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Rest of WorldNews > Press Release:Proposed Acquisition of Barrett Marketing Company Inc. Placing to raise £2.54 million (net of expenses)
2006-06-23
Press Release - 2006-06-23Proposed Acquisition of Barrett Marketing Company Inc. Placing to raise £2.54 million (net of expenses)
Introduction
Freeplay Energy plc ("Freeplay" or "the Company"), the sustainable energy company that captures, stores and delivers electric power to self-powered devices such as radios, torches and mobile phone chargers, is pleased to announce that it has agreed, subject to shareholder approval, to acquire the entire issued share capital of Barrett Marketing Company Inc. ("BMGI") and its wholly owned subsidiary, Dixie Sales Company Inc. ("Dixie")
The Company also announces the Placing of 11,397,358 shares with institutional and other investors, raising £2.54 million net of expenses. The expected market capitalisation of the Company, at the Placing Price, is £14.4 million
Highlights
Dixie is an established sales, marketing, distribution and customer service provider based in Greensboro, North Carolina, USA. Dixie provides a full range of services to its customers and suppliers, which includes customer and supplier account management, customer and supplier logistics, consumer call centre services and technical services, such as training and education to customers.
As at 21 June 2006, Freeplay's total sales book, including product shipped, orders received and placed on the factory and orders received and not yet placed on the factory, pending release of funds, was approximately US$6.1 million for the financial year to date.
On 12 May 2006, Freeplay announced it has entered into a distribution agreement with WP Phones for its FreeCharge mobile phone charger in sub-Saharan Africa. The five year agreement will provide Freeplay with minimum annual sales through WP Phones of one million units per annum. It is anticipated that the first shipment will be made in the last quarter of 2006. The agreement was extended on 12 June 2006 to cover the Caribbean for an additional 100,000 units of the FreeCharge mobile phone charger. The total agreement is now for a minimum of 1.1 million units per annum over the next five years.
The Board's strategy is to develop Freeplay into a broad based sustainable energy company, accomplished through the establishment of its own self-powered products in the market and the formation of strategic alliances or acquisitions with partners to develop, manufacture and supply sustainable energy products.
Peter Porteous, CEO of Dixie, will be appointed chief executive of the enlarged group and the Board will be further strengthened by the appointment as non executive directors of both William and Edward Barrett, Harold Reiter, Barrett Corporation President and COO of Barrett Corporation and Stuart Kinney, Barrett Corporation General Counsel. Both Rory Stear and Richard Court remain as Executive Chairman and Finance Director respectively and, with the exception of Baroness Chalker and John Hutchinson, the Freeplay directors will stay in their current positions.
The acquisition is classified as a reverse takeover for the purposes of the AIM Rules because of the size of Dixie in relation to the existing size of Freeplay. As a result of this, the Directors requested that the Ordinary Shares be suspended from trading on 18 May 2006.
The acquisition, as a result of being a reverse takeover, is conditional upon the approval of Shareholders at the EGM, which will take place on 17 July 2006.
The Company is also pleased to announce that it proposes to raise up to approximately £2.54 million (net of expenses) by the issue of up to 11,397,358 new Ordinary Shares at 29 pence each by way of a Placing.
The net proceeds of the placing will be used to fund working capital and investment needs of the enlarged group and to augment its working capital facilities
Rory Stear, Chairman and Chief Executive Officer commented:
"Freeplay already has a proven track record in the development of self-powered energy products, a portfolio of products and an expanding international distribution base. The acquisition of Dixie and the fundraising mark a step-change for Freeplay, giving us direct control in North American over our sales targets, through Dixieís strong formal relationships with many US retailers and merchants"
"Freeplay will also benefit from Dixie's marketing and operational expertise, which, allied with Dixie's focus on distribution, its customer service capability and its strong management team, will give Freeplay the added impetus we need to ensure the success of the Group, particularly in North America. The Acquisition is a milestone development for Freeplay and it brings us significant further capability in order that we can achieve our vision of developing into a broad based sustainable energy company"
-Ends-
For further information, please contact:
Freeplay Energy plc 020 7851 2630
Rory Stear, Chairman and Chief Executive Officer
Weber Shandwick Square Mile 020 7067 0700
Susan Ellis, Nick Oborne, Rachel Taylor
Charles Stanley &Co 020 7739 8200
Mark Taylor, Freddy Crossley
Notes to Editors: Freeplay Energyís core technology revolves around the efficient conversion and storage of applied human energy, and the delivery of this energy on demand as electricity to create self-powered electronic devices. Initial applications include radios (both consumer and humanitarian), torches, mobile phone chargers and standalone foot chargers and the Company has a new product development plan which anticipates broadening the application of its technology into new product categories. Freeplay believes it was first to market and commercialise self-powered technology and that it is recognised as a leading brand in this market for such products.
Established in 1994, the Company today has offices in both London and Cape Town and floated on AIM, a market operated by the London Stock Exchange plc in March 2005. Further information about Freeplay Energy and its products can be found at www.freeplayenergy.com.
It was announced on 18 May 2006 that the Company has agreed, subject inter alia to Shareholder approval, to acquire the entire issued share capital of BMGI. Dixie, a wholly owned subsidiary of BMGI, is a well established brand building, marketing, sales, order management and parts and wholesale distribution company based in North Carolina, USA.
The Acquisition is classified as a reverse takeover for the purposes of the AIM Rules because of the size of Dixie in relation to the existing size of the Company. As a result of this, the Directors requested that the Ordinary Shares be suspended from trading on 18 May 2006, pending publication of the Admission Document, which contains details of the Proposals. The Acquisition, as a result of being a reverse takeover, is conditional upon the approval of Shareholders at the EGM.
The Company is also pleased to announce that, subject inter alia to Shareholder approval, it proposes to raise up to approximately £2.54 million (net of expenses) by the issue of up to 11,397,358 new Ordinary Shares at 29 pence each by way of a Placing. 11,067,358 new Ordinary Shares have been conditionally placed with institutional and other investors by Charles Stanley and 330,000 new Ordinary Shares have been placed with certain Directors by the Company at the Placing Price.
The net proceeds of the Placing will be used to fund the working capital and investment needs of the Enlarged Group and to augment its working capital.
The Acquisition, if approved by Shareholders, will result in the Barrett Corporation (through its wholly owned subsidiary Barrett Marketing Group Ltd) holding 35.26 per cent. of the Enlarged Issued Ordinary Share Capital.
An EGM has been convened for 11.00 a.m. on 17 July 2006, at which Shareholders will be asked to consider the Resolutions necessary to approve and implement the Proposals. A notice of EGM is set out at the end of this document.
REASONS FOR THE ACQUISITION
Freeplay has a proven track record in the development of self-powered energy products and has a portfolio of self-powered products and an expanding international distribution base. The Board's strategy is to develop Freeplay into a broad based sustainable energy company. This strategy will be accomplished through the establishment of its own self-powered products in the market and the formation of strategic alliances or acquisitions with partners to develop, manufacture and supply sustainable energy products.
The Board believes that distribution strength will be a key area in ensuring the success of the Group and that, in particular, North America will be a key market for the distribution of the Group's existing products and other future sustainable energy products. In addition, the Board believes that the North American market will be key to Freeplay's commercial and financial success.
In 2005, after a review of the Group's North American distribution, Freeplay entered into an agreement with Dixie to distribute Freeplay's products in North America. Dixie has been successful in securing some major listings of Freeplay's products with large North American retailers, including Target Corp who will be rolling out the Kito flashlight in 200 stores, Macys Midwest who will be rolling out 3 SKU's into 86 US stores; Sharper Image who have listed the EyeMax radio across their stores and their website and REI, a leading US sporting goods retailer.
Dixie is a North American focused distribution company, which includes a call centre, multi-location warehouses and a strong management team. The Acquisition will provide the Enlarged Group with strong formal relationships with many US retailers and merchants and furthermore, Dixie will provide the business with a strong track record in sales and marketing strategy and execution. As a result of the Acquisition, the Enlarged Group will be well placed to maximise sales and distribution opportunities for both Freeplay's existing and future products in the US.
On Admission, Peter Porteous, CEO of Dixie will be appointed chief executive of the Enlarged Group and the Board will be further strengthened by the appointment of both William and Edward Barrett, Harold Reiter, Barrett Corporation President and COO of Barrett Corporation and Stuart Kinney, Barrett Corporation General Counsel. These additions to the Board will provide valuable sales, marketing and distribution experience that is required to enable the delivery of the Enlarged Group's strategy of developing a sustainable energy development, sales, marketing and distribution company.
INFORMATION ON DIXIE
Overview
BMGI will directly own the entire issued share capital of Dixie upon completion of the Acquisition Agreement. The Dixie shares are owned by an intermediary holding company, BDS which, in accordance with the Acquisition Agreement, will be dissolved and liquidated prior to completion so that the BMGI Group will consist of BMGI, Dixie and Mower MD a joint venture in which Dixie has a 50 per cent. interest. On Admission, Dixie and Mower MD will be the only trading entities within the BMGI Group.
History
The business of Dixie was founded in 1914 and Dixie was incorporated in 1950. In 2001 the Barrett Corporation acquired 75 per cent. of Dixie and in 2005 it acquired the remaining 25 per cent. of Dixie from Jim Starmer, the president of Dixie.
Operations
Dixie is an established sales, marketing, distribution and customer service provider based in Greensboro, North Carolina, USA. Dixie provides a full range of services to its customers and suppliers, which includes customer and supplier account management, customer and supplier logistics, consumer call centre services and technical services such as training and education to customers. Dixie also has electronic ordering and e-commerce tools.
Dixie's core business includes the sales and marketing of parts to the lawn and garden industry, hand held power tools, generators and as a distributor for whole goods such as scooters, quad bikes, go-karts and hand held lawn and garden equipment on behalf of manufacturers. These parts are sourced from large manufacturers and distributed via private carrier or postal services to customers all over the USA and Canada. In addition, Dixie provides customer care and repair centre network management to a number of its clients.
Dixie's headquarters and main warehouse are based in Greensboro, North Carolina, USA. Dixie also operates a further three warehouses based in Florida, Tennessee and Ontario under a service agreement. This network of locations enables Dixie to arrange for the delivery of goods to over half of the USA in one day and over two thirds of the USA within two days (Source: UPS website).
Dixie's service offerings are as follows:
Sales and Marketing
Dixie sells a wide range of products including parts to the lawn and garden industry and handheld power tools. In addition, Dixie markets and sells a range of finished goods such as scooters, quad bikes, go-karts and hand held lawn and garden equipment. These products are sourced from both domestic and international manufacturers. Sales are completed through three main channels including an extensive dealer network (consisting of approximately 11,000 dealers in the United States and 800 dealers in Canada), national mass merchant retailers and direct to the consumer through the use of its call centre and a newly redesigned web-site.
Dixie's major suppliers include MTD Consumer Inc. (Products include: Cub Cadet, Troy-Bilt, YardMan, YardMachine, White Outdoor, McCullouch), Electrolux Home Products (Products include: Poulan, Poulan Pro, WeedEater) and Komatsu Zenoah America (Products include: RedMax).
Over the past few years Dixie has made significant investment in enhancing its IT capability, which has enabled Dixie to integrate its IT platform with that of the customer. In addition, Dixie has improved its web site ("Ordertree.com"), which has been a factor in the double-digit growth of the consumer direct channel over the past year. In the year ended 31 December 2005 electronic ordering represented approximately 20 per cent. of total sales, compared with approximately 2 per cent. four years ago. The consumer direct channel (database) now consists of approximately 400,000 customers.
Dixie uses EDI or direct system access ordering with most of its major client relationships that results in reduced cost and improved processing time.
Customer Care
Dixie operates a call centre staffed by approximately 100 highly trained customer service agents that handled approximately 1.1 million calls in 2005 from call centres located in Greensboro, North Carolina and through a service agreement with personnel in Woodstock, New Brunswick. The customer service team provides services such as:
- Responding to queries to the manufacturer's 1-800 customer care line
- Placing of orders
- Technical assistance to the customer to ensure that the correct part is ordered
- Proper routing of consumers to a certified repair centre
- General technical assistance to customers (end users)
- Warranty registration and claim processing
Dixie distributes its goods through three US distribution centres located in North Carolina (Greensboro), Tennessee, Florida and one in Ontario (Canada) through a service agreement. Dixie currently manages the distribution of approximately 450,000 SKU's and provides fulfilment ordering that results in the capability of delivering goods from orders placed up to 6.00 p.m. the previous evening to approximately one half of the US (the next day). The length of time taken to fulfil an order is particularly important for national mass merchant retailers and dealers. In addition Dixie achieved a 'fill rate' (product on hand available to ship in its entirety at time of order placement) of approximately 93 per cent. in the year ended 31 December 2005, compared to the industry norm of approximately 90 per cent. This results in improved shipping economics and more importantly enhanced customer satisfaction.
The combination of Dixie's service offerings has made it the partner for many manufacturers, dealers and national mass merchants. For example, one national mass merchant has advised its suppliers that Dixie is the partner of choice to provide the special parts order solution. In addition, several manufacturers compensate Dixie for access to its extensive dealer network and customer database.
Dixie entered into an exclusive distribution agreement with Freeplay in respect of the sale of Freeplay's products in North America commencing in May 2005. Under this agreement Freeplay reimburses Dixie in respect of certain costs in return for which Freeplay receives a share of the profit generated by the relationship.
Market Background
Overview of marketplace
Dixie's core market is the development and management of dealer/repair centres. It also handles the sales of parts and accessories through a number of different sales channels, including independent dealer/repair centres, mass retailers, branded national service centre solutions, such as AltaQuip and directly with end consumers. A significant portion of category sales are now controlled by the national mass retailers. Dixie is evolving its business to reflect and capitalise on these market changes while reducing risk in the distribution business. The mass retailer and consumer direct channels offer stronger gross margin and sales growth potential. Dixie is able to offer a one stop North American service solution for manufacturers and retailers.
Competitors
Current competition tends to specialise in targeted areas or primary product lines. The dealer channel is a very competitive market place with many different companies/sources competing for repair centres purchases. Competition can arise from alternate sources of OEM, competing OEM brands or aftermarket product. The competitive environment is less crowded with respect to providing service/parts program solutions for the mass retailers or one stop North American service execution.
Competitive factors
For all channels access to quality information and trained/certified personnel are key differentiators. The dealer channel seeks competitive pricing, high fill rate, timely shipping and receipt of product. The mass retailer is looking for a partner who can execute across a number of brands (category solution) consistently for all of their stores (national solution). The retail direct customer is searching for competitive pricing, excellent information/answers and prompt service and product delivery
Current trading and prospects
Dixie's key strategy is to focus on developing new distribution channels for its business by:
- increasing direct sales to consumers through its online sales portal www.ordertree.com
- continued skill enhancement of customer care and sales teams
- developing its relationships with national retailers and service only providers. In the year ended 31 December 2005, sales to national retailers grew by 66 per cent. as a result of a focused mass retailer customer care team, proactive store clerk education of the support/business building tools available through Dixie and the launch of a new, advertised consumer direct parts hotline for Lowes
- expanding and enhancing relationships with the core dealer/repair centre customer base. This sector represents approximately 70 per cent. of Dixie's business
Peter Porteous (age 43), Chief Executive Officer
Peter Porteous joined Barrett Corporation in 1989 where latterly he was the President of the Barrett Marketing Group Ltd. When Barrett Corporation purchased Dixie in 2001, Peter Porteous became the Chief Executive Officer of Dixie. Prior to his involvement with Barrett Corporation, he was Director of Marketing at Kraft Foods, where he gained significant experience in sales, distribution and marketing. He studied for his commerce degree at the Carleton University, graduating in 1986 and has been a member of YPO (Young Presidents Organisation) since 2002.
Jim Starmer, (age 59), President
Jim Starmer has been involved with Dixie since 1969 and has substantial experience in the distribution industry which is combined with technical expertise. He also has significant industry contacts and manages important vendor relationships.
Mike Rounsavall (age 45), General Manager
Mike Rounsavall graduated in 1983 from the North Carolina State University with a degree in economics. In 1994 he undertook an MBA at the University of North Carolina, becoming an MBA Professor at the Youngstown State University, Ohio in 2002. Mike Rounsavall joined Dixie in March 2005 having been the Vice President of Operations and Technology at the Ohio division of Alphabet Inc, a large manufacturing company. The division generated US$200 million of revenue from US, Mexican and Brazilian locations. He was responsible for 2,000 employees supplying market leaders in the heavy truck and agricultural markets.
Laura Garrett (age 44), Chief Financial Office
Laura Garrett graduated from the University of North Carolina with a degree in business and accounting. She qualified as a Certified Public Accountant in 1986 whilst working for Breslow Starling Frost Warner Boger Hiatt who are the current auditors of Dixie. Laura Garrett began working for Dixie in September 1995 and is responsible for the finance and accounting function.
Craig Stewart (age 48), Manager Dealer Sales General
Craig Stewart joined Dixie in 2001 having worked for the Barrett Corporation since 1988. He is responsible for the entire dealer sales channel, managing accounts, marketing, sales, program management and customer care.
Mark Brennan (age 36), Manager, Retail Sales and Canada
Mark Brennan joined Barrett in 1999 and has been working exclusively on the Dixie business through a service agreement since 2004. He graduated in business marketing in 1994 from the New Brunswick College and is responsible for the operation of the retail, mass retail and Canadian businesses.
Doug Holmes (age 43), Manager, Procurement and Productivity
In 1984 Doug Holmes graduated from the Eastern Carolina University with a degree in industrial technology. He previously worked for Alphabet Incorporation and was a Senior Program Manager before joining Dixie in November 2005. Whilst working for Alphabet, he was responsible for co-ordinating Mexican associates and plant management. At Dixie, he is responsible for managing stock levels and productivity. He was recruited to add experience and the necessary skills to the stock operations.
David Stephens (age 39), Manager IT &Operations
David Stephens has a degree in electrical engineering from the North Carolina State University. Before joining Dixie in March 2002, he worked for Signum, a North Carolina company as Business Unit Manager. David Stephens played a major role in upgrading Dixieís operating platform and implemented a new call centre operating system. David Stephens is also responsible for the operation of all of Dixieís warehouse branches.
Doug Azbell (age 41), Business Manager - Freeplay
Doug Azbell graduated from the Anderson University in Indiana with a management degree. He was a sales manager between 1992 and 1998. Doug Azbell is now the Project Manager of Freeplay.
Darla Fain (age 39), Manager, Human Resources
Darla Fain obtained a business degree specialising in human resources from the Indiana University. She is currently studying for a masters degree in organisational development at the Case Western University, Cleveland. She joined Dixie in 1999 and is responsible for payroll, recruitment, appraisal and staff welfare. Darla has two HR administrative assistants.
Principal terms of the Acquisition Agreement
On 17 May 2006 the Company entered into the Acquisition Agreement with BMG, a wholly owned subsidiary of Barrett Corporation, for the purchase of the entire issued share capital of BMGI, which, through a wholly owned subsidiary, BDS, owned the entire issued share capital of Dixie. Under the terms of the Acquisition Agreement, the Company agreed to a consideration which will be due to BMG consisting of the Consideration Shares and US$1.084 million by way of a promissory note secured over the shares in and assets of Dixie.
Prior to completion of the Acquisition, certain liabilities in BMGI will be assumed by BMG and BMGI will be released from these liabilities. These include amounts due to James E Starmer, Jr and Richard L Starmer pursuant to certain promissory notes in connection with BMG's acquisition of Dixie and certain intercompany loans due from BMGI to BMG.
The Acquisition Agreement contains warranties and indemnities from BMG in favour of Freeplay and certain warranties and indemnities from the Company in favour of BMG in respect of itself. The Acquisition is conditional, inter alia, on the passing of the Resolutions and Admission.
The 17,559,131 Consideration Shares to be issued pursuant to the Acquisition Agreement will represent approximately 35.26 per cent. of the Enlarged Issued Ordinary Share Capital and will, when issued, rank pari passu in all respects with existing Ordinary Shares then in issue, including all rights to all dividends and other distributions declared, made or paid following Admission.
Financial Information
| Year ended 31 December | |||
| 2005 | 2004 | 2003 | |
| US$í000 | US$í000 | US$í000 | |
| Turnover | 40,622 | 35,318 | 36,975 |
| Gross profit | 12,743 | 10,629 | 10,782 |
| Operating profit | 1,111 | 521 | 252 |
| Profit/ (loss) before taxation | 677 | 206 | (13) |
INFORMATION ON FREEPLAY
History
In April 1994, Chris Staines and Rory Stear began to develop and commercialise the technology of Trevor Baylis wind-up radio following a feature on BBC1's Tomorrow's World programme.
In February 1996, the original wind-up radio (Freeplay's first commercial product) was manufactured and exported to the UK, Holland and Africa for the first time and subsequently to the US in May of the same year. Following interest in this initial product, the Freeplay brand was launched in September 1996.
Freeplay has developed patented technology that enables exerted human energy to be captured, stored and delivered in an electrical form to power a range of electronic devices. First applications include radios, torches and a mobile phone charger, with over 3.7 million units sold.
Freeplay seeks to create, develop and supply the market for self-powered energy products internationally. This is being accomplished through both the establishment of its own products in the market, and the formation of strategic alliances with partners, aiming to combine compatible technology with market leadership. At the same time however, its intellectual property rights and know-how mean that it may be able to licence or 'whitelabel' its technology to other brands as the market develops.
Freeplay believes it was first to market and commercialise self-powered technology and that it is recognised as a leading brand in the market for such products. Freeplay believes there are competitive offerings but that those competitive offerings utilise technology which is less efficient.
The Group has received a number of substantial investments since 1997 including:
- in March 1997, General Electric Pension Trust invested US$10 million for a 33 per cent. stake in the Group
- in May 1998, the US satellite company, WorldSpace International Network Inc, invested US$5 million for a 10 per cent. stake in the Group
- in September 1999, South Africa Capital Growth Fund invested US$10 million
- in November 1999, BoE Ventures Limited and Transatlantic Private Equity (Pty) Ltd jointly invested US$3 million
- in June 2004, Nutraco Nominees Limited invested £0.35 million in the Group through the issue of convertible loan stock
- in January 2005, Nutraco Nominees Limited, Chetwynd Nominees Limited and Framley Consultancy Limited invested, £0.865 million, £0.135 million and £0.5 million respectively in the Group through the issue of convertible loan stock
- in February 2005, the Company raised £3.5 million through a placing on the admission of its Ordinary Shares to trading on AIM.
The Foundation receives an annual donation from the Group of US$150,000, certain administrative resources are shared with the Group and the Group provides office accommodation for the Foundation. The Foundation uses the donation from the Group to fund its overheads whilst funds raised externally by the Foundation are used for designated projects carried out by the Foundation. In 2005 over £230,000 of external funds were raised by the Foundation to fund humanitarian projects.
Working on a public-private sector partnership model, the Freeplay Foundation collaborates across sub- Saharan Africa with a variety of government ministries such as ministries of education, health, agriculture and labour; UN agencies including UNDP, UNICEF and UNHCR; international Non Governmental Organisations such as World Vision, PATH, CARE, Nelson Mandela Children's Fund, Red Cross and Green Belt Movement; and radio content providers such as Takalani Sesame, Soul Buddyz, Education Development Center and BBC World Service Trust.
Beginning in 2001, the Company signed a worldwide exclusive co-branding and distribution agreement with Motorola to develop and market Freeplay's mobile phone charger, the FreeCharge. This agreement has subsequently concluded in accordance with its terms but has provided Freeplay with a product that is currently being adapted to provide self-powered energy to the majority of the world's most popular brands of mobile phones.
In 2001, new patent applications were filed for third generation direct charge technology.
In July 2002, the Summit Radio was launched, which for the first time incorporated Freeplay's technology with digital tuning.
In April 2003, the Lifeline Radio, a product developed specifically for the developing markets and not for retail sale, was launched.
In 2003, Freeplay and Motorola mutually agreed to terminate their exclusive arrangement concerning the mobile phone charger jointly developed by them due to the inability to reach agreement on the technical specifications but agreed that Motorola's manufacturer will continue to be available to Freeplay as a manufacturing base. All tooling and IP associated with the FreeCharge product became the exclusive property of Freeplay.
In October 2003, Freeplay completed its group reorganisation with the relocation of its finance team to Cape Town, South Africa.
In February 2005, the Company's Ordinary Shares were admitted to trading on AIM.
PRODUCTS
Radio - Consumer &Outdoors
Radio models include the Freeplay Ranger (previously known in North America as the Coleman Outrider), Freeplay Summit, Freeplay Plus and the EyeMax (with light and with weatherband and the Devo DAB and FM receiver). These products will play for approximately twenty to thirty minutes (volume dependent) per forty-five second wind, and can be rewound at any time. The units can also be powered with its solar cells by sunlight, playing and charging simultaneously. The internal batteries can be fully charged via the solar panel or an AC/DC adapter, to give approximately twenty five hours playing time once fully charged. Freeplay's range of radios are positioned both for the outdoors market and, particularly in the US, for the emergency preparedness market. The radios are sold through stores specialising in the outdoors and sporting goods, DIY, department stores, consumer electronics and also through catalogues and online.
Radio - Humanitarian
Freeplay's Lifeline Radio is not sold in retail outlets but is available to aid and donor agencies, which range from UNICEF through to corporate sponsors such as Vodafone Group plc, for humanitarian broadcasting projects. The units can be powered by wind-up (direct charge) and solar power and have been designed and engineered to be highly robust for use in the harshest of rural conditions and climates. In certain markets, the Lifeline Radio is available commercially in a cause-related offering. For example, in a project with a customer C. Crane Company, Inc. for every Lifeline Radio purchased by C. Crane Company, Inc. one Lifeline Radio is donated to the Freeplay Foundation for distribution to one of its humanitarian projects.
Illumination
Currently illumination products include Xray LED, Jonta and Kito flashlights, the Emergency Light Centre and the Indigo table lantern. Approximately 45 seconds of winding gives from 10 minutes to 60 minutes of light, depending on the model and light intensity selected. Recharging the products via an AC/DC adapter allows for approximately five hours of light at normal brightness and thirty minutes at high brightness. The torches are designed for repeated and long-term use. These torches are sold in outdoors and sporting goods stores, DIY and department stores, as well as online, and through catalogues and automotive retailers. The lantern is designed to provide both space and surface illumination to users in both developed and developing markets.
Mobile Phone Charger
The FreeCharge mobile phone charger was originally developed in partnership with Motorola, to its specification in 2001 as an accessory for Motorola mobile phone handsets. However, the Group has now adapted the initial charger for the powering of major brands or series of mobile phones. Two models of the FreeCharge are available. One model is a low-cost 12 volt unit which is adapted to hand sets via a standard cigarette lighter adapter. The other model is a multiple voltage unit with versatile connectivity which is able to power a wide range of cell phone handsets and other personal electronic devices. The internal battery can be charged via the alternator, or an AC/DC adapter, and energy can be stored in the charger itself, to be supplied to the mobile phone when required. Approximately forty-five seconds of winding provides about three minutes of call time, and several hours of standby.
Standalone Foot Charger
Freeplay's foot charger (known as the Weza) was launched commercially in the third quarter of 2005. It delivers 12 volts of power to a wide range of appliances, including a main voltage inverter. Both Governmental bodies and commercial entities in several African countries have expressed strong interest for both telecommunications purposes and rural domestic use.
Research and Development Facilities
Freeplay Technology, the research and development division of the Group, is a fully integrated mechanical and electrical product development and project execution resource that includes concept creation, design, sourcing and the promotion of solutions.
There is also an external market for Freeplay's product development expertise. This has allowed the Group to undertake a number of external collaborative projects. In 2003 the research and development resource of the Group was utilised in the ratio of approximately 65 per cent. for internal projects and 35 per cent. for external projects. In 2004 this ratio was 85 per cent. for internal projects and 15 per cent. for external projects, as the focus of the Group shifted back to a more intense new product development programme. In 2005 all research and development efforts were internally focused as a result of the high new product development activity.
Freeplay has been contracted to develop the alternative energy solution for MIT's "Hundred Dollar Laptop" project, also known as the ìOne Laptop Per Childî programme. First prototypes were delivered to MIT mid-April and final designs are expected to be completed during July. Freeplay is broadening its energy base by allocating research and development resources into solar and wind technology.
Distribution
Freeplay's business development director is actively supported in the Western and Eastern hemispheres by specialised sales management who in turn have responsibility for the day to day management of the Group's distributors.
The following distribution arrangements exist:
- In the UK, Freeplay will manage distribution itself but will also engage third party distributors on a non-exclusive basis, such as Tango Group Limited. Tango Group Limited is headed by Vivian Blick who was previously a senior executive at the Company responsible for business development in the eastern hemisphere for 6 years. In the year ended 31 December 2005 Freeplay made sales of US$1.1 million to Tango Group Limited
- Dixie Sales Company Inc, is the Group's exclusive distributor of all Freeplay products in North America. The agreement commenced in May 2005. Dixie also took over the management of and relationship with C. Crane Company, Inc, referred to below. Under the agreement, Freeplay reimburses Dixie for certain costs in return for which it is entitled to a share of the profit
- An exclusive agreement with WP Phones International's Hong Kong subsidiary, WP Phones International Hong Kong Limited for its FreeCharge Mobile Phone Charger in Africa and the Caribbean region. The five year agreement will provide Freeplay with minimum annual sales through WP Phones International Hong Kong Limited of 1.1 million units of the FreeCharge mobile phone charger
- An agreement under which C. Crane Company, Inc., distributes the Freeplay Plus radio through its catalogue. C. Crane Company Inc. is a US Company that operates a catalogue business through mailing lists. C. Crane Company Inc. primarily sells Freeplay products through its catalogues. In the year ended 31 December 2005, Freeplay made sales of US$0.2 million to C. Crane Company Inc.
- An exclusive agreement with CICCI, a Danish headquartered multinational which specialises in the aid and donor market. The relationship with CICCI supports the Company's own efforts to the aid and donor market. CICCI holds inventory thereby allowing it to supply smaller orders whilst seeking sales for the Groupís products through Government tenders and other development opportunities. This in turn ensures that the Group is widely represented in these important markets
- An agreement with Connoisseur Electronics (Pty) Limited which distributes audio and illumination products in South Africa, Namibia, Botswana, Swaziland and Lesotho. The agreement is exclusive in relation to certain customers in those territories
- Several non-exclusive distribution arrangements exist in Western Europe, Africa and Australia, all of which have potential for future growth as the Company develops products appropriate to these markets. Non-exclusive distributor agreements are in place with SITE Logistics for Kenya, D.B Electrical &Lighting Distributors for Namibia, African Cell Connect for Botswana, Brentford Energy for Zambia, OfficeMart for Malawi, The Crammond Group for Zimbabwe, Alternative Energy Solutions for Rwanda and Multi-Powered Products for Australia
Prior to 1999, the manufacture of the Company's products was carried out in-house in Freeplay's factories in South Africa. During 2000 the management of the Company undertook an exercise to evaluate the efficiencies of the South African factories and as a result chose to relocate the manufacturing of its products to China in February 2001.
Solar Electronics Corporation Limited is currently the principal manufacturer supplying the Group and is responsible for the sourcing of raw materials and other components, the physical manufacture as well as delivery of the finished goods to port for shipment. Freeplay does, however, source some of the specialised components directly. In addition to Solar Electronics Corporation Limited, Sun Young Electronics Limited is responsible for the manufacture of the FreeCharge mobile phone charger, Power Pro Manufacturing Limited manufactures the foot charger described above, Hip Shing Electronics Limited manufactures the Devo Radio and More Bright Technology Limited is the manufacturer of the Kito Flashlight.
Apart from those mentioned above, there are no other significant suppliers to the Group. The Directors are aware of the risk associated with the supplier concentration, but believe that it is currently the best approach for the Group due to increased negotiation leverage.
FUTURE STRATEGY AND CURRENT TRADING
For the year ended 30 December 2005, turnover was US$3.1 million (2004: US$6.3 million) with sales of US$2.6 million in the second half contributing to overall turnover for the period. This reduction in turnover was impacted by like for like turnover in the UK and Continental Europe decreasing by 37 per cent., due to a recall of Devo, the Company's new portable DAB and FM radio and Weza, Freeplay's FreeCharge portable energy source, towards the year end. Both these one-off issues have now been resolved and the product was reshipped to distributors in the first quarter of 2006. Turnover was also affected by the change in accounting treatment of revenue recognition as a result of the distribution agreement with Dixie, the Group's North American distribution partner.
Gross profit fell to US$1.1 million (2004: US$2.1 million) as a result of the reduction in revenue. In line with expectations, administrative expenses increased by 97 per cent. to US$5.5 million (2004: US$2.8 million) as a result of the Group's investment in new staff, business development costs incurred in the US to set up the new distribution relationship and unrealised foreign exchange losses. Freeplay reported a substantial increase in operating loss to US$4.4 million (2004: US$0.7 million) and the loss before taxation increased to US$4.5 million (2004: US$2.0 million). The Group utilised research and development tax credit claims of US$0.2 million bringing the loss for the financial year to US$4.3 million (2004: US$2.0 million).
The technical issues relating to the Weza FreeCharge portable energy source, and Devo, a portable DAB and FM radio, which were recalled in December have been resolved and these orders were reshipped during the first quarter of 2006.
As at 21 June 2006, Freeplay's total sales book, including product shipped, orders received and placed on the factory and orders received and not yet placed on the factory, pending release of funds, was approximately US$6.1 million for the financial year to date as follows:
- Approximately US$837,000 relates to aid sales, and the Freeplay Foundation has to date purchased 25,000 Lifeline radios
- US$330,000 relates to the delivery of Lifeline radios to UNICEF
- Approximately US$1 million was generated in Africa by Ubuntu Trading in Nigeria; by Angola, and by Connoisseur, the Group's new South African distribution partner
- US$450,000 was generated by sales made to distributors in the UK and Europe
- US$900,000 from sales through Dixie and Crane in the US
- A US$1.8 million agreement with WP Phones
- A US$100,000 order by Connoisseur relating to Kito and Xray products
In addition, Freeplay has entered into a distribution agreement with WP Phones for its FreeCharge mobile phone charger in sub-Saharan Africa. The five year agreement will provide Freeplay with minimum annual sales through WP Phones of one million units per annum. It is anticipated that the first shipment will be made in the last quarter of 2006. This agreement was extended on 12 June 2006 to cover the Caribbean for an additional 100,000 units of the FreeCharge mobile phone charger. The total agreement is now for a minimum 1.1 million units per annum over the next five years.
Freeplay has signed a Long Term Arrangement ("LTA") with UNICEF to be the sole supplier of wind up radios, the Freeplay Lifeline radio, to UNICEF. Following independent testing, UNICEF chose the Freeplay product for an opening order, indicated above, of 20,000 radios for Madagascar and, in addition, the contract will make the Lifeline radio available to the entire United Nations through UNICEF. Under the terms of the contract, the United Nations will no longer need to tender for the supply of wind-up radios to its sister organizations.
Dixie has been successful in securing some major listings of Freeplay's products with large North American retailers, including: (i) Target who will be rolling out the Kito flashlight in 200 stores in "weather states"; (ii) Macys MidWest who will be rolling out 3 SKU's into 86 US stores; (iii) Sharper Image who have listed the EyeMax radio across their stores and their website and (iv) REI a leading outdoor recreation retailer. Dixie is working to a targeted plan to ensure that Freeplay is listed with primary retailers in each of the key channels - sporting goods, consumer electronics, home improvement and emergency preparedness.
In terms of products, production continues to progress in line with development plans. The Group has commenced tooling a table lantern and 12 volt FreeCharge mobile phone charger. The power Supply for a prototype self-powered laptop computer is being developed in conjunction with a partner who has confirmed the provision of funding for the project.
The future strategy for 2007 is to continue to maximise sales in North America, Europe, and Africa. Other opportunities will be considered as they present themselves. An example of such an opportunity is the current evaluation of a distribution partner in India which remains one of the fastest growing economies in the world.
As a result of the opportunities outlined above the Directors are confident of the Enlarged Group's future prospects.
DIRECTORS
The Board currently comprises seven Directors, brief biographies of whom are set out below. Baroness Chalker and John Hutchinson have agreed to resign from the Board upon Admission.
Rory Stear, age 47, Chairman and Chief Executive
Rory Stear has over twenty years of experience in corporate leadership, new business development and strategic planning. He co-founded Freeplay in 1994, and has been CEO since inception. Rory Stear was previously Managing Director of Seeff Corporate Finance (Pty) Ltd, a joint venture between him and a listed South African property group. He has been the recipient of various awards, including the Theodor Herzl Award for outstanding business achievement (2000), as well as being named as one of Business Week's Entrepreneurs of the Year 2000. Rory Stear is a fellow of the Schwab Foundation for Outstanding Social Entrepreneurs which is affiliated to the World Economic Forum. He has been a regular contributor to the Forum's events having made presentations at the Forumís annual meeting in Davos over the last three years. Rory Stear is also a member of both the Young Presidents Organisation, the Dean's Council at Harvard University's John F. Kennedy's School of Government and the Advisory Board of the Business School of Nelson Mandela University, Port Elizabeth.
Richard Court, age 41, Finance Director
Richard Court has fifteen years experience in financial and general international management. Having qualified as a UK Chartered Management Accountant in 1990 and been awarded fellowship in 1993, he worked for three years as Financial Controller of Quadrant Catering a division of the Post Office in the UK where he was responsible for the strategic development of financial systems. He has also worked as a divisional financial controller of Kwik Fit plc. Richard Court spent eight years as director of finance and operations with Periphonics Limited, a specialist computer hardware and voice driven software company which was brought to Nasdaq in 1995 and, later acquired by Nortel Networks. Having integrated Periphonics and a number of acquisitions into Nortels EBusiness Europe, he spent a year in Nortel Network's Brazilian operation as CFO Brazil managing a significant downsizing. Richard Court joined Freeplay in 2004.
John Hutchinson, age 54, Technology Director
John Hutchinson joined Freeplay in 1995 and has been involved with the development of Freeplay's technology and products from the outset. He leads a team of ten engineers and industrial designers, responsible for the advancement of Freeplay's technology and the creation of new products. John Hutchinson graduated with a degree in engineering from the University of Cape Town in 1976, and has since acquired an MBA from the University of Cape Town. Prior to joining Freeplay, he spent 20 years in the manufacturing industry in South Africa. His career began with Barlow Rand Group, working with several start-ups, including in the bicycle and consumer electronics sector such as Justastat, Genventics Electronics, Superbikes and Western Flyer Cycles.
The Rt Hon Baroness Chalker of Wallasey, age 65, Non-executive Director
Before entering Parliament in 1974, Baroness Chalker worked for Kodak Inc, Unilever Limited (Research), Shell Mex, British Telecom plc, Louis Harris International and Barclays Bank Limited. She was appointed a Life Peer in the House of Lords in 1992. Baroness Chalker returned to business in 1997 and joined the World Bank Africa team as an advisor. She formed her own consultancy, Africa Matters Limited, in 1998. Baroness Chalker was appointed as an advisory director of Unilever plc in 1998, and Chairman of its External Affairs and Corporate Relations Committee in 1999. She is also a non-executive Director of Group 5 (Pty) Ltd in South Africa, and of Ashanti Goldfields Company Limited. In 2001, she was appointed to the Presidential Advisory Council on Investment for Nigeria, and now leads the Council for President Obasanjo. Baroness Chalker joined Freeplay in 1997.
Leonard Fassler, age 74, Non-executive Director
Leonard Fassler is a founder, Director and Chairman of Vytek Wireless, Inc., a privately owned wireless company that has recently announced its merger with California Amplifier, Inc., a NASDAQ quoted company. In 1999 Leonard Fassler co-founded Interliant, Inc., an internet web-hosting company and in 1992, co-founded and served as Co-Chairman of AmeriData Technologies, Inc., a New York Stock Exchange-listed IT company, acquired by General Electric Capital Corporation in 1996. Prior to AmeriData, Leonard Fassler was co-founder and Co-Chairman of Sage Broadcasting Corp., a NASDAQ-listed company. Leonard Fassler holds a bachelor's degree in business administration from City College of New York and a law degree from Fordham Law School. Leonard Fassler has been associated with Freeplay for over five years.
Gordon Roddick, age 63, Non-executive Director
Gordon Roddick co-founded The Body Shop with his wife, Anita Roddick, in 1976 as a one-shop venture in Brighton. As Co-Chairman of The Body Shop, Gordon Roddick has devoted considerable energy to providing assistance to disadvantaged groups around the world, through the company's Trading with Communities in Need programme. Gordon Roddick brought to the UK the idea of street newspapers and co-founded the Big Issue with John Bird. Gordon Roddick joined Freeplay in 1999.
Andy Polansky, age 44, Non-executive Director
Andy Polansky is president of Weber Shandwick Worldwide, a leading, international public relations agency and part of the Interpublic Group of Companies. He has been with Weber Shandwick for more than 20 years, and was appointed to his current global role in March 2004 after leading the firm's North American business. He sits on the Board of Trustees of the Institute for Public Relations, an independent foundation in the field of public relations focusing on research and education. Andy Polansky also serves on the Honors &Awards Committee of The Public Relations Society of America, and on the Council of PR Firms Client Advisory Committee. In addition, he is a member of the McCann WorldGroup board and a member of Weber Shandwickís board.
On Admission, Rory Stear will become Chairman and Peter Porteous will be appointed Chief Executive Officer and Baroness Chalker and John Hutchinson will resign as Directors. In addition Harold Reiter will be appointed to the Board as Non-executive Deputy Chairman and Edward Barrett, William Barrett and Stuart Kinney as Non-executive Directors. Details of the Proposed Directors are outlined below:
Peter Porteous age 43, Proposed Chief Executive Officer
Peter Porteous joined Barrett Corporation in 1989 where latterly he was the President of BMG. When Barrett Corporation purchased Dixie in 2001, Peter Porteous became the Chief Executive Officer of Dixie. Prior to his involvement with Barrett Corporation, he was Director of Marketing at Kraft Foods, where he gained significant experience in sales, distribution and marketing. He studied for his commerce degree at the Carleton University, graduating in 1986 and has been a member of YPO (Young Presidents Organisation) since 2002.
Harold Reiter age 52, Proposed Non-executive Deputy Chairman
Harold Reiter joined the Barrett Corporation in 2003 and is President and Chief Operating Officer. Prior to joining Barrett Corporation, he was President and Chief executive Officer of Maxxcom Inc., a company engaged in providing marketing and communications services in the United States, Canada and the United Kingdom. He was Executive Vice President responsible for Canadian Operations for CIT Financial Ltd. (Formerly Newcourt Credit Group Inc.), which he joined in 1998. Prior to this he was a partner with Ernst &Young in Toronto, Canada.
Edward Barrett age 52, Proposed Non-executive Director
Ed Barrett is a shareholder and Co-CEO of Barrett Corporation, a privately held international management company, based in Woodstock, New Brunswick, Canada. Founded in 1976 and largely held by members of the Barrett Family, Barrett Corporation holds equity positions in several North American companies primarily in telecommunications, real estate development and as sales, marketing and distribution service providers.
Outside of Barrett Corporation Ed serves on three corporate boards, is Chairman of Atlantic Baptist University and sits on the advisory board of the Manning School of Business at Acadia University. Ed graduated with a BA from Acadia in 1975 and a MBA from Dalhousie University in 1977.
William Barrett age 54, Proposed Non-executive Director
William Barrett is a shareholder and Co-CEO of Barrett Corporation, a privately held international management company, based in Woodstock, New Brunswick, Canada. Founded in 1976 and largely held by members of the Barrett Family, Barrett Corporation holds equity positions in several North American companies primarily in telecommunications, real estate development and as sales, marketing and distribution service providers.
Outside of business, William Barrett is active in several charitable organisations and serves on a number of industry boards. He graduated from Acadia University in 1974 and presently serves on its Board of Governors.
Stuart Kinney age 47, Proposed Non-executive Director
Stuart graduated from University of King's College, Halifax, NS with a Bachelor of Arts in 1984 and earned his Bachelor of Laws at the University of New Brunswick Law School in 1988. Following graduation he clerked for the Federal Court of Canada, Trial Division in Ottawa Canada. He was called to the Bar in New Brunswick in 1990 and remained in private practice until he joined Barrett Corporation in 2001 as General Counsel, where he has managed the company's mergers and acquisitions and financings, and participated in strategic planning and direction for its distribution business in Canada and the US. He holds membership in the Canadian Bar Association and in the Law Society of New Brunswick, where he has served on the Bar Admission Course Committee and as an Instructor for the Course. From 2002 to 2004 Stuart Kinney served as Director of Region 3 Hospital Corporation of New Brunswick, a public sector health services corporation, where he also served as Chair of the Finance and Strategic Planning Committee for two years. For the last ten years he has served as Chair of the Carleton Memorial Hospital Foundation.
BANKING FACILITIES
The Company currently has an overdraft facility of up to US$3.7 million available to it from HSBC. Of this the sum of US$1.9 million is guaranteed by Rory Stear and Gordon Roddick, directors of Freeplay, and Vincent Mai, a shareholder of Freeplay. This facility reduces to US $1.8 million on Admission and expires on 14 May 2007. Dixie has credit facilities of up to US$11 million with PNC Bank, which is guaranteed by Barrett Corporation. Pursuant to the Acquisition Agreement, Barrett Corporation has agreed to maintain its guarantee in respect of this facility at least until 31 December 2007.
REASONS FOR THE PLACING
The net proceeds of the Placing available to the Group after the expenses of the Proposals will be £2.54 million. This will be used to augment the Enlarged Group's working capital facilities in order to facilitate the Enlarged Groupís growth plans allowing capacity to fulfil volume orders as received.
THE PLACING
The Company is proposing to raise approximately £2.54 million (net of expenses) in the Placing by the issue of 11,397,358 new Ordinary Shares at the Placing Price. The Placing will represent approximately 22.89 per cent. of the Enlarged Issued Ordinary Share Capital. The aggregate proceeds of the New Ordinary Shares will be approximately £3.3 million before expenses, of which £2.54 million net of expenses will be receivable by the Company.
Pursuant to its obligations under the Placing Agreement, Charles Stanley has conditionally placed the 11,067,358 new Ordinary Shares at the Placing Price with institutional and other investors. The Placing has not been underwritten by Charles Stanley or any other person.
The Placing Agreement is conditional, inter alia, upon Admission having taken place by not later than 8.30 a.m. on 20 July 2006 or such later time and date, being not later than 8.30 a.m. on 3 August 2006, as the Company and Charles Stanley may agree. The Placing Agreement contains provisions entitling Charles Stanley to terminate the Placing Agreement at any time prior to Admission in certain circumstances. If this right is exercised the Placing will lapse.
Additionally, the Company has conditionally placed 330,000 new Ordinary Shares at the Placing Price with certain of the Directors of the Company.
The Placing Shares will rank pari passu with the existing Ordinary Shares in issue in all respects including the right to receive all dividends declared or paid on the ordinary share capital of the Company on or after Admission.
On Admission the Company will have 49,801,868 Ordinary Shares in issue and a market capitalisation of approximately £14.4 million at the Placing Price. Application has been made to the London Stock Exchange for the Enlarged Issued Ordinary Share Capital to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings will commence on 20 July 2006.
THE CITY CODE
The City Code applies to companies which are registered and traded in the UK, Channel Islands and Isle of Man and which have their registered offices in the UK, Channel Islands and Isle of Man if any of their securities are admitted to trading on a regulated market in the UK or any stock exchange in the Channel Islands or the Isle of Man. In addition, the City Code applies to public companies, which have their registered offices in the UK, Channel Islands or the Isle of Man and which are considered by the Panel to have their place of central management and control in the UK Channel Islands or the Isle of Man.
Freeplay's registered office is in the UK and its Ordinary Shares are traded on AIM. Freeplay's operations and executive management are based in Maitland, South Africa and the majority of board meetings are conducted outside of the UK. Following Admission, the Enlarged Group's operations will be based in Maitland, South Africa and Greensboro, North Carolina, USA. In addition, the majority of Freeplayís and the Enlarged Groupís Board members will not be resident or domiciled in the UK.
Following discussion with the Panel, it has been established that as Freeplay does not, and will not following Admission, have its place of central management in the United Kingdom, the Channel Islands or the Isle of Man, the provisions of the City Code do not apply to Freeplay. Investors should therefore be aware that they will not be afforded the protections of the City Code.
DIVIDEND POLICY
The Board's current intention is to retain the Company's earnings in the foreseeable future to finance growth and further expansion. It is however, the Board's intention to pay dividends when, in the view of the Board, the Company has sufficient cash resources and distributable reserves.
SHARE SCHEMES AND MANAGEMENT INCENTIVE ARRANGEMENTS
The Board believes that the retention of senior management will be a key factor for the success of the Enlarged Group. Consequently, the Company has adopted an unapproved share option scheme for its employees, details. Under the rules of this Scheme the number of options over Ordinary Shares available for grant will not exceed 10 per cent. of the issued share capital of the Company. Options will be granted at market value and will have individually agreed performance targets and vesting periods, to be determined by the Remuneration Committee.
On Admission it is proposed to grant 3,610,635 options over Ordinary Shares to the Directors and Proposed Directors.
EXTRAORDINARY GENERAL MEETING
A notice convening an Extraordinary General Meeting of the Company to be held at 11.00 a.m. on 17 July 2006 at which Shareholders will be asked to consider the Resolutions, necessary to approve and implement the Proposals will be sent to Shareholders.
RELATED PARTY TRANSACTION
Rory Stear, Gordon Roddick and Leonard Fassler, Directors of the Company, are subscribing for 1,000,000, 1,200,000 and 230,000 Ordinary Shares, respectively, under the Placing. Peter Porteus, a Proposed Director, is subscribing for 100,000 Ordinary Shares under the Placing. In addition, Leonard Fassler, Gordon Roddick and Andy Polansky are subscribing for 51,724, 51,724, and 20,689 new Ordinary Shares, respectively, at the Placing Price relating to accrued but unpaid non-executive directorship fees of £15,000, £15,000 and £6,000 respectively.
The subscription by certain of the Directors and the Proposed Director for new Ordinary Shares is regarded as a related party transaction under the AIM Rules. In the opinion of the independent directors, having consulted with Charles Stanley, the subscription by certain of the Directors and the Proposed Director is fair and reasonable as far as Shareholders are concerned.
IRREVOCABLE UNDERTAKINGS
The Directors who own or are interested in 4,394,404 Ordinary Shares representing approximately 21.2 per cent. of Existing Ordinary Shares of the Company have irrevocably undertaken to vote in favour of the Resolution to be proposed at the EGM in respect of their total holdings.
TIMETABLE OF PRINCIPAL EVENTS
| Announcement and Publication of Admission document | 7.00 a.m. on Friday 23 June 2006 |
| Latest time and date for receipt of Forms of Proxy | 11.00 a.m. on 15 July 2006 |
| Extraordinary General Meeting | 11.00 a.m. on Monday 17 July 2006 |
| Admission and commencement of dealings in New Ordinary Shares | 8.00 a.m. on Thursday 20 July 2008 |
| CREST members' accounts credited | Thursday 20 July 2006 |
| Dispatch of definitive share certificates for New Ordinary Shares in certificated form (where applicable) | Friday 28 July 2006 |