Fastrack Group PLC
5 June 2000
RIGHTS ISSUE OF UP TO 41,248,537 NEW ORDINARY SHARES AT 8.5P PER SHARE,
PROPOSED GRANT OF PUT AND CALL OPTIONS TO THE TUFTON FUNDS OVER 6,084,159
ORDINARY SHARES RESECTIVELY, BOTH AT 8.5P PER SHARE, AND PROPOSED AMENDMENTS
OF THE SHARE OPTION SCHEMES
Introduction
The Company announced today a fundraising seeking to raise approximately
£3.5 million by means of a Rights Issue to Qualifying Shareholders. The
Rights Issue has been fully underwritten by the Tufton Funds. The
fund-raising will strengthen the Group's balance sheet and reduce its level
of indebtedness. It will also provide the Group with the additional working
capital that is required for it to continue trading and for the development
of new areas of business, particularly the exploitation of fulfilment
opportunities provided by e-commerce and the internet.
It is also proposed to grant the Tufton Options to the Tufton Funds which
will enable the Company to raise approximately £1 million in further
funding at various times over the next two years. As the Tufton Funds are a
related party of the Company by virtue of the size of their shareholding in
the Company, entry into the Tufton Options by the Company is conditional
on the approval of Shareholders.
The Company also announced today its audited results for the year ended
31 December 1999. A circular giving details of the Proposals is being sent
out together with the Group's audited financial statements for the year
ended 31 December 1999. The accounts have been prepared on a going concern
basis on the assumption that the Rights Issue is completed. The
auditors' report to Shareholders, whilst unqualified, contains an
explanatory paragraph drawing Shareholders' attention to the
uncertainty surrounding this basis of preparation.
In addition, the Board proposes to amend the individual and scheme limits
within the Share Option Schemes as explained below.
The Proposals outlined above are all conditional upon approval by
Shareholders. The purpose of this document is to provide you with
information about the Proposals and to seek your approval and your
authority to allot New Ordinary Shares pursuant to the Proposals. Notice
of the Extraordinary General Meeting to be held at 10.30am on 29 June 2000
is set out at the end of the circular to Shareholders.
Shareholders should be in no doubt of the importance of the Proposals to
the future of the Group. The attention of Shareholders is drawn to the
statement on working capital and the recommendation of your Directors set out
below.
The Tufton Funds have indicated their support for the Proposals by giving
the Company an undertaking to vote their holding of 52.82 per cent. of the
Existing Ordinary Shares in favour of the Resolutions to be proposed at the
Extraordinary General Meeting except for resolution number 4, from which they
will abstain, and to take up their full pro rata entitlement of 21,787,544
Rights shares under the Rights Issue as well as underwriting the balance of
the issue. In addition, the Tufton Funds have served notice on the Company
that they intend to exercise their right to convert their Convertible Loan
into 6,150,645 New Ordinary Shares.
Background to and effect of the Proposals
The Board has been evaluating a number of strategic opportunities with
the objective of significantly enhancing shareholder value in the medium term.
In addition to growing the Group's business-to-business activities
both organically and by acquisition, where suitable opportunities arise,
significant scope exists to expand the Group's home delivery division and
other e-commerce related activities.
The infrastructure investments completed in 1998 and 1999 and the
losses incurred in the year have adversely affected the Group's net asset and
working capital position.
The net proceeds of the rights Issue will provide the Group with
additional working capital. This will both restore the Group's balance sheet
to a positive net asset position and immediately eliminate the Group's
overdraft, which stood at £1,097,000 as reported in the Group's audited
accounts at 31 December 1999.
In addition, it will support the expansion of the home delivery division
and enable the Board to exploit other fulfilment opportunities arising
from the growth in e-commerce.
As part of Fastrack's commitment to the continued development of home
delivery and e-commerce fulfilment, the Group has reached commercial
agreement to enter into a strategic relationship with X4i Limited ('X4i')
which is an internet exchange for freight and haulage which will be launched
later this year.
This relationship will enable X4i to offer its clients home delivery
fulfilment. To strengthen this relationship, the Group intends to apply
£200,000 of the proceeds of the Rights Issue to acquire a small shareholding
in X4i.
Proposed Director
It is proposed that following the completion of the Rights Issue
Jeremy Brassington (aged 48) will be appointed to the Board as a
non-executive director.
Mr Brassington is the managing partner of Bulldog Partners Limited, a
fund management company which he co-founded and which now advises the Tufton
Funds. He was previously managing director of Tufton Capital Limited and was a
founding partner of Baring Venture Partners in 1984. He has been an investor
in and a director of a wide range of companies.
Details of the Rights Issue
The Rights Issue provides Qualifying Shareholders with the opportunity to
apply for rights shares at the Issue Price on the following basis:
20 Rights Shares for every 39 Existing Ordinary Shares
registered in their names at the close of business on the Record Date and so
in proportion for any greater number of shares so registered.
Entitlements to apply for New Ordinary Shares will be rounded down to the
nearest whole number. Fractions of New Ordinary Shares will be disregarded in
the calculation of the qualifying Shareholders' entitlement. Applications,
together with payment in full, must be received by 21 July 2000.
The rights Issue is conditional, inter alia, upon the passing of the
resolutions to be proposed at the Extraordinary General Meeting set out at
the end of this document and upon Admission becoming effective by not later
than 30 July 2000 (or such later date, not later than 31 August 2000, as
the Tufton Funds and Fastrack may agree). The New Ordinary Shares to be
issued in connection with the Rights Issue will, when issued fully paid,
rank pari passu in all respects with the Existing Ordinary shares.
The Rights Issue will raise net proceeds of approximately £2.9 million,
after the expenses of the Proposals, which will be applied as set out above.
The Rights Issue has been fully underwritten by the Tufton Funds. The
Tufton Funds are being paid a commission of 0.25 per cent. on their
commitment. This consideration has been determined by negotiation and not by
competitive tender. Due to the size and circumstances of the Company there
would be an insufficient number of participants to enable a competitive tender
to be carried out. Rights Shares not taken up by Qualifying Shareholders or
purchased in the market 'nil paid' will be taken up by the Tufton Funds
under the terms of the Underwriting Agreement.
Details of the Tufton Options
The Tufton Options have been designed to provide further flexible
working capital facilities to the Group. The Put Option will allow the
Company, at any time between 1 January and 30 June 2001 to require the Tufton
Funds to subscribe for 6,084,159 Ordinary Shares at the Issue Price of 8.5p.
The Tufton Funds will not be required to subscribe for these Ordinary Shares
if the net assets of the Group have decreased between 30 June and 31
December 2000. In addition, the Directors must exercise reasonable
endeavours to obtain an alternative source of funding before recourse may be
made to the Put Option.
The Call Option will allow the Tufton Funds at any time up to a date two
years after Admission to subscribe for 6,084,159 Ordinary shares at the Issue
Price of 8.5p.
If any Ordinary Shares are issued under the Tufton Options, those
Ordinary Shares will, when issued, rank pari passu with all Ordinary Shares
in issue at that time. Applications will be made at the earliest
practicable opportunity for any Ordinary Shares so issued to be admitted to
the Official List of the UK Listing Authority and to trading on the London
Stock Exchange's market for listed securities.
Information on Fastrack
The Group operates a next day delivery service for parcels and
freight throughout the UK and the Republic of Ireland. Most of Fastrack's
activities are business-to-business although the home delivery
division, which was established recently to exploit the opportunities
provided by e-commerce and retailing over the internet, is growing rapidly.
The Group currently operates more than 400 vehicles from 55 locations across
the UK (of which 46 are franchised or operated by agents), with a
workforce of approximately 400 people, excluding franchisees and agents. The
head office is in Nuneaton, where the central distribution hub and sorting
centre is also located.
The financial record of the Group for the three years ended 31 December 1999
is summarised below:
Year ended 31 December
1997 1998 1999
£000 £000 £000
Turnover 24,207 23,138 26,229
------- ------- -------
Operating profit/(loss) 34 329 (1,627)
Interest payable and similar
charges (243) (254) (429)
------- ------- -------
Profit/(loss) on ordinary
activities before taxation (209) 75 (2,056)
------- ------- -------
Net assets/(liabilities) 944 1,250 (174)
------- ------- -------
Current Trading and Prospects
The audited results of the Group for the year ended 31 December 1999
were announced today and show a loss after taxation of £1,956,000 (1998:
£85,000 profit) on increased turnover of £26,229,000 (1998: £23,138,000).
The audited balance sheet of the Group shows increased net current
liabilities of £2,228,000 (1998: £729,000). As stated above, the
accounts have been prepared on a going concern basis on the assumption that
the Rights Issue, or a similar fundraising, are successful. The auditors'
report to Shareholders, whilst unqualified, contains an explanatory
paragraph drawing Shareholders attention to this basis of preparation.
Proposed amendments to the limits under the Share Option Schemes
The Board is seeking shareholders' approval at the Extraordinary General
Meeting to amend the individual and scheme limits within the Share Option
Schemes. Further details of these amendments are provided in the
circular to Shareholders. The Board intends that all options granted in
the future under the 1993 Senior Executive Share Option Scheme will be
subject to demanding performance criteria, which have been or will be
designed to enhance shareholder value. If Shareholders approve these
amendments at the EGM, the Board intends to grant options to directors and
other managers of the Group over up to 11 million Ordinary Shares shortly
after the EGM, equivalent to approximately 8.6 per cent. of the issued share
capital of the Company following Admission.
The Tufton Funds and the issue of Conversion shares
As at the close of business yesterday, the Tufton Funds were interested in
an aggregate of 42,485,710 Existing Ordinary Shares representing
approximately 52.82 per cent. of the current issued share capital of the
Company.
The Tufton Funds have undertaken to vote in favour of the Resolutions to
be proposed at the Extraordinary General Meeting except for resolution 4,
relating to the Tufton Options, from which they will abstain. In addition,
the Tufton Funds have also undertaken to take up their pro rata entitlement
to 21,787,544 Rights Shares under the Rights Issue and have underwritten the
balance of the Issue.
On 2 June 2000, the Tufton Funds notified the Company under the terms of
the agreement relating to the Convertible Loan that they wished to exercise
their right to convert all the amounts due to them into 6,150,645 New
Ordinary Shares under the authority granted to the Board by Shareholders at
an extraordinary general meeting of the Company held on 23 March 2000. The
New Ordinary Shares to be issued in connection with the conversion of the
Convertible Loan will, when issued, rank pari passu in all respects with
the Existing Ordinary Shares and rank for all future dividends declared on
the Ordinary Shares. Following Admission and assuming that the Tufton
Funds are required to take up their underwriting commitment in full,
the Tufton Funds will hold a maximum of 89,438,467 Ordinary shares
representing 69.96 per cent. of the issued share capital of the Company
following Admission.
Application has been made to the UK Listing Authority for the Admission to
the Official List of the Conversion Shares. It is expected that the
Conversion Shares will be admitted to the Official List and that dealings will
commence on the London Stock Exchange's market for listed securities on 30
June 2000.
Extraordinary General Meeting
Set out at the end of the circular to Shareholders is a notice convening
the Extraordinary General Meeting of Fastrack to be held at 10.30am on 29 June
2000 at the offices of Herbert Smith, Exchange house, Primrose Street,
London, EC2A 2HS at which the Resolutions will be proposed to approve the
allotment of New Ordinary Shares pursuant to the Rights Issue, the
Tufton Options and the proposed amendments to the individual and scheme
limits under the Share Option Schemes.
Action to be taken
Shareholders will find enclosed with the circular a form of Proxy for use at
the EGM. Whether or not they intend to be present at the Extraordinary
General Meeting, they are requested to complete and return the enclosed form
of proxy in accordance with the instructions printed thereon so as to
arrive at the Company's registrars, IRG plc, Balfour House, 390-398 High
Road, Ilford, Essex IG1 1NQ, as soon as possible and in any event not later
than 10.30am on 27 June 2000.
Completion and return of the form of Proxy will not prevent Shareholders
from attending the Extraordinary General Meeting and voting in person
should they wish to do so.
To take up their maximum shares in the Rights Issue, Qualifying
Shareholders must lodge their Provisional allotment Letter, together with a
remittance for the full amount payable, by post or by hand to IRG plc so as
to arrive no later than 3.00 p.m. on 21 July 2000.
Working Capital
Fastrack is of the opinion that, taking into account available bank and
other facilities and the estimated net proceeds to be received by the Company
from the Rights Issue, the working capital available to the Group is
sufficient for its requirements for the period until 31 December 2000.
However, the working capital available to the Group, on the basis stated
above, may not be sufficient for its requirements between 1 January and 30
June 2001.
In order to address the possibility that the Group may not have
sufficient working capital between 1 January and 30 June 2001, Fastrack has
entered into the Put Option with the Tufton Funds, subject to the approval
of Shareholders. However, Shareholders should be aware that the Company will
only be able to require the Tufton Funds to subscribe for Ordinary Shares
under the Put Option if the performance criterion referred to above is met
by the Group. If this performance criterion is not met the Directors
would need to arrange an alternative source of finance, which has not yet
been identified, in order for the Group to be certain of having sufficient
working capital for its present requirements, that is, for a period of at
least the next 12 months from the date of this document.
Recommendation
The Proposals are very important to the future of the Group and require
your close attention. Your Directors are of the view that the Rights
Issue represents the only available means of enabling the Group to continue
trading on the basis of its current plans and with appropriate levels of
working capital. Whether or not you intend to take up your entitlement under
the rights Issue you are strongly urged to vote in favour of the Resolutions
to be proposed at the Extraordinary General Meeting set out at the end of
this document by filling in and returning the Form of Proxy in accordance
with the section headed 'Action to be taken' above. If the Rights Issue is
not implemented in full then, in the absence of any alternative proposal,
the Company will have to enter into negotiations with its lenders and
other potential providers of finance in relation to both its existing
indebtedness and its further working capital requirements. If such
negotiations were to prove unsuccessful the Directors would have to
consider whether the Group was able to continue to trade or whether
insolvency procedures should be initiated.
Your Directors consider that the Proposals are in the best interests of
the Company and the Shareholders as a whole. Your Directors, who have
been so advised by Brewin Dolphin Securities, also consider that the terms of
the Tufton Options are fair and reasonable so far as the Shareholders are
concerned. In giving its advice, Brewin Dolphin Securities has taken
into account the commercial assessment of the Directors.
Accordingly, the directors unanimously recommend the shareholders of the
Company to vote in favour of all the Resolutions to be proposed at the
Extraordinary General Meeting, as they intend to do in respect of their
own beneficial holdings amounting to in aggregate 591,522 Existing Ordinary
Shares representing 0.74 per cent. of the current issued share capital of the
Company.
The Tufton Funds, have undertaken to vote in favour of the Resolutions,
except as disclosed below, to be proposed at the Extraordinary General
Meeting in respect of their holding amounting to 42,485,710 Existing
Ordinary Shares representing approximately 52.82 per cent. of the current
issued share capital of the Company. The Tufton Funds will abstain from
voting on resolution number 4 relating to the Tufton Options and will take
all reasonable steps to ensure that its associates, if any, will also
abstain from voting on that resolution.
The Directors, the Proposed Director and the Tufton Funds intend to take
up their entitlements in full under the Rights Issue.