LINK Network.
In common with all other full LINK members, Scott Tod has set up an account with
the Bank of England for settlement of the cash withdrawn and commissions earned
from their estate of ATMs via the LINK network.
The ATM market
LINK is the UK's only shared and branded ATM network and, with connections to
ATMs deployed by its 50 members, it offers access to approximately 44,000 ATMs
within the UK. LINK undertakes settlement on almost 200,000,000 ATM transactions
each month and recently handled over 9,000,000 transactions in a single day.
There are more than 94,000,000 LINK-enabled cards in circulation. The 50 members
of LINK comprise 37 financial institutions and 13 non-financial institutions,
including Scott Tod and other independent ATM deployers.
According to the Association of Payment Clearing Services ("APACS"), at the end
of September 2003 there were over 45,000 ATMs deployed in the UK, representing
an annualised growth rate of approximately 13.6 per cent. from the 24,574 ATMs
in the UK as at 31 December 1998. This growth has been driven by the deployment
of both ATMs owned by, but not located at, banks or building societies and ATMs
operated by independent ATM deployers. Figures from APACS show that over one
third of the ATMs deployed in the UK are now situated at non-bank locations.
APACS considers that underlying demographic trends, such as a greater preference
amongst younger customers to use cash machines, will lead to continued growth in
the use of ATMs.
The Proposed Directors believe that independent ATM deployers, such as Scott
Tod, will lead the continuing expansion of the ATM market, which they believe
will grow by between 10,000 and 15,000 extra ATMs over the next two years.
Barriers to Entry
The Proposed Directors consider the following to be the most significant
barriers to any potential new entrants to the banking systems or ATM market:
* full membership of LINK and the satisfaction of the
following strict criteria necessary to achieve it:-
* the opening and maintenance of the settlement account with
the Bank of England, referred to above;
* accreditation controls laid down by LINK; and
* adherence to continuous performance, technical and security
standards set by LINK;
* the requisite capital investment to build up and maintain
an estate of ATMs and the infrastructure to operate it;
* the facility agreement with a bank to supply the vault cash
or bank notes for the Fully Managed ATMs; and
* access to the potential sites or suitable customers who
have the appropriate locations for siting ATMs
The Proposed Directors believe that a potential new market entrant could
conceivably overcome the first three of the above. However, when taken in their
entirety and combined with Scott Tod's trading history in related "cash
handling" markets, the Proposed Directors consider these would make it very
difficult for a new entrant to achieve any significant critical mass without
disproportionate capital expenditure and time involvement. Furthermore, the
Proposed Directors consider that to obtain full LINK membership alone would take
a minimum of six months. The Proposed Directors are aware of only three new full
LINK memberships which have been granted since April 2001, including a card
issuer and a customer service bureau, neither of which are operators of ATMs.
The Proposed Directors believe that Scott Tod has been particularly successful
in cross-selling ATMs to its existing customers as a result of its strong
reputation, primarily in the leisure industry, which it has built up through its
long established change machine business.
Competition
The Proposed Directors perceive the competition in the UK ATM market to
comprise:
* high street banks, building societies, other financial
institutions and operators of "hole in the wall" ATMs, including supermarket
chains; and
* the other independent ATM deployers being Hanco ATM Systems
Limited, Moneybox Corporation Limited, TRM Corporation, Bank Machine Limited,
InfoCash Limited, Cardpoint plc, INKAS Financial Corp. Limited, OmniCash Limited
and the Travelex Group.
Given the significant barriers to entry detailed above and the length of Scott
Tod's trading record in related "cash handling" markets, the Proposed Directors
believe that this presents Scott Tod with a competitive advantage.
Card Vending Machines
Scott Tod develops and manufactures its own range of card vending machines.
These are able to vend all types of cards, from pre-paid mobile phone top up
cards to pre-valued payment cards for use on land line calls, bill payment or
simple business or scratch cards. There are approximately 1,500 Scott Tod card
vending machines in operation, of which 1,200 are installed in approximately 120
hospitals in the UK and the Netherlands, with orders currently outstanding for
over 500 further machines. Purchasers of Scott Tod card vending machines may
choose to enter into an ongoing operating contract with Scott Tod for the
service and maintenance of its machines.
The main area of growth for this product in the UK is, and has recently been,
the public health sector. Following the enacted NHS Plan, the Government has
instructed the NHS that all 440 of its major trust hospitals must be committed
to a programme of fitting a bedside television and telephone system by 31
December 2005. This system allows patients to pre-purchase units on a card which
can then be used to feed a meter, linked to the bedside television and
telephone. The key rationale for installing this system is to prevent petty
theft and pilfering within the hospitals and to increase service to the patient.
Scott Tod, which supplies the card vending machines to allow the patient to
purchase a card for use with the system, has been active in this market for the
last six years and is now a key supplier to all seven of the companies licensed
to supply the complete system to the NHS trusts. To date, Scott Tod has either
supplied, or has orders to supply, card vending machines to over one third of
the major NHS trust hospitals.
Change Machines
Scott Tod develops and manufactures its own range of change machines,
predominantly for the leisure industry, including free-standing and wall-mounted
machines which can give back change in either coins, tokens or tickets from an
input of coins, notes or both. Since it was founded in 1978, the Proposed
Directors believe that Scott Tod has installed over 10,000 change machines. Its
range of 20 machines can be found in pubs, amusement arcades, bingo halls, car
parks, licensed betting offices, theme parks and bowling alleys. Scott Tod has
built a strong franchise within the leisure industry with a reputation for
manufacturing robust products that are both reliable and have long life spans.
Its principal customers include Scottish & Newcastle plc, The Laurel Pub Company
Limited, Enterprise Inns plc, Gala Group Limited and Megabowl Limited.
As with card vending machines, purchasers of its change machines may enter into
an ongoing operational contract with Scott Tod for the service and maintenance
of the machines. Customers are themselves responsible for maintaining the float
of coins within the change machine.
Research and Development
The research and development department, comprising eight staff and headed by
Roger Tod, develops, designs and configures all of the Scott Tod change machines
which are then assembled by Scott Tod from components which are both
sub-contracted and sourced in-house. Within the last twelve months, a
touchscreen change machine and an "electronic purse" payment machine have been
added to the range.
The research and development team is also developing its own single and multiple
site cashless system, called "ECLIPSE". The ECLIPSE cashless system is operated
by means of a simple plastic card. Once credited, the card is then used as a
means of payment within a controlled area and is designed to remove cash
handling from large areas of family entertainment venues, improving security and
consumer value, whilst also providing the site operator with a wealth of
management information on consumer trends. The card offers the consumer the
benefit of not having to carry change or excess cash. It is anticipated that the
card will also provide the owner with the ability to access promotional
activities. These types of systems are currently in their infancy and Scott Tod
is currently "beta testing" ECLIPSE in the UK in anticipation of a sales and
marketing campaign.
Sales and Marketing
Scott Tod currently employs six full time sales staff and increases its market
penetration by utilising the services commission-based direct sales agents. The
main methods employed in marketing the products include direct marketing, mail
shots, advertisements in industry publications and attendance at major trade
exhibitions. Significantly, however, because of Scott Tod's reputation for the
reliability of its products, a high proportion of sales come from referrals and
repeat orders from the existing customer base.
Scott Tod has been operating within the leisure industry since 1978. The
Proposed Directors believe that during this period it has established a good
reputation based on the quality of its products as well as its after-sales
service. This reputation and its experience have, in the opinion of the Proposed
Directors, placed Scott Tod in a strong position from which to roll out ATMs
into a number of other sectors within the leisure industry, such as pubs and
betting shops. Examples of existing change machine customers to whom Scott Tod
has been able to cross-sell its ATMs include Scottish & Newcastle plc, The
Laurel Pub Company Limited and Megabowl Limited.
Service and Maintenance
Scott Tod employs a team of eleven field engineers to service and maintain its
products across its three areas of business. This allows Scott Tod to enter into
service and maintenance contracts with customers to provide added value and a
greater reliability to their purchase agreements. Scott Tod currently has
service agreements for its entire installed base of ATMs. Agreements are in
place with Patientline plc and the Wandsworth Group in respect of all machines
supplied to those companies and will come into effect upon expiry of the machine
warranties. Initially these agreements will cover approximately 750 machines,
with the intention to extend to a further 500 machines. Scott Tod has also
entered into agreements to rent, service and maintain change machines for major
pub and entertainment groups, including Scottish & Newcastle plc, The Laurel Pub
Company Limited, Enterprise Inns plc and Megabowl Limited.
4. Financial information on Scott Tod
The financial information set out below, which has been extracted from the
Accountants' Report set out in Part II of the circular, summarises the financial
record of Scott Tod for the three financial periods ended 30 June 2001, 31 March
2002 and 30 June 2003.
9 months ended 15 months
Year ended 30 31 March ended
June
2001 2002 30 June
#'000 #'000 2003
#'000
Turnover 1,724 2,436 8,015
---------------------------- --------- --------- ---------
Operating profit 81 115 573
---------------------------- --------- --------- ---------
Profit on ordinary activities before 15 42 197
taxation --------- --------- ---------
----------------------------
Profit/(loss) for the financial 6 (7) 91
period ========= ========= =========
============================
As at As at As at
30 June 31 March 30 June
2001 2002 2003
#'000 #'000 #'000
============================ ========= ========= =========
Net assets 441 434 670
============================ ========= ========= =========
During the period ended 30 June 2003, costs of #110,000 were incurred in
connection with a proposed sale of Scott Tod. The transaction did not proceed
and the costs are regarded as non-recurring.
The following unaudited financial information has been extracted from the
accounting records of Scott Tod and compiled on the basis of the accounting
policies of Scott Tod to show, for illustrative purposes only, the turnover and
profit of Scott Tod on an annual basis for the three years ended 30 June 2001,
2002 and 2003 and the split of turnover between Scott Tod's principal
activities.
Years ended 30 June 30 June 30 June
2001 2002 2003
#'000 #'000 #'000
Turnover:
Change and card machines 1,724 2,684 3,154
ATMs - 866 3,747
---------------------------- --------- --------- ---------
1,724 3,550 6,901
---------------------------- --------- --------- ---------
Operating profit 81 200 488
---------------------------- --------- --------- ---------
Profit on ordinary activities before taxation 15 81 158
---------------------------- --------- --------- ---------
5. The agreement with Cohen and related matters
Under the terms of the agreement with Cohen, Darwen Capital has acquired from
Cohen 20 per cent. of the issued ordinary share capital of Scott Tod, for a cash
consideration of #525,000.
In order to finance the acquisition of the those shares, Galactic Enterprises
Limited, a company with which David Massie is associated, agreed to lend
#525,000 to Darwen Capital pursuant to a facility letter dated 1 October 2003
(the "Galactic Loan"). The Galactic Loan bears interest at 2 per cent. above the
base rate of National Westminster Bank plc, is repayable on the earlier of 31
January 2004 and completion of the acquisition of the balance of the issued
ordinary share capital of Scott Tod and is secured upon the Scott Tod shares
acquired from Cohen.
As the agreement with Cohen and the Galactic Loan were not conditional upon the
acquisition by Darwen Capital of the 160 ordinary shares in Scott Tod nor
subject to shareholders' approval, in order to ensure that Darwen Capital might
have an opportunity to reverse the effects of these transactions, Darwen Capital
entered into an option with David Massie (the "Put Option") pursuant to which,
subject to the approval of shareholders independent of David Massie, whether or
not the acquisition by Darwen Capital of the 160 ordinary shares in Scott Tod is
completed, Darwen Capital can require David Massie to acquire the Scott Tod
shares acquired from Cohen at any time until 7 February 2004 for a cash
consideration of #525,000. In the event that the directors of Darwen Capital,
other than David Massie, consider it to be in the best interests of the Company
and its shareholders as a whole to exercise the Put Option, an Extraordinary
General Meeting of Darwen Capital will be convened at which a resolution
approving such action will be proposed.
6. The agreement to acquire the remaining 80% of Scott Tod
Under the terms of the agreement with the Vendors, Darwen Capital will acquire
from the Vendors 160 ordinary shares of #1 each in Scott Tod, representing 80
per cent. of the issued ordinary share capital of Scott Tod, comprising 80
shares from Nicholas Tod, 56 shares from Harriet Tod and 24 shares from Lawrence
Watts, for a consideration comprising the issue to the Vendors of an aggregate
of 10,000,000 new Ordinary Shares at completion and, depending upon the audited
results of the new group for the financial year ending 30 June 2005, deferred
consideration comprising the issue of up to a further 10,000,000 new Ordinary
Shares and up to #500,000 nominal amount of unsecured loan notes.
The agreement with the Vendors also includes lock-in provisions under which the
Vendors have undertaken to Darwen Capital that, save with the consent of Keith,
Bayley, Rogers & Co. Limited or in certain specific circumstances, neither they,
nor any person connected with them, will dispose of any initial consideration
shares held by them for a period of one year from completion nor will they
dispose of any new Ordinary Shares issued to them as part of the deferred
consideration for a period of one year from their date of issue.
In addition, the agreement with the Vendors provides for the acquisition by
Darwen Capital from the Vendors of the entire issued share capital of each of
ATM Services Limited and Cash Machine Rentals Limited for a nominal cash
consideration of #1 in respect of each company. Neither ATM Services Limited nor
Cash Machine Rentals Limited has traded nor has either company yet completed its
first statutory financial period.
7. The Placing
In order to provide the new group with additional working capital, the Company
proposes to raise #2,500,000, before expenses, by way of the Placing. Under the
terms of a placing agreement, Keith, Bayley, Rogers & Co. Limited has
conditionally agreed, as agent for Darwen Capital, to use reasonable endeavours
to procure subscriptions for 10,000,000 new Ordinary Shares at a price of 25p
per share.
The Placing is conditional, inter alia, upon:
* the passing of the resolutions to be proposed at the EGM;
* the placing agreement having become unconditional in all
respects and not being terminated in accordance with its terms; and
* admission of the enlarged issued share capital of Darwen
Capital to AIM having taken place not later than 28 November 2003 (or such later
date as the Company and Keith, Bayley, Rogers & Co. Limited may agree but in any
event not later than 16 December 2003).
Further details of the placing agreement are set out in the circular.
8. Share Incentives
Employee Share Options
The Board considers that it will be important for the future development of the
new group for its key management to be suitably incentivised. For that reason,
it is proposed that the directors of the Company be authorised to grant options
to qualifying employees of the new group to subscribe for new Ordinary Shares
under the provisions governing the grant of options as Enterprise Management
Incentives for tax exemptions and reliefs contained in the Income Tax (Earnings
and Pensions) Act 2003 (the "EMI Code"). All employee share options granted will
only be exercisable upon the satisfaction of certain performance criteria. The
maximum number of employee share options to be granted shall be limited to
5,400,000, representing 20 per cent. of the issued share capital of the Company
immediately following Admission.
It is intended that up to 400,000 of the employee share options will be granted
to each of the Vendors as soon as practicable following completion.
Massie LTIP
David Massie was instrumental in finding and negotiating the acquisition of
Scott Tod on behalf of the Company and has agreed to serve as Non-Executive
Chairman of the new group and provide related services through Massie & Co., a
family partnership. The other members of the Board propose that a long term
incentive plan for Massie & Co. be implemented under which they may be issued
new Ordinary Shares representing between one and two per cent. of the issued
ordinary share capital of Darwen Capital (capped at 50,000,000 Ordinary Shares),
depending upon the performance of the Ordinary Shares over the period of five
years from admission of the enlarged issued share capital of Darwen Capital to
AIM (or earlier in certain circumstances), calculated by reference to a scale
based on the compound annual percentage increase in the market price of the
Ordinary Shares from a base price of 25p. No Ordinary Shares will be issued to
Massie & Co. under the Massie LTIP unless the market price of the Ordinary
Shares has increased by a compound rate of 20 per cent. per annum and the
maximum number of Ordinary Shares will only be issued if a compound annual
growth rate of 30 per cent. is achieved.
9. Reasons for the Proposals
The Directors and the Proposed Directors believe that Scott Tod's existing
business is soundly based and capable of considerable expansion and that there
exists the potential for significant organic growth and gains of market share
through improved service to customers. In addition, a number of new
opportunities have been identified by the Proposed Directors. Accordingly, the
Directors consider that the Acquisition represents an opportunity to enhance
shareholder value significantly.
10. Financial effects of the Acquisition and the Placing
An illustrative unaudited pro forma statement of net assets of the new group set
out in the circular shows pro forma net assets of #7,333,000, including goodwill
arising from the acquisition of Scott Tod, representing the difference between
the fair value of the consideration and the fair value of the net assets
acquired, of approximately #5,330,000. This goodwill will be amortised over a
period of not more than 20 years from completion.
11. The effects of the Acquisition and the Placing on shareholdings in
Darwen Capital
Due to the size of Scott Tod, its acquisition is classed as a reverse takeover
for the purposes of the AIM Rules. Accordingly, the acquisition of Scott Tod is
conditional upon, inter alia, the approval of shareholders, which is being
sought at the EGM, notice of which is set out in the circular.
Under the terms of the Placing and the agreement with the Vendors to acquire 160
ordinary shares in Scott Tod, the Vendors and certain of their associates, who
are deemed to be acting in concert in relation to Darwen Capital for the
purposes of the City Code, may acquire more than 30 per cent. of the Enlarged
Share Capital and, depending upon the number of new Ordinary Shares to be issued
as part of the Deferred Consideration, may acquire more than 50 per cent. of the
issued share capital of the Company. The Panel has, accordingly been consulted
with a view to it granting a waiver of the provisions of Rule 9 of the City
Code, under which, in the absence of such waiver, the Vendors and their
associates would be obliged to make a cash offer to all other holders of
Ordinary Shares.
12. Current trading and prospects
The Directors and the Proposed Directors, having regard to the performance of
Scott Tod in the current financial year as warranted by the Vendors believe
that, taking into account the additional working capital to be provided by the
Placing, the prospects for the new group for the remainder of the current
financial year are good.
Current trading is encouraging with orders for over 500 card vending machines
and plans in place to deploy a further 200 ATMs in the next two months.
Accordingly, the Directors and the Proposed Directors view the future growth
prospects for new group with confidence.
13. Dividend policy
The Directors and the Proposed Directors intend that Darwen Capital, subject to
the availability of distributable reserves, will commence the payment of
dividends in respect of the current financial year. In the absence of unforeseen
circumstances, the Directors and the Proposed Directors hope that Darwen Capital
will make its maiden payment by way of a final dividend for the year ending 30
June 2004.
14 . Recommendation
The Directors (other than David Massie in relation to the Massie LTIP because of
his interest in Massie & Co.), who have been so advised by Keith, Bayley, Rogers
& Co. Limited, consider that the proposals and the waiver of Rule 9 in respect
of the Vendors and their associates are in the best interests of the Company and
its shareholders as a whole. In addition, having consulted with ARM Corporate
Finance Limited, in accordance with the AIM Rules, the Directors (other than
David Massie) consider that the terms of the Galactic Loan, the Put Option and
the Massie LTIP are fair and reasonable insofar as the Shareholders are
concerned.
Accordingly, the Directors unanimously recommend Shareholders to vote in favour
of Resolutions 1 and 2 as they have irrevocably undertaken to do in respect of
their own shareholdings amounting to 5,525,000 Existing Ordinary Shares,
representing approximately 78.93 per cent. of the existing issued ordinary share
capital of the Company. The Directors (other than David Massie) unanimously
recommend Shareholders to vote in favour of Resolution 3 as they have
irrevocably undertaken to do in respect of their own shareholdings amounting to
1,500,000 Existing Ordinary Shares, representing approximately 21.43 per cent.
of the existing issued ordinary share capital of the Company and approximately
50.42 per cent. of the votes entitled to be cast on Resolution 3.
In addition the Company has received irrevocable undertakings from certain other
Shareholders holding 500,000 Existing Ordinary Shares, representing
approximately 7.14 per cent. of the existing issued ordinary share capital of
the Company, to vote in favour of Resolutions 1 and 2. Consequently the Company
has received irrevocable undertakings to vote in favour of Resolutions 1 and 2
from Shareholders holding, in aggregate, 6,025,000 Existing Ordinary Shares,
representing approximately 86.07 per cent of the existing issued ordinary share
capital of the Company.
Board of the Company following completion
David Massie, Non-Executive Chairman, aged 48, has an honours degree from the
University of Warwick in accounting and financial analysis. He is an experienced
company director, having been a director of numerous private companies and
public companies. David Massie founded and has served as Chairman of Darwen
Capital since its inception and is currently chairman of IAF Group plc, a fully
listed company which he also founded. In 1991, he became chairman of Wills Group
plc, a fully listed company, to lead a rescue and financial restructuring. Wills
Group plc was taken over by way of a recommended offer in 1995. At John Foster &
Co. plc, another fully listed company, David Massie joined the board in October
1998 and initiated changes which produced a significant increase in market
value, before resigning in April 1999.
Peter Seabrook, Non-Executive Director, aged 49, is a graduate of Oriel College,
Oxford and has over twenty years' experience as an investment manager. He joined
Fleming Investment Management Limited in 1984 and became a director of Robert
Fleming Holdings Limited in 1994. During this period Peter Seabrook was
appointed UK chief investment officer. In 1997 he moved to Societe Generale
Asset Management in a similar role before leaving in June 2002. Peter Seabrook
is also a non-executive director of New Opportunities Investment Trust plc, a
fully listed UK smaller company investment trust, and non-executive chairman of
Ocean Resources Capital Holdings plc, an AIM traded investment company
specialising in the natural resources sector.
Nicholas Tod, Proposed Chief Executive, aged 35, held a regular commission in
the Staffordshire Regiment of the British Army for over seven years before
joining Scott Tod in 1994. In 1997, he was appointed managing director of Scott
Tod and initiated the diversification plans which have led the company into new
market sectors. As a result, Scott Tod is a leader in the UK in card vending
machines and has achieved a strong position in the ATM market in the UK.
Nicholas Tod is a member of the LINK Network Members Council and a founding
member of the LINK Card Scheme Development Committee. He also acts as an adviser
to a number of leisure sector companies on matters relating to bank note
handling.
Lawrence Watts, Proposed Operations Director, aged 41, joined Scott Tod in 1998
as finance director, having previously been the general manager of the western
region of Rentokil Initial plc for four years. Prior to that, he had held a
number of positions, including that of a senior accountant/risk analyst with
Chemical Bank. Lawrence Watts is involved in all strategic development decisions
at Scott Tod. He is currently studying for an MBA in finance at the University
of Wales.
This information is provided by RNS
The company news service from the London Stock Exchange
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