RNS announcement

6 July 2010

 

Leo Insurance Services Plc

("Leo" or the "Company")

 

Disposal and Posting of Circular to Shareholders

 

The Board of Leo announces that it is today posting to Shareholders a circular (the "Circular") in relation to the proposed disposal of its 50 per cent. holding in Grafton Insurance Services Limited ("Grafton"), the adoption of an Investing Policy, the issue of Convertible Loan Notes, the change of name of the Company to Palace Capital plc and a Notice of General Meeting.

 

The Company has today entered into a conditional agreement for the disposal of its principal asset, a 50 per cent. interest in Grafton, to Safeland (a company controlled by Larry Lipman and Errol Lipman, both directors of the Company) for a consideration of £90,000.  The consideration is to be settled by way of offset of the outstanding indebtedness owed by the Company to Safeland at Completion (currently totalling approximately £75,000) and the balance in cash.

 

The proposed Disposal constitutes a fundamental change of business by the Group pursuant to Rule 15 of the AIM Rules and is also subject to the provisions of section 190 of the Act.  In accordance with the AIM Rules and the Act, the Company is required to send a circular to Shareholders setting out the reasons for, and principal terms of, the Disposal, and also details of the Company's proposed investing policy following Completion and to seek Shareholders' approval for the Disposal and the proposed Investing Policy.  A notice convening a GM of the Company for 10.15 a.m. on 30 July 2010 to consider the Resolutions is set out in the Circular.

 

In addition, the Company has been notified that immediately following Completion, Leo Holdings (2008) Corporation will sell 2,157,570 Ordinary Shares (representing approximately 29.9 per cent. of the issued share capital of the Company) to Neil Sinclair, Pamela Sinclair, London Active Management Limited (a company controlled by Neil and Pamela Sinclair), Stanley Davis and Andrew Perloff.

 

Upon completion of the Disposal, Neil Sinclair and Stanley Davis will be appointed as Directors of the Company and all the Existing Directors of the Company will then resign immediately from the Board.

 

The full text of the letter to Shareholders from Edward Young, the non-executive director of the Company, which is included in the Circular, is set out below.

 

For further information please contact:

 

Leo Insurance Services Limited Paul Davis, Finance Director	020 8815 1600
Arbuthnot Securities Limited Hugh Field / Ed Groome	020 7012 2000

 

Definitions used in this announcement have the same meanings as given to them in the Circular unless the context requires otherwise.

 

Arbuthnot Securities Limited, which is authorised and regulated in the United Kingdom by the Financial Services Authority, is acting exclusively for the Company in connection with the Disposal and will not be responsible to any person other than the Company for providing the protections afforded to its customers or for advising any other person on the contents of this document or any matter, transaction or arrangement referred to herein. The responsibilities of Arbuthnot Securities Limited as the Company's nominated adviser and broker under the AIM Rules are owed solely to London Stock Exchange plc and are not owed to the Company or to any Director, shareholder or any other person. Arbuthnot Securities Limited is not making any representation or warranty, express or implied, as to the contents of this document.

 

Full text of the letter to Shareholders from Edward Young

 

"1.  Introduction

 

The Company has today entered into a conditional agreement for the disposal of its principal asset, a 50 per cent. interest in Grafton, to Safeland (a company controlled by Larry Lipman and Errol Lipman, both directors of the Company) for a consideration of £90,000.  The consideration is to be settled by way of offset of the outstanding indebtedness owed by the Company to Safeland at Completion (currently totalling approximately £75,000) and the balance in cash.

 

The proposed Disposal constitutes a fundamental change of business by the Group pursuant to Rule 15 of the AIM Rules and is also subject to the provisions of section 190 of the Act.  Accordingly, in accordance with the AIM Rules and the Act, the Company is required to send a circular to Shareholders setting out the reasons for, and principal terms of, the Disposal, and also details of the Company's proposed investing policy following Completion and to seek Shareholders' approval for the Disposal and the proposed Investing Policy.  A notice convening a GM of the Company for 10.15 a.m. on 30 July 2010 to consider the Resolutions is accordingly set out at the end of this document.

 

The Company has been notified that, immediately following Completion which is expected to be on 30 July 2010, Leo Holdings (2008) Corporation (a company controlled by Larry Lipman and Errol Lipman, both directors of the Company) has agreed to sell in aggregate 2,157,570 Ordinary Shares (representing approximately 29.9 per cent. of the issued share capital of the Company) to Neil Sinclair, London Active Management Ltd (a company controlled by Neil and Pamela Sinclair), Stanley Davis, Pamela Sinclair (wife of Neil Sinclair) and Andrew Perloff (the ("Purchasers") at a price of 2.25 pence per Ordinary Share.  The Purchasers have agreed to acquire the Ordinary Shares as follows:

 

	Ordinary Shares	Percentage of Ordinary Shares in issue
Neil Sinclair	450,000	6.24%
Andrew Perloff	719,190	9.97%
Stanley Davis	719,190	9.97%
London Active Management Ltd	179,190	2.48%
Pamela Sinclair	90,000	1.25%

 

As a result, the shareholding of Leo Holdings (2008) Corporation will be reduced to 476,356 Ordinary Shares (representing 6.6 per cent. of the issued share capital of the Company).  For the avoidance of doubt, after this sale, (i) through the shareholding of Safeland in the Company, Larry Lipman and Errol Lipman will each continue to have an interest in 511,919 Ordinary Shares (representing 7.09 per cent. of the issued share capital of the Company); (ii) Larry Lipman will continue to have a beneficial interest in 65,283 Ordinary Shares (representing 0.09 per cent. of the issued share capital of the Company); and (iii) Errol Lipman will continue to have a beneficial interest in 173,110 Ordinary Shares (representing 2.4 per cent. of the issued share capital of the Company).  Paul Davis will continue to have a beneficial interest in 24,346 Ordinary Shares (representing 0.03 per cent. of the issued share capital of the Company).

 

In addition, Andrew Perloff and Stanley Davis have entered into an agreement with Safeland to acquire all the Preference Shares in issue for a total consideration not exceeding £15,000.

 

As part of these arrangements, on the date of Completion (i) Neil Sinclair and Stanley Davis (the "Proposed Directors") will be appointed as Directors of the Company; and (ii) all the Existing Directors of the Company will then resign immediately from the Board.

 

Details of the Disposal (which is conditional, inter alia, on Shareholder approval) and the Proposed Directors' proposals in relation to the Investing Policy and the short term financing of the Company following Completion are set out below.  It is also proposed that, subject to Completion, the Company's name be changed to "Palace Capital plc" as the Proposed Directors do not consider that the current name reflects the proposed Investing Policy.

 

2.     Background to and reasons for the Disposal

 

Leo was admitted to trading on AIM in March 2005, having been demerged from Safeland. Leo subsequently acquired an effective 50 per cent. interest in Grafton in December 2005. The other shares in Grafton are owned by members of the executive management team of Grafton and a third party investor.

 

Grafton is a brokerage specialising in property insurance whose main asset is a long term contract for the provision of property insurance services with Safeland which expires in December 2013.  This long term contract was entered into in December 2005, when the initial stake was taken by the Company in Grafton.

 

It was intended that the Board of Leo would source a number of potential businesses that would be suitable for acquisition and to inject substantial third party business into Grafton.  As Shareholders know, unfortunately, none has been completed.

 

Whilst Grafton itself has been profitable (the Company's share of the results of its interest in Grafton in the year ended 31 January 2010 was a post-tax profit of £34,061), the costs of running Leo as a public company (£79,051 in the same period) are in excess of the share of profits from Grafton attributable to Leo.  Leo reported a consolidated loss after tax for the year ended 31 January 2010 of £50,840.  The Group's net liabilities as at 31 January 2010 were £95,968, whilst the Company's interest in Grafton was carried as a non-current asset of £20,237.  Source: Leo's Annual Report for the year ended 31 January 2010.

 

In order to ensure that Leo has been able to continue as a going concern, Safeland has for a number of years been supporting Leo financially.  However, without the prospect of an improvement in the financial position or trading performance of Leo in the short term, Safeland is unwilling to continue that support and therefore the Existing Directors have sought alternative options.

 

An approach was received by the Existing Directors from the Purchasers to acquire a 29.9 per cent. stake in the ordinary share capital of the Company from existing Shareholders, subject to the Company selling its 50 per cent. interest in Grafton.

 

The Existing Directors commissioned a "fair market valuation" of the Company's interest in Grafton (being "the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant fact") from an independent third party, Fisher Corporate PLC. 

 

The Company has agreed to dispose of its effective 50 per cent. interest in Grafton (being 100 per cent of the "B" shares in Grafton) to Safeland for £90,000, which is in line with the "fair market valuation" provided to the Board.  The consideration of £90,000 is to be settled by way of offset of the outstanding indebtedness owed by the Company to Safeland at Completion (currently totalling approximately £75,000) and the balance in cash.  

 

Assuming the Disposal is approved by the Company's shareholders, the Proposed Directors will be appointed to the Board and all the Existing Directors will step down from the Board.  At the time of Completion, Safeland will also withdraw its financial support for the Company. 

 

In addition and subject to Completion (i) Safeland has also agreed to sell to Andrew Perloff and Stanley Davis all of the Preference Shares for up to £15,000; and (ii) Messrs. Larry Lipman, Errol Lipman and Paul Davis have each agreed with the Company to waive, for nil consideration, all of the outstanding options (being in respect of 911,458 Ordinary Shares each and in aggregate outstanding unexpired options over 2,734,374 Ordinary Shares) that have been issued over Ordinary Shares in Leo.

 

At Completion and prior to the subscription of the Convertible Loan Notes referred to below, the Company is expected to have approximately £85,000 of net liabilities.  Accordingly, following Completion, the Company will be wholly dependent on the Proposed Directors providing or procuring adequate financial support to the Group to enable it to meet its liabilities as they fall due.  Shareholders' attention is therefore drawn to paragraphs 5 and 6 below.

 

The value of the Company's net assets has reached a level that is less than half of its called-up share capital. In such circumstances, the Directors are required under section 656 of the Act to convene a general meeting of the Company for the purpose of considering whether any, and if so what, steps should be taken to deal with the situation.  This matter will be considered at the GM.  The steps which are recommended by the Directors are set out below; if the steps as further described in this paragraph 2 and in paragraphs 5 and 6 of this letter are implemented, the Proposed Directors do not consider that any additional action needs to be taken to deal with this situation.

 

3.     Proposed Directors

 

Details of the Proposed Directors are as follows:

 

Ronald Neil Sinclair, aged 67

Neil has nearly 50 years' experience in the property sector. He was a founder of Sinclair Goldsmith Chartered Surveyors which was admitted to the Official List in 1987 and subsequently merged with Conrad Ritblat in 1993, when he became Executive Deputy Chairman. Neil was appointed Non-Executive Chairman of Baker Lorenz, surveyors in 1999 and which was sold to Hercules Property Services plc in 2001. He was appointed a Non-Executive Director of Tops Estates plc, a fully listed company, in 2003 and remained so until it was sold to Land Securities plc in 2005. He was one of the founders of Mission Capital plc, which was admitted to AIM in 2005, and was Executive Chairman until February 2008. He was also featured in "Top 100 Property People in Property Week" in 2003.

 

He was elected Chief Barker (Chairman) for 1991 for the Variety Club Children's Charity one of the country's premier charities and is still a Trustee. He co-founded "the PROPS", one of the industry's leading events which has raised in excess of £6 million for the Variety Club's Easy Riders Wheelchair Programme.  He is also a Director and a Vice President of Variety International, the Children's Charity based in Los Angeles which raises in excess of £30m per annum for sick, disabled and disadvantaged children.

 

Stanley Davis, aged 72

Stanley is a successful serial entrepreneur who has been involved in the City of London since 1977. His founding company was company registration agents Stanley Davis Company Services Limited which he sold in 1988. In 1990 he became Chief Executive of a small share registration company which became known as IRG plc and acquired a number of businesses including Barclays Bank Registrars and was sold for a substantial sum to The Capita Group plc. He is Chairman of Stanley Davis Group Limited specialising in company formations, property and company searches. He is also Chairman of Strategic Global Investments Limited and Tadsec Advanced Homeland Security Technologies Ltd, Israel.

 

Service Contracts

The Proposed Directors will not have service contracts and will not receive any fees or salary until the Company has completed an acquisition.

 

Board Composition

In addition, the Company has been notified that it is the intention of the Proposed Directors that in due course following Completion, a new independent non-executive director will be appointed to the Board.

 

4.     Proposed investing policy

 

If the Disposal is completed, the Company will be required under AIM Rules to adopt an investing policy which must also be approved by Shareholders at the GM. 

 

The objective will be to create shareholder value through making property related investments.  The intention is to build the Company by selected acquisitions using its Ordinary Shares where appropriate to fund acquisitions. It is intended that the Company will take an active role in managing the investments by integrating them into the Group.

 

Initial focus by the Proposed Directors will be investment opportunities relating to car parks, outdoor advertising and billboarding and care homes.  The Proposed Directors consider that car parking is a recession resistant business and that shortage of capacity in many towns is a significant issue.  Therefore the Proposed Directors will initially focus on acquiring companies that manage car parks for third parties or car parks themselves or available vacant development sites which are unlikely to be built upon for some time.  The Proposed Directors are aware of a number of sites which might provide car parking opportunities.  The Proposed Directors believe that car parks also have considerable synergy with the billboard and outdoor advertising industries.

 

The proposed Investing Policy, following Completion, will be for the Company to seek to make property related acquisitions or investments which may include:

 

(i)    freehold or long leasehold property or asset backed businesses owning freehold or long leasehold property;

(ii)   property-related businesses which manage asset backed businesses;

(iii)  distressed properties, in partnership with others, where the Company would manage the asset(s) for a fee and participate in any potential upside;

(iv)  private property companies; and

(v)   property services businesses where the majority of the income is effectively recurring, such as property management, rating and utility brokerage.

 

There will be no maximum exposure limit to any single investment nor restriction on gearing or cross holdings.  However, it is currently expected that, at least, the first acquisition would constitute a Reverse Takeover for the purposes of the AIM Rules which would be conditional, inter alia, on the consent of Shareholders in General Meeting and require the publication of a new Admission Document.  The nature of the returns to Shareholders will be dependent on the assets acquired.  After an acquisition has been made, it is expected that returns to Shareholders would be initially in the form of capital appreciation but the Proposed Directors will consider the payment of dividends if and when the Company has sufficient cash resources and retained reserves.

 

The Proposed Directors consider that this is an appropriate time in the property and economic cycle to implement this strategy. 

 

As a result of the Disposal and in accordance with AIM Rule 15, the Investing Policy must be approved by Shareholders in general meeting and the Company must implement the Investing Policy within 12 months of Completion, otherwise trading in the Company's Ordinary Shares on AIM will be suspended in accordance with AIM Rule 40.  If following suspension of the Ordinary Shares in accordance with AIM Rule 40, the Ordinary Shares have not been re-admitted to trading on AIM within six months, the admission of the Ordinary Shares to trading on AIM will be cancelled.

 

5.     Financing of Company post Completion

 

As Shareholders are aware, the Company has been dependent on the financial support of Safeland for a number of years to enable it and the Group to continue trading.  Upon completion of the Disposal and the withdrawal of Safeland's financial support for the Company, the Company is expected to have approximately £85,000 of net liabilities (including in respect of the Preference Shares) and will be wholly dependent on the Proposed Directors providing or procuring adequate financial support to the Company to enable it to meet its liabilities as and when they fall due.

 

Andrew Perloff and Stanley Davis, who have entered into an agreement to purchase the Preference Shares, have therefore given an irrevocable undertaking to the Company that the Preference Shares will only be redeemed if the Company has sufficient distributable reserves to effect the redemption and the Directors of the Company unanimously decide that there is adequate cash resources within the Company to enable the Company and the Group to meet their liabilities as they fall due for at least 12 months from the date of any such redemption.

 

The Company has also agreed, conditional on the appointment of the Proposed Directors to the Board, to issue the Convertible Loan Notes which will be subscribed for by the Purchasers (as described in more detail in paragraph 6 below).  The issue of the Convertible Loan Notes will provide a further injection of £60,000 into the Company which will be used to pay for professional costs incurred in connection with the Disposal and to fund working capital in the short term.

 

The Proposed Directors believe that the funds immediately available to the Group, which the Proposed Directors expect to be approximately £75,000 after Completion and subscription of the Convertible Loan Notes, will only be sufficient to cover the costs of the Company and the Group for six months and Shareholders should therefore note that the Company will be dependent on raising an alternative source of funding within that time period, probably through a placing, in order to enable the Company to continue as a going concern and to redeem the Preference Shares.

 

Implementation of the Investing Policy by the Proposed Directors is therefore wholly dependent on the Company raising further capital or using its Ordinary Shares to fund acquisitions.

 

6.     Convertible Loan Notes

 

The Company has agreed to issue £60,000 of Convertible Loan Notes for which the Purchasers have undertaken to subscribe, conditional upon, inter alia, the passing of the Resolutions, the completion of the Disposal and the appointment of the Proposed Directors to the Board.

 

Unless converted into Ordinary Shares, the Convertible Loan Notes are required to be repaid in cash on or before 31 July 2012.  No coupon will be payable on the outstanding Convertible Loan Notes.

 

The Convertible Loan Notes are convertible on or before 31 July 2012 at 2.25 pence per Ordinary Share.  Assuming full conversion of the Convertible Loan Notes, 2,666,667 Ordinary Shares would be issued (equating to 27.0 per cent. of the current issued Ordinary Shares as enlarged by the Ordinary Shares to be issued on such conversion).

 

The following have agreed to subscribe for Convertible Loan Notes, which would if converted, require the issue to them of the following Ordinary Shares:

 

	Convertible Loan Notes	Ordinary Shares required to be issued upon conversion
Neil Sinclair	£2,000	88,889
Andrew Perloff	£24,500	1,088,889
Stanley Davis	£31,500	1,400,000
London Active Management Ltd	£2,000	88,889

 

No waiver of any obligation to each, or any, of the Purchasers to make a mandatory offer to Shareholders under Rule 9 of the City Code on conversion of the Convertible Loan Notes has been sought. 

 

7.     General Meeting

 

Set out at the end of this document is a notice convening the GM of the Company for 10.15 a.m. on 30 July 2010 to be held at the offices of Hamlins LLP, Roxburghe House, 273/287 Regent Street, London W1B 2AD.

 

As set out in paragraph 2 above, Shareholders will be able to consider, in accordance section 656 of the Act, at the GM whether any, and if so what, steps should be taken to deal with the reduction in net assets.

 

The following resolutions will be proposed at the GM:

 

·           Resolution 1 is an ordinary resolution to authorise the Directors to sell the Company's interest in Grafton.  The Disposal constitutes a transaction by the Company resulting in a fundamental change of business for the purpose of Rule 15 of the AIM Rules and a substantial property transaction for the purposes of section 190 of the Act, and accordingly the completion of the Disposal and the adoption of the proposed Investing Policy require the approval of Shareholders in a general meeting;

 

·           Resolution 2 is an ordinary resolution to authorise the Directors to approve and implement the Investing Policy;

 

·           Resolution 3 is an ordinary resolution to authorise the Directors under section 551 of the Act to issue Ordinary Shares.  With respect to the Convertible Loan Notes, the Act requires that the authority of Directors to allot relevant securities should be subject to the approval of Shareholders in general meeting or to an authority set out in the Company's Articles of Association.  Resolution 3 will be proposed at the General Meeting as an ordinary resolution to authorise the Directors to issue the Convertible Loan Notes up to a total nominal value of £60,000 representing 2,666,667 new Ordinary Shares on conversion.  This authority will expire 15 months after the passing of the Resolution;

 

·           Resolution 4 is a special resolution conditional upon the completion of the Disposal to change the name of the Company to "Palace Capital plc"; and

 

·           Resolution 5 is a special resolution to disapply statutory pre-emption rights under section 571 of the Act in respect of the issue of the Convertible Loan Notes which are convertible into Ordinary Shares.  The Act requires that any equity securities issued wholly for cash must be offered to existing Shareholders in proportion to their existing holdings unless otherwise approved by Shareholders in general meeting or accepted under the Company's Articles of Association.  Accordingly, a special resolution will be proposed at the GM to vary the Directors' authority to issue Convertible Loan Notes for cash other than on a pro-rata basis.  This authority will expire 15 months after the passing of the Resolution.

 

8.     Action to be taken

 

A Form of Proxy is enclosed for use at the GM.  Whether or not you intend to be present at the meeting you are requested to complete, sign and return the Form of Proxy in accordance with the instructions printed thereon to the Company's registrars, Capita Registrars, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU, as soon as possible but in any event so as to arrive not later than 10.15 a.m. on 28 July 2010.  The completion and return of the Form of Proxy will not preclude Shareholders from attending the GM and voting in person should you subsequently wish to do so.

 

9.     Documents available

 

Copies of this document will be available to the public, free of charge, at the Company's registered office and at the offices of Arbuthnot Securities at Arbuthnot House, 20 Ropemaker Street, London EC2Y 9AR during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) for one month from the date of this document.  This document will also be available on the Company's website, www.leoinsurance.co.uk.

 

10.  Related party transactions

 

As the Existing Directors are all directors of Safeland and themselves comprise a majority of the directors of Safeland, (i) the Disposal is deemed a related party transaction pursuant to Rule 13 of the AIM Rules; and (ii) all of the Existing Directors are considered to be involved in the Disposal as a related party for the purposes of Rule 13 of the AIM Rules.

 

Accordingly Arbuthnot Securities, in its role as nominated adviser to the Company, has confirmed to the Board of the Company that it considers that the terms of the Disposal are fair and reasonable insofar as Shareholders are concerned.

 

11.  Recommendation

 

The Directors consider that the Disposal and, subject to Completion, the adoption of the proposed Investing Policy, the issue of the Convertible Loan Notes and proposed change of name are in the best interests of the Company and its Shareholders as a whole, and therefore unanimously recommend that Shareholders vote in favour of all the Resolutions to be proposed at the GM as they intend to do in respect of their beneficial holdings, which in aggregate amount to 262,739 Ordinary Shares, representing approximately 3.65 per cent. of the Company's issued share capital."

 

 

--ENDS--