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White Young Green (WHY)

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Wednesday 09 December, 2009

White Young Green

Notice of EGM & Proposed Rest

RNS Number : 8211D
White Young Green PLC
09 December 2009
 



White Young Green plc ("White Young Green" or the "Company")


Notice of Extraordinary General Meeting


Proposed Restructuring


Introduction


Further to the announcement on 30 October 2009 regarding the Company's proposed capital restructuring, the Board of White Young Green announces that a circular convening an extraordinary general meeting relating to the Restructuring is expected to be posted to Shareholders today.


The Circular contains Proposals (further details of which are set out below) for which Shareholder approval is required in order to implement the Restructuring.  


The purpose of the Restructuring, which is described below, is to reduce the level of the Group's debt and to create a strengthened and more appropriate capital structure as a platform upon which to build a sustainable, strong and resilient long term business that is better positioned to compete more effectively.


The Board believes that the Proposals, including the Restructuring, are in the best interests of Shareholders and that it is very important that Shareholders vote in favour of the Restructuring Resolutions at the EGM, to be held on 6 January 2010, so that the Restructuring can proceed. It is likely that failure to pass the Restructuring Resolutions would lead to the Company entering into administration or some other form of insolvency procedure


The EGM is to be held at 2.00 p.m. on 6 January 2010 at the Village Hotel, 186 Otley Road, Headingley, Leeds LS16 5PR.


John Richardson, one of the Independent Directors, who was due to retire from the Board on 31 December 2009, will remain as a director until 31 January 2010.


Copies of the Circular have been submitted to the UK Listing Authority and will shortly be available for inspection by the public during normal business hours on any week day (public holidays excepted) at the UK Listing Authority's Document Viewing Facility, which is situated at the Financial Services Authority, 25 The North Colonnade, Canary Wharf, London E14 5HS and the Circular will also be available on the Company's website and at the Company's registered office (Arndale Court, Headingley, Leeds LS6 2UJ).


Unless otherwise defined, capitalised terms in this announcement have the same meaning as in the Circular dated 9 December 2009.


For further information, please contact:


White Young Green plc

Tel: 0113 278 7111

Paul Hamer, Chief Executive Officer


David Wilton, Group Finance Director




Rothschild

Tel: 0113 200 1900

David Forbes / Stephen Moore




Financial Dynamics

Tel: 020 7269 7291

Jon Simmons



The Proposals


The Board announced on 30 October 2009 that it had signed heads of terms with the Lenders for the refinancing of the Company's bank facilities, combined with a broader restructuring of the Company's capital structure, which includes the conversion of approximately £52.9 million of the Group's indebtedness into New Ordinary Shares and Preference Shares. The Restructuring is conditional on, amongst other things, Shareholder approval of the Proposals.


The principal terms of the Proposals, including the Restructuring, are as follows:


  • The conversion of approximately £22.9 million of debt held by the Lenders in exchange for 29,993,441 Post-Consolidation New Ordinary Shares;


  • The conversion of £30.0 million of additional debt held by the Lenders in return for 27.6 million ''A'' Preference Shares with a nominal value of £27.6 million and 2.4 million ''B'' Preference Shares with a nominal value of £2.4 million;


  • The adoption of two new share incentive schemes by the Company, being the White Young Green Joint Share Ownership Plan 2009 and the White Young Green Performance Share Plan 2009. The Lenders have required, as a condition to the Restructuring proceeding, that arrangements are put in place to appropriately incentivise certain employees, and the Company has determined that the New Share Incentive Plans will best achieve that end;


  • As a condition of the Restructuring, the Lenders have directed that the 2.4 million ''B'' Preference Shares and 8,631,111 Post-Consolidation New Ordinary Shares that would otherwise be issued directly to the Lenders on the conversion of the debt, be instead issued directly to the New Employee Benefit Trust, with the intention that: 


  •     such ''B'' Preference Shares will be used to incentivise the Related Party Managers and Related Party Directors (excluding Mike McTighe) by way of satisfying awards over ''B'' Preference Shares proposed to be made to such individuals under the White Young Green Performance Share Plan 2009;


  •     705,797 Post-Consolidation New Ordinary Shares, representing 2 per cent. of the Enlarged Issued Share Capital of the Company (or, if less, such number of Post-Consolidation New Ordinary Shares as have a market value of £250,000 at the time that the One-Off Award is offered to Mike McTighe), will be used for the purpose of the One-Off Award proposed to be granted to incentivise Mike McTighe (who will be an Investor Director nominated by the Lenders with effect from Completion); and


  •     the remainder of such Post-Consolidation New Ordinary Shares will be used in part for the purpose of making proposed awards over Ordinary Shares to the Related Party Managers and Related Party Directors (excluding Mike McTighe) and awards to other Employees, determined at the discretion of the Remuneration Committee under the White Young Green Joint Share Ownership Plan 2009, and in part for the purpose of making awards over Ordinary Shares pursuant to the White Young Green Performance Share Plan 2009 to certain Employees, to be determined at the discretion of the Remuneration Committee.


  • Refinanced Lending Facilities totalling £58.25 million, comprising £50.0 million of term debt and £8.25 million of working capital facilities will be provided by the Lenders. In addition, 38.0 million of committed bonding facilities are to be provided by the Lenders; and


  • Cancellation of admission of the Ordinary Shares to the Official List and to trading on the London Stock Exchange's main market for listed securities and admission of the Enlarged Issued Share Capital to trading on AIM, as the Company will no longer have sufficient shares in public hands to be able to maintain its listing on the Official List. Cancellation of the listing on the Official List requires Shareholder approval.


Immediately following Completion (and before any awards over Ordinary Shares have been made by the New Employee Benefit Trust):


  • The Lenders will own 60.5 per cent.;


  • The New Employee Benefit Trust will own 24.5 per cent.; and


  • Existing Shareholders (including the existing stakes of Related Party Managers and Related Party Directors and certain Employees) will own 15.0 per cent.


of the Enlarged Issued Share Capital.


The proposed new capital structure immediately following the Restructuring represents the final outcome of the Board's negotiations with the Lenders. The Group's liabilities will be reduced and net assets increased as a consequence of the conversion of approximately £52.9 million of indebtedness into equity. The Restructuring seeks to address the adverse impact of White Young Green's existing unsustainable indebtedness and associated interest cost on its business, whilst retaining the opportunity to deliver value to Shareholders in the future. As a result of the Restructuring, the credit profile of the Group is expected to be substantially enhanced with regard to suppliers and customers. This solution has been negotiated with a view to providing the Group with a strengthened and sustainable long-term capital structure. This proposed structure is considered by the Board to be crucial in ensuring that the Group can address its financial obligations in the future, which the Board believes is critical to the Company's ability to create value for Shareholders.


As a result of the Restructuring, the Group's earnings will be affected by:


  • the increased margin payable under the terms of the Restructured Facilities Agreement compared to the terms of the Existing Facilities Agreement;


  • the reduction in the total amount of the Group's debt;


  • any changes in LIBOR (to the extent not hedged), which will affect the interest payable by the Company on the Refinanced Lending Facilities under the terms of the Restructured Facilities Agreement;


  • the fees and commissions payable under the terms of the Restructured Facilities Agreement compared to the terms of the Existing Facilities Agreement;


  • any Preference Dividend paid; and


  • the Redemption Premium payable, dependent on when the redemption of the Preference Shares occurs.


The Proposals, including the Restructuring, are conditional upon, inter alia, Shareholders' approval being obtained at the EGM. The arrangements in connection with the Issue to the New Employee Benefit Trust, the implementation of the Investment Agreement and the Framework Agreement, the proposed grant of awards under the White Young Green Performance Share Plan 2009 to the Related Party Directors (other than Mike McTighe) and the Related Party Managers, the proposed grant of the One-Off Award to Mike McTighe and the proposed grant of awards under the White Young Green Joint Share Ownership Plan 2009 to the Related Party Directors (other than Mike McTighe) and the Related Party Managers will be classified as related party transactions under the Listing Rules and require approval by the Independent Shareholders at the EGM.


The Board is of the view that the Restructuring represents the best prospect for securing a significantly strengthened capital structure for the Group and the continuing support of its Lenders, upon which the Group is dependent for its ability to trade. 


The Directors will not be able to proceed with the Restructuring unless and until all the proposed Restructuring Resolutions are approved at the EGM, since the Restructuring Resolutions are inter-conditional.


Furthermore, the Board believes that, without the Restructuring proceeding, the Group would be unable to continue to operate within the Existing Lending Facilities and would be in default under the Existing Facilities Agreement.  There already exist certain defaults under the Existing Facilities Agreement, in relation to which the Lenders have agreed to suspend any enforcement action (but not to waive the relevant breaches) until the earlier of (i) 5.00 p.m. on 8 January 2010; and (ii) the date (if any) on which the Lenders terminate their obligations to enter into the Restructuring, which they are entitled to do, inter alia, if Shareholders fail to pass all of the Restructuring Resolutions at the EGM. In addition, the Lenders have agreed to defer testing of the financial covenants until the same time. If, however, the Restructuring Resolutions are all passed and Completion takes place, then the Existing Facilities Agreement (and any breaches under it) will fall away and be replaced by the Restructured Facilities Agreement. The Board is of the view that alternative funding sources are very unlikely to be available and, in this event, the Group would be unable to sustain its position as a going concern. Therefore, it is likely that failure to pass the Restructuring Resolutions would lead to the Group entering into administration or some other form of insolvency procedure, which would, in the Board's opinion, result in Shareholders receiving no value for their current shareholdings.


Shareholders are therefore strongly recommended to vote in favour of all of the Resolutions to be proposed at the EGM by completing the Form of Proxy accompanying the Circular and returning it to the address marked on it as soon as possible and, in any event, so as to be received by no later than 2.00 p.m. on 4 January 2010.


Background to and reasons for the Restructuring


White Young Green underwent a sustained period of continuous revenue and earnings growth until 2008. Revenue and profit before tax grew by 195 per cent. and 207 per cent. to £232.1 million and £21.0 million respectively over the four years ended 30 June 2008. During this time the Company acquired a total of 15 businesses for a total consideration (including potential deferred consideration) of approximately £103.4 million, funded through a mixture of debt and equity. Approximately £66 million of the total consideration paid has been funded using debt which resulted in the Company's ratio of net debt to EBITDA increasing from 1.3 times to 2.1 times over the same period.


As at 30 June 2008, the Group had net debt of £68.2 million (including accrued interest and fees) and contingent exposures to certain of the Lenders of approximately £26.7 million under bonding arrangements. Audited EBITDA for the year then ended was £32.1 million, which resulted in the Company's ratio of net debt to EBITDA of 2.1 times (or 3.0 times including contingent bonding exposures). (These figures have been calculated without material adjustment from the annual report and accounts of White Young Green as at and for the year ended 30 June 2008.)


As set out in the unaudited interim results for the six months ended 31 December 2008 and further described in the audited results for the year ended 30 June 2009, trading conditions in White Young Green's key markets have been extremely challenging, and are expected by the Directors to continue to be so for some time due to the prolonged recession, the expectation of a slow recovery, particularly in the UK and the Republic of Ireland, and the predicted cuts in public sector spending. The impact of the global economic downturn in mid to late 2008 and early 2009 has had a materially detrimental impact on the Company's performance. For the year ended 30 June 2009 gross revenue fell by 7.3 per cent. to £261.6 million and profit before tax (before exceptional items) fell by 42.4 per cent. to £12.1 million. The Company reported a loss before tax (after exceptional items) of £128.9 million for the year ended 30 June 2009 (2008: profit before tax (after exceptional items) of £16.8 million). (These figures have been extracted without material adjustment from the annual report and accounts of White Young Green for the year ended 30 June 2009.)


The Board, recognising the likelihood of a prolonged period of uncertain and challenging market conditions, acknowledged that the combination of the Company's capital structure and weakening financial performance created material risks for its ability to continue to operate within the terms of the Existing Facilities Agreement. The Company considered raising finance through an equity issue in order to ensure that, despite any further downturn in trading performance, the Group would continue to be able to satisfy its existing banking covenants. For a variety of reasons, the Company was unable to complete any such fundraising. On 25 February 2009, the Board announced that it believed that the Company was at risk of breaching the covenants under the Existing Facilities Agreement and entered into negotiations with the Lenders.


Since that time, the Company has been in intensive discussions with its Lenders and has undertaken extensive work to agree a solution to rebalance its capital structure on a strengthened basis, to reduce the Company's level of borrowings and to refinance the Group's existing indebtedness. It has also considered other alternatives, such as obtaining funding from other sources and a possible sale of parts or all of the business.


Following the appointment of David Wilton as Group Finance Director on 10 February 2009, the Group undertook an extensive review of its forecasts and systems and has also carried out a detailed exercise to re-examine the carrying value of goodwill, properties, debtors, work-in-progress and other assets on its balance sheet, the results of which were disclosed in the audited results for the year ended 30 June 2009.  As described in these results, the Company incurred an exceptional charge of £138.8 million for the year ended 30 June 2009, mainly arising from the write down in the carrying value of these assets.


In addition, adverse working capital flows arising from deterioration in debtor days and work-in-progress days, as well as resulting indirectly from the write-downs in debtor and work-in-progress balances that were previously believed to be realisable, and adverse exchange rate movements which were not adequately protected through the Group's foreign currency hedging strategies, caused net debt to increase above previous expectations during the year ended 30 June 2009. As at 30 June 2009, the Group had gross borrowings of approximately £96.2 million (including accrued interest and fees). The Group also had a contingent exposure to certain of the Lenders of approximately £31.0 million under bonding arrangements. At 30 June 2009, the Group had net debt of £88.7 million (including accrued interest and fees but excluding restricted cash balances). EBITDA for the year then ended was £22.6 million,  which resulted in the ratio of net debt to EBITDA increasing from 2.1 times to 3.9 times over the same period (or from 3.0 times to 5.3 times including contingent bonding exposures).


The Board has also concluded that the level of debt within the Group is materially in excess of that supportable by the current and expected level of trading performance due to the prolonged recession which continues to result in significant reductions in activity, particularly in the UK and the Republic of Ireland. The Board also believes, based on the trading value of its quoted peers and its own forecasts of trading performance, that the enterprise value of the business is materially lower than its borrowings and that the Group cannot continue to compete effectively in its markets unless there is a substantial reduction in the level of debt carried by the Group. As announced on 25 August 2009, the discussions with the Lenders developed to the stage where the only available options being considered by the Company and its Lenders would involve a material dilution to Existing Shareholders' holdings in the

Company and could lead to the Company not meeting the requirements, in respect of the percentage of the issued share capital in public hands, to remain on the Official List.


The Restructuring represents the conclusion of these negotiations. The Board believes that the

Restructuring will provide the Group with a strengthened and sustainable long term capital structure enabling the Company to compete more effectively in the current challenging environment. The Restructuring will reduce the indebtedness of the Company by approximately £52.9 million through the conversion of borrowings into New Ordinary Shares and Preference Shares.


During the past 18 months, the Board has been strengthened with new appointments. Mike McTighe joined as Non-Executive Chairman and will be an Investor Director nominated by the Lenders with effect from Completion, Paul Hamer was appointed as Chief Executive Officer, Graham Olver joined as Group Services Director and Company Secretary and, as mentioned above, David Wilton joined as Group Finance Director. The Directors now believe that they have a strong and focused board.


Cost saving initiatives


In response to the downturn in activity in mid to late 2008 and early 2009, the Board took swift and decisive action to restructure the Group's operations. At the same time as the interim results to 31 December 2008 were published, the Board announced cost saving measures to reduce the headcount by 235, resulting in annualised cost savings of approximately £5.7 million, after restructuring costs of £1.6 million, with additional non-payroll savings of £2.4 million also being made. This was augmented by a further headcount reduction of 324 and the closure of seven regional offices announced on 18 May 2009.


Since then, the Board has continued to focus on cost control and making the business more efficient. As a result the Group has now closed a total of 17 offices and has reduced headcount by 800 full-time equivalent employees.


The decisive actions taken by the Board to introduce swift cost saving initiatives and restructure the Group's operations has created a more focused and efficient business.


Placing to the Lenders


In exchange for the conversion of approximately £22.9 million of debt, 29,993,441 Post-Consolidation New Ordinary Shares have been conditionally placed to the Lenders. 


Of the 29,993,441 Post-Consolidation New Ordinary Shares conditionally placed to the Lenders, 21,362,330 Post-Consolidation New Ordinary Shares shall be issued to the Lenders representing, in aggregate, 60.5 per cent. of the Enlarged Issued Share Capital of the Company, and in relation to the remaining Post-Consolidation New Ordinary Shares, representing in aggregate 24.5 per cent. of the Enlarged Issued Share Capital of the Company, to which the Lenders would otherwise be entitled on conversion of such debt, the Lenders have directed that the same be issued to the New Employee Benefit Trust.


In order to convert approximately £22.9 million of outstanding borrowings under the Existing Lending Facilities into Post-Consolidation New Ordinary Shares under the Placing to the Lenders (excluding the £30.0 million of outstanding borrowings to be converted to equity via the issue of the Preference Shares), and to thereby grant the Lenders an interest in 60.5 per cent. of the Enlarged Issued Share Capital of the Company (with 24.5 per cent of the Enlarged Issued Share Capital to be issued to the New Employee Benefit Trust at the direction of the Lenders), the Placing Price will be approximately 7.6 pence, which represents an approximate 35.0 per cent. discount to the Closing Price of 11.75 pence per Ordinary Share on 29 October 2009 (being the last Business Day before the Announcement).


The Directors believe that the level of the discount is in the best interests of the Company, in view of the agreement reached with the Lenders concerning the Restructuring. The Board therefore proposes to seek specific approval of the Placing Price and the discount from Shareholders at the Extraordinary General Meeting, in accordance with the Listing Rules.


The Restructuring is subject to Shareholder approval. The Placing to the Lenders is conditional upon, inter alia, the fulfilment of the following conditions:


  • the passing, without amendment, of the Restructuring Resolutions at the Extraordinary General Meeting; and


  • the Restructuring Agreements not having been terminated prior to Completion and the conditions precedent to the Restructuring Agreements having been satisfied.


Issue of Post-Consolidation New Ordinary Shares to the New Employee Benefit Trust


Both the Board and the Lenders acknowledge that White Young Green is very much a ''people business'' and that the Group has a large number of important employees who are critical to its future success and future value creation. The Lenders have required, as a condition to the Restructuring proceeding, that arrangements are put in place to appropriately incentivise certain Directors and Employees, and the Company has determined that the New Share Incentive Plans will best achieve that end.  It is the intention that there will be widespread Employee share ownership going forward, subject to eligibility criteria to be established and approved by the Remuneration Committee.


The Lenders have directed the Company to issue 8,631,111 Post-Consolidation New Ordinary Shares of the 29,993,441 Post-Consolidation New Ordinary Shares to which they are entitled on the conversion of the debt, directly to the New Employee Benefit Trust, rather than receiving such Post-Consolidation New Ordinary Shares themselves.


The 8,631,111 Post-Consolidation New Ordinary Shares to be issued to the New Employee Benefit Trust at the direction of the Lenders will represent, in aggregate, 24.5 per cent. of the Enlarged Issued Share Capital of the Company, assuming the Restructuring takes effect.


It is proposed that as soon as reasonably practicable after the Post-Consolidation New Ordinary Shares have been issued to the New Employee Benefit Trust and have been admitted to trading on AIM, the New Employee Benefit Trust will grant awards under the proposed White Young Green Joint Share Ownership Plan 2009 to Related Party Directors (other than Mike McTighe) and Related Party Managers as follows:



Number of Post-Consolidation

Name of Related Party Director / Related Party Manager

New Ordinary Shares



Paul Hamer 

1,058,696

David Wilton 

264,674

Graham Olver

 264,674

Ray Moore

 264,674

David Crichton-Miller 

264,674


provided always that in the case of each of the individuals mentioned above the number of Post-Consolidation New Ordinary Shares made subject to an award to that individual shall be capped so that the market value of the Post-Consolidation New Ordinary Shares so awarded shall not exceed the individual's base salary.


For these purposes, the market value of the Post-Consolidation New Ordinary Shares under award and an individual's base salary will be measured at the time the invitations are issued to the above named individuals under the White Young Green Joint Share Ownership Plan 2009.


It is further proposed that shortly after the Post-Consolidation New Ordinary Shares have been issued to the New Employee Benefit Trust and have been admitted to AIM, the New Employee Benefit Trust will grant the One-Off Award to Mike McTighe over 705,797 Post-Consolidation New Ordinary Shares held by the New Employee Benefit Trust, which represents 2 per cent. of the Enlarged Issued Share Capital of the Company (or, if less, such number of Post-Consolidation New Ordinary Shares as have a market value of £250,000 at the time that the One-Off Award is offered to Mike McTighe).


In relation to the remainder of the Post-Consolidation New Ordinary Shares held by the New Employee Benefit Trust, it is intended that these are either used to grant awards under the White Young Green Joint Share Ownership Plan 2009 or the White Young Green Performance Share Plan 2009 to Employees, determined at the discretion of the Remuneration Committee.


No specific proposals in relation to further awards over the Post-Consolidation New Ordinary Shares have been made save in respect of the Related Party Directors and the Related Party Managers.


The issue of the 8,631,111 Post-Consolidation New Ordinary Shares to the New Employee Benefit Trust, in accordance with the direction of the Lenders, pursuant to which the Related Party Directors and the Related Party Managers may ultimately benefit by virtue of the proposed awards to be made to them, and the grant of the awards to the Related Party Managers and Related Party Directors (including the One-Off Award to Mike McTighe), are each deemed to be a related party transaction under the Listing Rules. Consequently each of these transactions will require Independent Shareholder approval at the Extraordinary General Meeting, where the Related Party Directors and Related Party Managers will be prohibited from voting in relation to the relevant resolutions. 


Preference Shares


The Company has agreed with the Lenders to issue £30.0 million of Preference Shares in White Young Green, subject to, inter alia, Shareholder approval of the Restructuring Resolutions, in exchange for the conversion of £30.0 million of outstanding borrowings.


The Company proposes to issue the Preference Shares as follows:


  • 27.6 million ''A'' Preference Shares with a total nominal value of £27.6 million; and


  • 2.4 million ''B'' Preference Shares with a total nominal value of £2.4 million.


The ''A'' Preference Shares, with a nominal value of £27.6 million, will be issued to the Lenders.


The Lenders have agreed to direct the Company to issue the £2.4 million nominal value of ''B'' Preference Shares to which they are entitled on the conversion of the debt, directly to the New Employee Benefit Trust, rather than receiving such ''B'' Preference Shares themselves.


It is proposed that as soon as reasonably practicable after the ''B'' Preference Shares have been issued to the New Employee Benefit Trust, the New Employee Benefit Trust will grant awards structured as nil cost options over such ''B'' Preference Shares (or the proceeds of the same on redemption) under the proposed White Young Green Performance Share Plan 2009 to Related Party Directors (other than Mike McTighe) and Related Party Managers as follows:



Number of "B"

Name of Related Party Director / Related Party Manager

Preference Shares



Paul Hamer 

780,000

David Wilton 

480,000

Graham Olver 

480,000

Ray Moore 

330,000

David Crichton-Miller

 330,000


The issue of the £2.4 million nominal value of ''B'' Preference Shares to the New Employee Benefit Trust, in accordance with the direction of the Lenders, pursuant to which the Related Party Directors (excluding Mike McTighe) and the Related Party Managers are intended ultimately to benefit by virtue of the proposed awards to be made to them over such ''B'' Preference Shares, and the grant of the awards to the Related Party Managers and Related Party Directors (excluding Mike McTighe), are each deemed to be a related party transaction under the Listing Rules. Consequently each of these transactions will require Independent Shareholder approval at the Extraordinary General Meeting, where Related Party Directors and Related Party Managers will be prohibited from voting in relation to the relevant resolutions.


The Preference Shares will be unlisted and issued at par value.  In normal circumstances, the Preference Shares have no running yield, but, in the case of the "A" Preference Shares only, are subject to a Redemption Premium. 


The New Ordinary Shares


The New Ordinary Shares issued in connection with the Restructuring will be created under the 2006 Act and the legislation made thereunder and are expected to be issued in registered form on or about 8 January 2010 and will be capable of being held in both certificated and uncertificated form.


The New Ordinary Shares will, when issued and fully paid, rank pari passu in all respects with the Existing Issued Ordinary Shares, including the right to receive all dividends and other distributions (if any) declared, made or paid by White Young Green after the date of issue of the New Ordinary Shares.


Should the Resolutions be approved by Shareholders at the EGM, the Directors will have authority to allot a maximum of 299,934,417 New Ordinary Shares, which represents 566 per cent. of the Existing Issued Share Capital as at 8 December 2009 (being the latest practicable date before the publication of the Circular). These figures exclude treasury shares, none of which are held by the Company as at 8 December 2009. Such authority to allot New Ordinary Shares will expire six months following the passing of the Resolutions.


The Refinanced Lending Facilities


The Company has agreed with the Lenders to enter into the Refinanced Lending Facilities, which will become effective subject to, amongst other things, Shareholder approval of the Restructuring Resolutions. Once the Refinanced Lending Facilities become effective, they will replace the Existing Lending Facilities.


The Refinanced Lending Facilities comprise:


  • a term loan of £50.0 million split into tranche A of £35.0 million and tranche B of £15.0 million; and


  • working capital facilities of £8.25 million in total. In addition, the Lenders are to provide bonding facilities of 38.0 million.


The purpose of the Refinanced Lending Facilities is to repay and refinance the Existing Lending Facilities, to pay fees and transaction costs relating to the Restructuring and for the general corporate and working capital purposes of the Group.


The Refinanced Lending Facilities will be secured by cross-guarantees and fixed and floating security (or, in the case of the Company's Polish subsidiaries, pledges and security assignments) granted by the Company and certain of its trading subsidiaries in the United Kingdom, the Republic of Ireland and Poland and, following satisfaction of the relevant condition subsequent referred to in more detail in Part III of the Circularby pledge in relation to the shares in its trading subsidiary in Turkey and a guarantee and subordination agreement from that subsidiary.


Share Reorganisation


The Resolutions include a Share Reorganisation such that each Existing Ordinary Share of five pence each in the capital of the Company, whether issued or unissued, will be sub-divided into one ordinary share of one penny in the capital of the Company and one deferred ordinary share of four pence in the capital of the Company. The purpose of the Share Reorganisation is to reduce the nominal value of the Existing Ordinary Shares as a precautionary measure as the New Ordinary Shares cannot be issued at a price less than their nominal value. The Placing Price will be calculated on the day following the EGM and is subject to fluctuation due to the Currency Fluctuation and the Share Capital Fluctuation. The Share Reorganisation is subject to, inter alia, Shareholder approval of the Restructuring Resolutions.


The Deferred Shares, to be created upon the Restructuring becoming effective, will have no voting or dividend rights and, on a return of capital, will have the right to receive the amount paid up thereon only after the holders of the ''A'' Preference Shares and the ''B'' Preference Shares have received an amount equal to the amount paid up thereon together with any Preference Dividends that have become due and payable and, in the case of the ''A'' Preference Shares only, the Redemption Premium, and after the holders of the Post-Consolidation Ordinary Shares have received, in aggregate, the amount paid up thereon. No share certificates will be issued in respect of the Deferred Shares, nor will CREST accounts of Shareholders be credited in respect of any entitlement to Deferred Shares, nor will they be listed on the Official List or admitted to trading on the London Stock Exchange, AIM or any other investment exchange.


Share Consolidation


The Resolutions include a share consolidation such that the New Ordinary Shares in the capital of the Company and the Existing Ordinary Shares, whether issued or unissued, are consolidated into ordinary shares of ten pence each in the capital of the Company on the basis of one Post-Consolidation Ordinary Share for every ten Ordinary Shares. Following the Share Consolidation, the Company's issued ordinary share capital will comprise 35,289,886 ordinary shares of ten pence each in the capital of Company.


The purpose of the share consolidation is to reduce the total number of shares in issue following the Restructuring (including the Placing). The Directors believe that this may reduce the volatility in the price of the Company's Ordinary Shares, lead to more meaningful earnings per share figures, may avoid large dealing spreads in the Ordinary Shares and may ensure that the price of the Ordinary Shares is more appropriate for a company of White Young Green's size than would otherwise have been the case following the Restructuring becoming effective and Admission.


Fractional entitlements to Ordinary Shares will be rounded down to the nearest whole number. All such fractional entitlements to issued Ordinary Shares will be aggregated and, in accordance with the Articles, all Ordinary Shares arising from such aggregation will be sold. It is expected that the net proceeds of such sale will be retained for the benefit of the Company. In accordance with the Articles, whenever as the result of any consolidation of shares fractions arise, the Directors may deal with such fractions as they see fit and, in particular, may sell the shares to any person and distribute to and amongst the Shareholders in due proportions the net proceeds of such sale.


The Share Consolidation is conditional upon the approval of the Shareholders at the EGM as required by the 2006 Act and the Articles.


Dividends and dividend policy


As announced on 30 October 2009 in the Company's audited results for the year ended 30 June 2009 and as described in the Company's annual report and accounts for the same period published on 30 October 2009, the Directors have decided that it is in the best interests of the Company not to propose a final dividend for the year ended 30 June 2009.


In addition, the Restructured Facilities Agreement contains a restriction prohibiting the payment of a dividend on the Ordinary Shares until repayment in full of the Refinanced Lending Facilities, which is scheduled for January 2013 and, further, under the terms of the Investment Agreement, no dividends can be declared on any class of shares in the Company without the consent of the holders of at least 60 per cent. of the "A" Preference Shares. The New Articles also require that if a dividend is declared on the Ordinary Shares, a preferred dividend equal to one per cent. of any dividend declared on the Ordinary Shares will first be paid to holders of the ''A'' Preference Shares and ''B'' Preference Shares.


If the Refinanced Lending Facilities are amended or refinanced and either the Preference Shares are redeemed in full or the consent of the holders of at least 60 per cent. of the "A" Preference Shares is obtained, there is a possibility that the Company may be able to commence payment of dividends on Ordinary Shares, but there can be no certainty that holders of Ordinary Shares will be entitled to receive a dividend on Ordinary Shares for at least the duration of the Refinanced Lending Facilities and the period prior to redemption in full of the Preference Shares. Therefore, there can be no assurance whether or when dividends on Ordinary Shares will be paid in the future.


Proposed cancellation of listing on the Official List and admission to trading on AIM


One of the conditions of maintaining a listing on the Official List is that a minimum of 25 per cent. of a company's issued ordinary share capital has to be held in public hands at all times, as defined by the Listing Rules. Subject to Shareholder approval of the Restructuring, the Lenders will, in aggregate, hold 60.5 per cent. of the Enlarged Issued Share Capital and the New Employee Benefit Trust, and subsequently the Related Party Directors and the Related Party Managers and certain Employees, will hold, in aggregate, 24.5 per cent. of the Enlarged Issued Share Capital. The Company would consequently no longer meet this condition of listing and therefore, subject to Shareholder approval, the Company's listing on the Official List will be cancelled, with effect from 8.00 a.m. on 4 February 2010, and it is intended that the Ordinary Shares will be subsequently admitted to trading on AIM.


In addition, the Board believes that AIM is a more appropriate market for a company of White Young Green's size and that a transfer of the Ordinary Shares to trading on AIM should lead to lower ongoing costs associated with being a publicly quoted company and a simplification of the Company's administrative and regulatory requirements. It also believes that AIM will offer greater flexibility, particularly with regard to corporate transactions, and should therefore enable the Company to agree and execute certain transactions more quickly, if such opportunities arise in the future.


Conditional upon the Restructuring Resolutions being approved at the Extraordinary General Meeting, the Company will give notice of its intention to cancel the listing of its Ordinary Shares on the Official List and the Company intends to apply to the London Stock Exchange for the admission of the Ordinary Shares to AIM as soon as practicable.


The Board envisages no material alteration in the standards of reporting and governance which the Company currently maintains. Once admitted to AIM, Shareholders should continue to be able to trade the Ordinary Shares in the usual manner through their stockbroker or other suitable intermediary, subject to liquidity.  


It is anticipated that trading in the Ordinary Shares on the London Stock Exchange's main market for listed securities will cease at the close of business on 3 February 2010, with cancellation of listing on the Official List taking effect at 8.00 a.m. on 4 February 2010, being not less than 20 Business Days following the passing of the Resolution relating to the Cancellation as required by the Listing Rules. It is anticipated that the Ordinary Shares will be admitted to, and commence trading on, AIM at 8.00 a.m. on 4 February 2010.


The Company has appointed Arbuthnot Securities Limited as its Nomad, conditional on Shareholder approval of the Restructuring, for the purposes of Admission and its listing on AIM thereafter.  Arbuthnot Securities Limited is authorised and regulated by the FSA.


Rule 9 of the Takeover Code


Rule 9 of the Takeover Code stipulates, inter alia, that if a person acquires, whether by a series of transactions over a period of time or not, an interest in shares which (taken together with shares in which persons acting in concert with him are interested) carry 30 per cent. or more of the voting rights of a company, then such person will normally be required by the Panel to make a general offer to shareholders of that company to acquire the balance of the equity share capital of that company not held by such person or group of persons acting in concert with him. An offer under Rule 9 must be in cash and be at the highest price paid by the person required to make the offer or any person acting in concert with him for any interest in shares in the company during the 12 months prior to the announcement of the offer.


Under the Takeover Code, a concert party arises where persons acting together, pursuant to an agreement or understanding (whether formal or informal), co-operate to obtain or consolidate control of that company. A person has control of a company if he is interested in shares carrying 30 per cent. or more of the company.


Waiver of Rule 9 in relation to the Restructuring


Lloyds Banking Group, RBS and Fortis are deemed to be acting in concert for the purpose of the Code.


The issue of the Post-Consolidation New Ordinary Shares to Lloyds Banking Group, RBS and Fortis, with each of these parties deemed to be acting in concert under the Takeover Code, under the Placing to the Lenders would normally give rise to an obligation for the Lenders to make a general offer to all Shareholders pursuant to Rule 9 of the Code since it will result in the combined interests in shares of Lloyds Banking Group, RBS and Fortis increasing above 30 per cent. of the issued voting share capital of the Company.


Following an application by the Directors, the Panel has agreed, subject to the approval of the Waiver Resolution on a poll by the Independent Shareholders at the Extraordinary General Meeting, to waive the obligation for any of the Lenders to make a general offer that would otherwise arise as a result of the Restructuring.  The Lenders have undertaken not to vote on the Waiver Resolution, save in respect of those Ordinary Shares that they hold as nominee. The effect of the Waiver, if the Waiver Resolution is approved by Independent Shareholders, would be that none of Lloyds Banking Group, RBS and Fortis would be subject to a requirement to make a general offer under Rule 9 of the Code that might otherwise arise as a result of the Restructuring.


The Waiver Resolution is subject to the approval of the Independent Shareholders on a poll and each Independent Shareholder will be entitled to one vote for each Existing Ordinary Share held. For the avoidance of doubt, the Independent Shareholders in respect of the Waiver are all Shareholders other than Lloyds Banking Group, the Related Party Directors and the Related Party Managers, who have undertaken not to vote.


Following completion of the Proposals, the Lenders will between them hold Ordinary Shares carrying more than 50 per cent. of the Company's Enlarged Issued Share Capital and (for so long as they continue to be treated as acting in concert) may accordingly increase their aggregate interests in Ordinary Shares without incurring any obligation under Rule 9 to make a general offer, although the individual Lenders will not be able to increase their percentage interest in Ordinary Shares through or between a Rule 9 threshold without prior Panel consent.


The Lenders do not have any specific intentions regarding the future business of, or strategic plans for, the Group, the locations of the Group's places of business, the redeployment of its fixed assets, the continued employment of its employees or, other than in relation to the appointment of Investor Directors pursuant to the Investment Agreement, the management of the Group following completion of the Restructuring.


Related Party Transactions


It is proposed that each of the Related Party Directors (excluding Mike McTighe) and the Related Party Managers will be granted an option to acquire the number of ''B'' Preference Shares set out against their respective names below, or the proceeds of the same on redemption, from the New Employee Benefit Trust for zero consideration under the terms of the White Young Green Performance Share Plan 2009, proposed to be introduced as part of the new share incentive arrangements.



Number of "B"

Name of Related Party Director / Related Party Manager

Preference Shares



Paul Hamer 

780,000

David Wilton 

480,000

Graham Olver 

480,000

Ray Moore 

330,000

David Crichton-Miller 

330,000


The purpose of granting options over the ''B'' Preference Shares under the terms of the White Young Green Performance Share Plan 2009 is to incentivise the recipients of such options to enhance the equity value in the future, both in the Preference Shares and the Ordinary Shares.


Also, as part of the Restructuring agreed with the Lenders, it is intended that each of the Related Party Directors (excluding Mike McTighe) and the Related Party Managers will be granted an award in respect of a number of Post-Consolidation New Ordinary Shares as set out below, for zero consideration, under the terms of the White Young Green Joint Share Ownership Plan 2009 proposed to be introduced as part of the new share incentive arrangements.



Number of Post-Consolidation

Name of Related Party Director / Related Party Manager

New Ordinary Shares



Paul Hamer 

1,058,696

David Wilton 

264,674

Graham Olver

 264,674

Ray Moore

 264,674

David Crichton-Miller 

264,674


provided always that in the case of each of the individuals mentioned above the number of Post-Consolidation New Ordinary Shares made subject to an award to that individual shall be capped so that the market value of the Post-Consolidation New Ordinary Shares so awarded shall not exceed the individual's base salary.


For these purposes, the market value of the Post-Consolidation New Ordinary Shares under award and an individual's base salary will be measured at the time the invitations are issued to the above named individuals under the White Young Green Joint Share Ownership Plan 2009.


It is further proposed that shortly after the Post-Consolidation New Ordinary Shares have been issued to the New Employee Benefit Trust and have been admitted to trading on AIM, the New Employee Benefit Trust will grant the One-Off Award to Mike McTighe over such number of Post-Consolidation New Ordinary Shares held by the New Employee Benefit Trust as represents 2 per cent. of the Enlarged Issued Share Capital of the Company (or, if less, such number of Post-Consolidation New Ordinary Shares as have a market value of £250,000 at the time that the One-Off Award is offered to Mike McTighe).


The purpose of the awards as described above is to provide the Related Party Directors and the Related Party Managers with an interest in the potential growth in value of the Ordinary Shares and therefore to align their interests with Existing Shareholders and the Lenders to enhance the equity value of the Ordinary Shares.


Each Related Party Director and Related Party Manager is either a Director or a director of a subsidiary of the Company and is therefore classified by the Listing Rules as a "related party".  Consequently:


  • the Issue to the New Employee Benefit Trust;


  • the implementation of the Investment Agreement and the Framework Agreement;


  • the awards over the ''B'' Preference Shares described above to the Related Party Directors (other than Mike McTighe) and the Related Party Managers by the New Employee Benefit Trust under the proposed White Young Green Performance Share Plan 2009;


  • the awards over Post-Consolidation New Ordinary Shares described above to the Related Party Directors (other than Mike McTighe) and the Related Party Managers by the New Employee Benefit Trust pursuant to the terms of the proposed White Young Green Joint Share Ownership Plan 2009; and


  • the proposed One-Off Award over such number of Post-Consolidation New Ordinary Shares as represents 2 per cent. of the Enlarged Issued Share Capital of the Company (or, if less, such number of Post-Consolidation New Ordinary Shares as have a market value of £250,000 at the time that the One-Off Award is offered to Mike McTighe) to be granted to incentivise Mike McTighe;


are related party transactions under the Listing Rules and will require Independent Shareholder approval at the EGM. The Related Party Directors and the Related Party Managers and their associates will be prohibited from voting in relation to the Related Party Transactions Resolutions as they relate to (i) the establishment of the White Young Green Performance Share Plan 2009 and the grant of the awards thereunder over the ''B'' Preference Shares described above to the Related Party Directors (other than Mike McTighe) and the Related Party Managers, (ii) the establishment of the White Young Green Joint Share Ownership Plan 2009 and the grant of the awards thereunder over Ordinary Shares, as described above, to the Related Party Directors (excluding Mike McTighe) and the Related Party Managers, (iii) the establishment of the arrangements for, and the grant of the One-Off Award to Mike McTighe as described above, (iv) the Issue to the New Employee Benefit Trust; and (v) the Investment Agreement and the Framework Agreement.


In addition to the above Related Party Transactions, the Company has agreed to pay one-off discretionary bonuses totalling £166,250 to the Related Party Directors on completion of the Restructuring.


Working capital


With the Restructuring


Following completion of the Restructuring, the Company is of the opinion that, with the Refinanced Lending Facilities, the Group has sufficient working capital for its present requirements, that is for at least 12 months from the date of the Circular.


Without the Restructuring


If Shareholders do not approve the Restructuring Resolutions, the Company is of the opinion that the Group does not have sufficient working capital for its present requirements, that is for at least the next 12 months from the date of the Circular.  


The Board believes that if Shareholders do not approve the Restructuring Resolutions, the Group is highly likely to suffer material adverse consequences including, but not limited to:


  • substantial deterioration in the support of customers, employees and other stakeholders;


  • potential damage to White Young Green's reputation and customer goodwill; and


  • deterioration in the support of the Lenders, based on the Directors' belief that the Group is highly unlikely to be able to comply with the terms and conditions of the Existing Facilities Agreement.


Whilst the Board recognises that it is difficult to predict the severity of these adverse consequences and the speed at which they would occur, the Board believes that the Group would not be able to continue to operate within its Existing Lending Facilities and would require significant immediate emergency funding.


The Board is of the view that it is highly probable that appropriate emergency funding sources would not be available. In this event, the Group would be unable to sustain its position as a going concern and would be forced to enter into administration or some other form of insolvency procedure.


The Board believes that in an administration or other insolvency process it is highly unlikely that the Ordinary Shares would retain any value. The Board is of the opinion that the Restructuring represents the only available route to achieving a long-term sustainable capital structure for the benefit of all stakeholders in the current market conditions.


Importance of the vote


All of the Restructuring Resolutions must be passed by Shareholders at the Extraordinary General Meeting in order for the Proposals, including the Restructuring, to be implemented and, due to the conditionality described above, in order for the Refinanced Lending Facilities to become effective.


If all of the Restructuring Resolutions are not passed, the Restructuring will not proceed and the Refinanced Lending Facilities will not be made available. In this event the Group will remain subject to the Existing Facilities Agreement and the financial covenants therein.  The Lenders have agreed to defer testing of the financial covenants until the earlier of (i) 5.00 p.m. on 8 January 2010; and (ii) the date (if any) on which the Lenders terminate their obligations to enter into the Restructuring, which they are entitled to do, inter alia, if Shareholders fail to pass all of the Restructuring Resolutions at the EGM. If, however, the Restructuring Resolutions are all passed and Completion takes place, then the Existing Facilities Agreement (and any breaches under it) will fall away and be replaced by the Restructured Facilities Agreement. Should the Restructuring Resolutions not be passed by Shareholders at the Extraordinary General Meeting, the Group would be in immediate breach of the covenants and be in default under the Existing Facilities Agreement at that time. Such a default under the Existing Facilities Agreement would entitle the Lenders to demand repayment of all outstanding amounts and to cancel the facilities. The Group would then face administration or other insolvency proceedings as the Board believes that alternative sources of debt or equity finance are very unlikely to be available.  This would, in the Board's opinion, result in Shareholders receiving no value for their current shareholdings.


The Board believes that if the Restructuring takes place, the resulting stronger capital base will provide the Group with greater financial and operational flexibility and resilience in the event that the adverse conditions currently being experienced in the Group's core markets persist for an extended period of time or these core markets weaken further.


Recommendation


The Board, which has been so advised by Rothschild, considers that the Resolutions and the Proposals are fair and reasonable as far as the Shareholders are concerned and in the best interests of the Company and of Shareholders as a whole.  In providing such advice, Rothschild has taken into account the commercial assessment of the Board.


Accordingly, the Board recommends that Shareholders vote in favour of all of the Resolutions to be proposed at the Extraordinary General Meeting as the Independent Directors intend to do in respect of the Ordinary Shares in which they are beneficially interested (representing, in aggregate, 0.05 per cent. of the issued voting share capital of the Company) and as the Related Party Directors and Related Party Managers intend to do (in relation to the Resolutions other than the Related Party Transactions Resolutions) in respect of the Ordinary Shares in which they are beneficially interested (representing, in aggregate, 0.28 per cent. of the Existing Issued Share Capital).  


The Related Party Directors have taken no part in the Board's consideration of the Related Party Transactions. Each of the Related Party Directors and Related Party Managers have undertaken not to vote on the Related Party Transactions Resolutions and have undertaken to take all reasonable steps to ensure their respective associates do not vote on the Related Party Transactions Resolutions at the Extraordinary General Meeting.


End


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