Acquisition

RNS Number:7164M
India Outsourcing Services PLC
29 January 2008


Embargoed 07.30                                                 29 January 2008





                         INDIA OUTSOURCING SERVICES PLC
                     ("India Outsourcing" or "the Company")

                     Proposed acquisition of the Mela Group

            Proposed change of name to Indian Restaurants Group plc

               Award-winning chef Kuldeep Singh to join the Board

                           Notice of General Meeting



India Outsourcing Services plc (AIM: IOS) is pleased to announce that on 28th
January 2008 it  conditionally agreed to acquire the London-based Mela Group of
three Indian restaurants and a catering business ("Acquisition") for a
Consideration of £1,998,999 to be satisfied by £100,000 in cash and by the issue
of up to 7,201,365 new ordinary shares at 26.37p per share ("Consideration
Shares"), some of which are conditional on the achievement of certain targets ("
Deferred Consideration Shares").  The Initial Consideration Shares will
represent 27.53 per cent of the Enlarged Share Capital, and the Consideration
Shares in total will represent up to 43.17 per cent of the further enlarged
share capital assuming the issue of the Deferred Consideration Shares.



As at 25 January 2008, (being the date on which the Ordinary Shares were
suspended from trading on AIM) the closing mid market price of an Existing
Ordinary Share was 20.5p. At this price the Mela Group is valued at
approximately £1.48 million and India Outsourcing at approximately £1.94
million.



Highlights



*         Acquisition, via a reverse takeover, of Mela Group - a profitable
chain comprising London's Mela, Chowki and 3 Monkeys Indian restaurants and an
outside catering business - for an initial consideration of £1,049,500  and a
maximum consideration of £1,998,999



*         Change of name from India Outsourcing Services plc to Indian
Restaurants Group plc, with a strategy to roll out a chain of Indian restaurants
throughout the UK offering authentic Indian food of a high and consistent
quality



*         Chef Kuldeep Singh, a proposed Director, is a founder of the Mela
Group, which has won numerous awards including the Tio Pepe ITV London
Restaurant Award 2004



*         The UK Indian restaurant sector has a market size of more than £3
billion but no national branded provider, creating the opportunity to create the
UK's first nationwide chain through opening new outlets and acquiring and
re-branding existing outlets



*         General Meeting to be held on 25 February 2008 for shareholders to
consider the proposals





Amit Pau, Chief Executive of India Outsourcing, said: "The Mela Group, with its
highly acclaimed restaurants which offer an outstanding opportunity to roll out
the first UK chain of branded Indian restaurants under the Mela and Chowki
brands. Given the large but fragmented Indian restaurant market in the UK we
believe we are particularly well placed to replicate the success seen in pizza,
pasta and tapas chains."







For further information:


India Outsourcing Services plc                              Tel: [phone]
Amit Pau, Chief Executive


WH Ireland Limited                                          Tel: [phone]
Tim Cofman-Nicoresti / Katy Birkin

Buchanan Communications                                     Tel: [phone]
Mark Court








                     Proposed acquisition of the Mela Group

       Approval of waiver of obligations under Rule 9 of the City Code on

                             Takeovers and Mergers

                           Increase of share capital

            Proposed change of name to Indian Restaurants Group Plc

                          Increase in borrowing powers

                           Notice of General Meeting

             Admission to trading on AIM of Enlarged Share Capital



India Outsourcing is pleased to announce that on 28 January 2008 it
conditionally agreed to acquire the Mela Group. The Consideration for the
Acquisition will be £1,998,999, to be satisfied by £100,000 in cash and the
issue of the Consideration Shares (valued at 26.37p per share) conditional,
inter alia, on Admission and in the case of the Deferred Consideration Shares,
also conditional on the achievement of certain targets. In conjunction with the
Acquisition, India Outsourcing proposes to increase its share capital, change
its name to Indian Restaurants Group Plc and increase its borrowing powers.



As at 25 January 2008, (being the date on which the Ordinary Shares were
suspended from trading on AIM) the closing mid market price of an Existing
Ordinary Share was 20.5p. At this price the Mela Group is valued at
approximately £1.48 million and India Outsourcing at approximately £1.94
million. Application will be made for the Enlarged Share Capital to be admitted
to trading on AIM subject to the passing of the Resolutions.



The Initial Consideration Shares will represent 27.53 per cent. of the Enlarged
Share Capital and the Consideration Shares in total will represent 43.17 per
cent. of the further enlarged share capital assuming the issue of the Deferred
Consideration Shares. In view of the size of the Mela Group relative to the
Company, the Acquisition will constitute a reverse takeover of India Outsourcing
under the AIM Rules and therefore requires the prior approval of Shareholders.



Additionally, because the members of the Concert Party (comprising the Vendors)
may own more than 30 per cent. of the aggregate of the Enlarged Share Capital
and Deferred Consideration Shares as a result of the Acquisition, the Company is
seeking a waiver under Rule 9 of the City Code. In the absence of the Waiver,
the City Code would otherwise require the members of the Concert Party to offer
to acquire those Ordinary Shares that they do not own. A proposal seeking
Shareholder approval for the Waiver is, therefore, included in the notice of the
General Meeting posted to Shareholders on 28 January 2008.



Business and investment strategy



The Company has no ongoing trade, subsidiaries or investments.



Investment strategy



India Outsourcing was admitted to trading on AIM on 6 December 2004 with the
intention of capitalising on acquisition and investment opportunities within the
Business Process Outsourcing ("BPO") sector in India. The Company also stated at
that time that it may also evaluate opportunities in the BPO sector in other
European and Asian countries. The overall strategy was to create value by
acquiring or investing in a small number of businesses within that sector. The
funds raised at this time were applied in carrying out due diligence on
prospective target businesses and to cover the Company's initial working capital
needs. It was also stated at the time of admission that a number of potential
targets had been identified although there was no guarantee that any
negotiations would lead to the completion of an investment.



The Company subsequently posted to Shareholders, an admission document dated 9
February 2006, detailing a placing to raise £3 million (before expenses) in
order to improve the credibility of the Company with vendors of potential
targets, to broaden its institutional base and to provide increased working
capital. At the same time, the Company's ordinary shares were consolidated. At
the extraordinary general meeting held on 6 March 2006 and the annual general
meeting held on 23 May 2007, Shareholders approved, inter alia, that the Company
should continue in existence with its stated strategy.



The Board have actively pursued a number of investment opportunities in the BPO
sector in India and conducted high levels of due diligence on a smaller number
of opportunities. For a variety of reasons including increased transaction costs
and differences in valuation expectations, the Company has to date been unable
to complete a transaction in India.



New acquisition



After consultation with a number of key Shareholders, the Board has widened its
search to review other businesses and sectors which the Directors believe may
yield an exciting opportunity for the Company with one of the main aims being to
increase shareholder value.



As a result of their review the Directors intend to create a chain of
restaurants providing authentic, home style Indian food on a consistent basis
across the Enlarged Group. The Enlarged Group will initially target (i) the mid
market, (ii) sporting and event catering and (iii) lunchtime takeaway.



In the 12 to 15 month period following Admission, the Enlarged Group intends to
embark upon a realistic roll out programme subject to market conditions and site
availability.



The Directors believe that the combination of the Mela Group's business and the
Company's existing cash resources and its access to the equity market, has the
potential for delivering positive returns to shareholders in the medium term.
The Directors believe that this strategy will create shareholder value and that
the Acquisition satisfies the Company's investment criteria as the Mela Group
offers it:



-                      a management team with a track record of developing new
                       businesses

-                      an ability to generate revenue streams

-                      an existing platform from which further growth can be
                       developed



The Directors believe that the key features of the Indian restaurant sector are
that:



-                      it is well established with a market size in excess of £3
                       billion;

-                      it is an extremely fragmented market with over 9,800
                       restaurants in the UK; and

-                      there is no current UK national branded provider and
                       therefore there is an opportunity to consolidate in this 
                       niche with the UK's first nationwide chain.



Under the Proposals and as a result of the Acquisition, the Concert Party has
confirmed that the Enlarged Group will engage in the provision of authentic,
fresh, high quality and consistent Indian food through the Mela Group's current
outlets, Chowki, Mela and 3 Monkeys, which the Directors and Proposed Directors
intend to continue and develop both by opening new outlets and by acquiring and
re-branding existing restaurants.



The Company has minimal fixed assets and there is no current intention by the
members of the Concert Party to redeploy these fixed assets after Completion.



Directors and Proposed Directors



Directors



The Board currently comprises three Directors as follows:



Haresh Damodar Kanabar (aged 49, Non-executive Chairman and Finance Director,
British)



Haresh Kanabar qualified as a certified accountant in 1986. Following a number
of finance positions with Fisons plc, Reed International Plc and Texas Homecare
Limited he became finance director of F E Barber Limited, a subsidiary of
Hillsdown Holdings Limited in 1994. In 1997 he was appointed group finance
director of Whitchurch Group Plc, which he left in May 1998 to become finance
director of TMV Finance Limited. In December 1999 he left to join Corvus Capital
Inc. as chief executive.



Haresh is non-executive chairman of Silentpoint Plc and India Star Energy Plc, a
non-executive director of Aurum Mining Plc, Gasol Plc and Venteco Plc and chief
executive of Blue Star Capital plc.



Haresh is responsible for overseeing the finance function of the Company and
will continue to undertake this role following Admission until there is a
requirement for a full time finance director.



Haresh joined the Board on 13 October 2004.



Amit Narshibhai Pau MBA (aged 40, Chief Executive, British)

Amit Pau has held several directorships and executive positions in global
communications service providers over the past 10 years including Vodafone Group
Plc, Global TeleSystems Group Inc. and AT&T Inc. Amit worked for Vodafone from
2000 to 2004. His executive responsibilities covered general management with a
specific focus on strategy, marketing, product management and sales. He was also
the managing director of Vodafone Multi-Media Limited and a non-executive
director of Vodafone Spain and Radamec Group plc. Amit was also responsible for
leading Vodafone's Fortune 500 client business unit. From 1999 to 2000, Amit
worked at Global TeleSystems Inc. as the President for e-Business services. Amit
was responsible for product management marketing and channel development. Amit
worked at AT&T Inc. from 1992 to 1999 as part of the EMEA business development
team and was responsible for product management within the global business to
business internet division. Amit represented AT&T Inc. for their international
joint ventures programme and held the position of vice-chairman of a joint
venture in Israel.



Amit joined the Board on 12 November 2004.



Nigel Alexander Spencer Robertson (aged 45, Non-executive Director, British)



Nigel Robertson is currently a non-executive director of Asia Capital Plc and an
executive director of Blue Star Capital plc. Nigel is the former chief executive
of scoot.com plc, formerly Freepages Group plc, of which he was the founder.
Nigel was a founder shareholder of As Seen On Screen (which became ASOS plc) and
ACS Plc (which became Aerobox plc).



Nigel joined the Board on 13 October 2004.



Proposed Directors



On Admission the following will be appointed as directors of the Enlarged Group:



Kuldeep Singh (aged 42, proposed Executive Chef Director, Indian)



Kuldeep has trained in some of India's leading hotels including the Viz Hotel
Meru Palace and completed specialist training with the Taj Group of hotels.
Kuldeep worked for the Taj Group from 1989 to 1994. In 1994 Kuldeep became
executive chef at Essex Banquet and Restaurants and Essex Outdoor Catering
Service in India. Kuldeep has been a permanent UK resident since 1996 where he
joined Soho Spice, a London based restaurant, as executive chef. In 1998,
Kuldeep became executive chef and consultant at the Pukka Bar for Regents Inns
Plc and as executive chef of Raisechance Limited in the Red Fort Hotel, London.



Kuldeep is one of the founders of the Mela Group which has won numerous awards
and nominations including the Tio Pepe ITV London Restaurant Award 2004. Kuldeep
is a shareholder in a number of other restaurants including Soho Spice and
Dilli. Kuldeep has overall responsibility for the concept, design, menu content
and all aspects of staff recruitment and training at the Mela Group.



Ashraf Rahman (aged 51, proposed Business Development Director, British)



Since 1974 Ashraf has managed and owned a number of Indian restaurants. He is a
founder of the Mela Group and is responsible for strategy, planning,
administration and logistics.



Current trading and future prospects



Historic results are set out in the accountants' report on India Outsourcing for
the 13 months ended 30 September 2005, the year ended 30 September 2006 and the
six months ended 31 March 2007 in the admission document.



India Outsourcing has no subsidiaries or investments. India Outsourcing has been
seeking an appropriate acquisition target in line with its investment strategy,
whilst minimising operating expenses and in the six months to 31 March 2007
reported a loss of approximately £128,000.



Future prospects



The Directors and the Proposed Directors believe that the Indian restaurant
sector offers the opportunity for significant organic growth through the
development of a branded chain of restaurants offering authentic cuisine cooked
to a high standard. In addition, the Directors and the Proposed Directors
believe that there are consolidation opportunities within the Indian restaurant
sector and envisage that the Enlarged Group may be acquisitive in the future.



The City Code on Takeovers and Mergers



The City Code is issued and administered by the Panel and applies to all
takeover and merger transactions, however effected, where the offeree company is
a public company, whether quoted or unquoted, incorporated and resident in the
United Kingdom, the Channel Islands or the Isle of Man. The City Code applies to
the Company and its Shareholders are accordingly entitled to the protections
afforded by the City Code.



The City Code is designed principally to ensure fair and equal treatment of
shareholders in relation to takeovers. The City Code also provides an orderly
framework within which takeovers are conducted and, additionally, is designed to
promote, in conjunction with other regulatory regimes, the integrity of the
financial markets. The Panel is an independent body whose main functions are to
issue and administer the City Code and to supervise and regulate takeovers and
other matters to which the City Code applies in accordance with the rules set
out in it. The Panel has been designated as the supervisory authority to carry
out certain regulatory functions in relation to takeovers pursuant to the
Directive on Takeover Bids (2004/25/EC) (the "Directive"). On 6 April 2007 part
28 of the 2006 Act came into force. Until then, a takeover of an AIM company
fell outside the scope of the statutory regime applicable to takeovers subject
to the Directive and the Panel operated for AIM transactions on a non statutory
basis. Pursuant to part 28 of the 2006 Act the Panel is now given full statutory
authority in respect of all offers and other transactions concerning AIM
companies incorporated and resident in the United Kingdom, the Channel Islands
and the Isle of Man.



Rule 9 of the City Code normally requires any person or group of persons acting
in concert who acquires an interest in shares which, taken together with
interests in shares already held, carry 30 per cent. or more of the voting
rights of a company, to offer to acquire the balance of the equity share capital
in cash at the highest price paid by that person or any person acting in concert
with him in the previous 12 months. Rule 9 of the City Code also normally
requires any person who, together with any person or persons acting in concert
with him, is interested in shares carrying between 30 per cent. and 50 per cent.
of a company's voting rights and who acquires an interest in additional shares
which carry voting rights, to acquire the balance of the equity share capital in
cash at the highest price paid by that person or any person acting in concert
with him in the previous 12 months. The Vendors are classed as a concert party
(as defined in the City Code) due to their interests in the Mela Group, a group
of private companies.



The Panel has agreed, subject to the passing of Resolution 2 at the GM by
Shareholders on a poll, to waive the obligation on the Concert Party to make a
general offer that would otherwise arise as a result of the Acquisition under
Rule 9 of the City Code.



The expected interests of the Concert Party in the share capital of India
Outsourcing upon Admission and following the issue of the Deferred Consideration
Shares are summarised below. Other than shown below, no member of the Concert
Party holds interests, shares or options in India Outsourcing:


Concert Party     Number of Ordinary     %  of Enlarged   Number of Ordinary       % of further
member              Shares held upon   Share Capital on Shares held assuming      enlarged share
                           Admission          Admission    issue of Deferred    capital assuming
                                                        Consideration Shares   issue of Deferred
                                                          and no exercise of       Consideration
                                                                     options       Shares and no
                                                                             exercise of options
Kuldeep Singh              1,446,720              11.06            2,893,439               17.35
Ashraf Rahman              1,071,293               8.19            2,142,586               12.84
Dinesh Mody                1,082,670               8.28            2,165,340               12.98
Total                      3,600,683              27.53            7,201,365               43.17



Immediately following the implementation of the Proposals, the members of the
Concert Party will own approximately 27.53 per cent. of the Company's issued
ordinary share capital. Assuming the issue of the Deferred Consideration Shares,
the interests of the members of the Concert Party and therefore the maximum
controlling position of the Concert Party will increase to 43.17 per cent. of
the Company's then issued ordinary share capital.



The members of the Concert Party do not hold any options over Ordinary Shares.
Amit Pau, Daniel Stewart plc and W.H. Ireland Limited will, on Admission, hold
847,916, 222,222, and 261,597 options over Ordinary Shares, respectively. If all
of these options were exercised, this would have a dilutive effect on the
maximum controlling position of the Concert Party which would be reduced from
43.17 per cent. to 39.98 per cent.



For the avoidance of doubt, the Waiver applies only in respect of increases in
the interests of Ordinary Shares of the Concert Party and members of the Concert
Party resulting solely from the issue to them of the Consideration Shares. If
any member acquires Ordinary Shares which increase the aggregate interest in
Ordinary Shares of such member to 30 per cent. or more of the issued share
capital of the Company, or increases such member of the Concert Party's interest
in Ordinary Shares to between 30 per cent. and 50 per cent., other than pursuant
to the issue to it of the Consideration Shares, then Rule 9 would apply and such
member or the Concert Party would be obliged to make an offer for the entire
issued share capital of the Company not held by them.



In addition, should the options detailed above be exercised in full thus
reducing the maximum controlling position of the Concert Party to 39.98 per
cent., the Concert Party would not be able to acquire further interests in
Ordinary Shares without triggering Rule 9.



Significant shareholders



The Vendors have, in aggregate, interests in shares representing 100 per cent.
of the Mela Group's equity and, following Admission and assuming issue of the
Deferred Consideration Shares, will have an aggregate interest representing
43.17 per cent. of the further enlarged share capital. They have all entered
into a controlling shareholders agreement with the Company and with W.H. Ireland
pursuant to the terms of which they have given certain undertakings to the
Company and to W.H. Ireland concerning the use of the Ordinary Shares controlled
(directly or indirectly) by them.



Directors' and Proposed Directors' interests and orderly market deed



Immediately following Admission, the Directors and the Proposed Directors will
be interested in, in aggregate, 4,295,791 Ordinary Shares, representing
approximately 32.84 per cent. of the Enlarged Share Capital.



The Vendors have agreed not to dispose of or transfer any interests in Ordinary
Shares within a period of 12 months following Admission (the "Lock-in Period"),
save in certain specific circumstances and have agreed to orderly market
arrangements in respect of their shareholdings for a further period of 12
months.



Principal terms of the Acquisition



The Mela Group comprises:



1.   Chandan Limited (trading as the Mela Restaurant). This company is
     owned by the Vendors.

2    Rice & Spice Limited (trading as Chowki). This company is a wholly
     owned subsidiary of Chandan.

3.   Param Consultancy Limited (trading as 3 Monkeys). This company is
     owned as to 33.3% by Kuldeep Singh and 66.6% by Chandan.



On 28 January  2008, the Company entered into the Acquisition Agreement with the
Vendors to acquire the Mela Group. The Consideration will be £1,998,999, to be
satisfied by £100,000 in cash and the issue of 3,600,683 Initial Consideration
Shares together with 3,600,682 Deferred Consideration Shares (which may be
issued conditional upon turnover and profit before tax of the Mela Group for the
year ending 31 March 2009 being not less than £2.5 million and £120,000,
respectively). Each Consideration Share is valued at 26.37p per share,
conditional, inter alia, on Admission.



The Initial Consideration Shares will represent 27.53 per cent. of the Enlarged
Share Capital and will, when issued, rank pari passu in all respects with the
other Ordinary Shares then in issue, including all rights to all dividends and
other distributions declared, made or paid following Admission.



There is no arrangement in place relating to the Acquisition where the payment
of interest, repayment or security for any liability (contingent or otherwise),
is dependent to any significant extent on the business of the Company. The
Acquisition Agreement is conditional, inter alia, on (i) the passing of the
Resolutions and (ii) Admission.



The Vendors have given an indemnity that the net liabilities of the Mela Group
at Completion will not exceed £280,000.



Change of name



The name of the Company will be changed to Indian Restaurants Group Plc,
conditional upon both the passing of Resolution 5 by the Shareholders and
completion of the Acquisition.



Dividend Policy



Initially the Enlarged Group Board anticipates that any earnings will be
retained by the Enlarged Group for the development and growth of the business.



The declaration and payment by the Enlarged Group of dividends will be dependent
upon the Enlarged Group's financial condition, future prospects and other
factors deemed to be relevant at the time. This will take into account both the
requirements of the business and the expectations of the Shareholders. Currently
the Company has a deficit on its profit and loss account and it is the intention
of the Enlarged Group Board in due course to seek court approval to write off
the share premium reserve against this deficit.



General Meeting



A notice convening the General Meeting to be held at 2.00p.m. on 25 February
2008 at the offices of W.H. Ireland, 5th Floor, 85-89 Colmore Row, Birmingham B3
2BB is set out in the Admission Document circulated to Shareholders on 28
January 2008. At the General Meeting, the Resolutions will be proposed to
approve the Acquisition, approve the Waiver, approve the increase in share
capital, approve the change of name, approve the increase in borrowing powers,
authorise the Directors to allot up to 22,462,962 new Ordinary Shares (including
the Consideration Shares) and disapply pre-emption rights over 15,261,597
Ordinary Shares.



As the Acquisition constitutes a reverse takeover under the AIM Rules,
Shareholder approval is required under the AIM Rules. The Acquisition Agreement
is conditional, inter alia, upon the passing of the Resolutions and therefore if
they are not approved by the Shareholders, the Acquisition will not be
completed.



Shareholder approval is required (by poll) to approve the Waiver by the Panel of
the obligations on the Concert Party to make a general cash offer for the whole
of the Company's issued share capital pursuant to Rule 9 of the City Code. As a
result of the issue to the Concert Party of the Consideration Shares pursuant to
the Acquisition, the Concert Party would own in aggregate 43.17 per cent. of the
further enlarged share capital which would trigger Rule 9 of the City Code.



Irrevocable undertakings



The Company has received irrevocable undertakings from Blue Star Capital plc and
Amit Pau to vote in favour of the Resolutions in respect of, in aggregate
1,777,778 Ordinary Shares representing approximately 18.75 per cent. of the
Existing Ordinary Shares.



Recommendation of the Directors



The Directors, who have been so advised by W.H. Ireland, consider that the terms
of the Proposals and the Waiver are fair and reasonable and in the best
interests of the Company and Shareholders as a whole. In providing advice to the
Directors, W.H. Ireland has relied upon the Directors' commercial assessments.
Accordingly, the Directors unanimously recommend Shareholders to vote in favour
of the Resolutions as they have irrevocably undertaken to do so in respect of
their own shareholdings, amounting in aggregate to 1,777,778 Ordinary Shares,
representing 18.75 per cent. of the Existing Ordinary Shares.



INFORMATION ON THE MELA GROUP



Introduction



The Mela Group comprises three Indian restaurants, and an outside catering
business branded as

Mela Roma/Mela Events. The three restaurants are:



-       Chowki, located in Denman Street adjacent to Piccadilly Circus, in 
        London's West End, owned by Rice & Spice (a wholly owned subsidiary
        of Chandan);

-       Mela Restaurant, located on Shaftesbury Avenue, London, owned by Chandan 
        (owned as to 33.3% each by each of the Vendors); and

-       3 Monkeys, located in Herne Hill, London, owned by Param (owned as to 
        33.3% by Kuldeep Singh and 66.6% by Chandan).



The Market



In 1960 there were 500 Indian restaurants in the UK and with the introduction of
the tandoor oven in 1964 (which was imported into India from the Middle East
after World War II) numbers grew to 1,200 outlets by 1970. The influx of
Bangladeshi immigrants into the UK in the 1970's further fuelled the growth and
by the 1980's the number of restaurants had increased to 3,000 and again to
8,000 by 2000. It is estimated that some 85 per cent. of Indian restaurants in
the UK are run by people of Bangladeshi origin. In June 2006, the Guild of
Bangladeshi Restaurateurs estimated that there were 9,800 restaurants in the UK
with trade worth around £3.2 billion.



Ethnic food has a deeply rooted popularity with the British consumer and after
eating out in pub restaurants, Chinese food is the most popular choice and
Indian food comes a close fourth after fish and chips. Indian food in Britain
has often been adapted to the British palate, with the majority of offerings
being anglicised versions of authentic dishes and readily available in every
eating out venue.



The spread of ethnic food within the UK has been aided significantly by the
immigration of ethnic minorities and therefore the size of the ethnic population
within the UK has a bearing on the spread of ethnic cuisine. The majority of
ethnic restaurants still rely on ethnic staff to cook, prepare and serve the
food. This in part is why it has remained a sector characterised by a large
number of independent and family owned businesses. One of the main difficulties
facing the industry as a whole is the shortage of skilled staff. New immigration
laws are now making it difficult to recruit chefs with the necessary culinary
and cultural skills to deliver the authentic restaurant experience and whereas
immigrant workers were happy to come to the UK to work in restaurants, the
British born Asian community has shown a greater reluctance to do so.



The ethnic sector is benefiting from an active eating out market but arguably is
not taking advantage of the opportunity that this represents. There are pockets
of the ethnic market which are highly dynamic, innovative and forward looking,
but the majority of the sector remains much as it always has done. The Enlarged
Group Board intend to exploit this opportunity with their offering. The Enlarged
Group Board believe that change and innovation is essential for survival within
an extremely competitive eating out market. Although ethnic food in itself is
fundamentally different from other choices there is little or no differentiation
between operators.



Currently enjoyment of ethnic food is much more orientated towards younger
consumers. Visiting ethnic restaurants drops sharply amongst the retired and
over 65 age group. However, although today's current older generation may not
enjoy ethnic food to the extent of younger consumers this is unlikely to
continue to be the case, especially as ethnic operators diversify into
increasingly sophisticated and authentic dishes that offer more than just fiery
spices and anglicised flavours.



In addition, levels of personal disposable income are a major influence on the
eating out market since it is essentially a discretionary spend with higher
levels of disposable income driving more frequent dining out occasions. On the
whole, ethnic restaurants are relatively low cost and perhaps more resilient to
small fluctuations in economic prosperity than more premium dining options. The
strength of the takeaway market in this sector is even better placed to take
advantage of changing financial circumstances since it benefits from consumers
trading down from eating out during less prosperous periods. The takeaway sector
has also become much more of a convenience and therefore essential part of a
busy lifestyle.



The Mintel Report - Ethnic Restaurants and Takeaways, Leisure Intelligence, June
2006, forecasts that unless there is a widespread initiative to evolve with
modern dining habits the Indian sector is likely to suffer some erosion from
other casual dining opportunities. The distinctive nature of its cuisine
provides a certain level of protection with consumers readily featuring it as
part of their portfolio of options. However as the market becomes more
competitive, those outlets that remain the same as they always have been may
suffer. There are examples of outlets evolving and developing their offer but
these are currently in the minority. There is considerable scope for a more
dynamic approach. There is much evidence in their research that even the
currently loyal regular users feel that improvements could be made in menus and
other areas in order to improve the overall experience. Generally speaking the
direction of improvements will be focused on improving the quality of both the
ingredients used and dishes produced.



The Enlarged Group Board believe that Chowki and Mela are well positioned to
exploit these changes in the market by the development of a national chain
offering consistently prepared fresh authentic Indian food in a casual
environment.



The opportunity



The Indian restaurant sector has historically been characterised by a large
number of independently owned family businesses with brands being absent. The
Enlarged Group Board believe that the Mela Group has a current established
platform on which to build an expandable business and has the following key
strengths which enable it to target the more dynamic and rapidly growing aspect
of the Indian restaurant market:



-      fresh, authentic, high quality, consistent Indian food;

-      an existing management team with experience in developing new businesses; 
       and

-      a changing menu, focusing on regional dishes with clearly stated 
       ingredients and brief regional information.


The Directors and Proposed Directors believe that the Enlarged Group's quotation
on AIM will enhance its ability to acquire potential target sites going forward.



The business of the Mela Group



(i) Chowki



Chowki is an award winning restaurant, winning the Tio Pepe ITV London
Restaurant Award in 2004. Chowki's target market are those in the 25 to 45 year
old age group who visit on a regular basis and want an informal dining
experience. Chowki achieves an average weekly turnover of just over £20,000
serving a weekly average of approximately 1,270 covers focusing on the home
cooking style of different regions of the Indian sub-continent.



Cuisine



Chowki has a changing monthly menu featuring three regions from the India
subcontinent in order to offer a re-creation of traditional Indian food and to
encourage repeat custom.



In re-creating the variety and authenticity of recipes, Chowki's chefs are
trained to follow traditional home cooking methods. For example, only seasonal
vegetables are used, meat is generally served on the bone to enhance taste, and
spices are bought whole, not readyground or mixed, so as to ensure the quality
is pure and to preserve the unique colour, aroma, flavour and taste of the dish.
The menu has been developed by Kuldeep Singh, proposed Executive Chef Director
with input from Ashraf Rahman, proposed Business Development Director.



Style



Chowki is located in Denman Street, adjacent to Piccadilly, London and is fully
licensed restaurant on two levels, open seven days a week, from midday until
eleven thirty. With a fast turn around Chowki can achieve up to three sittings a
night. In keeping with the innovative menu, the style of the Chowki restaurant
is contemporary, intended to appeal to the younger market. The interior is
designed to replicate a more modern version of the sociable and convivial
environment in which an Indian family enjoys a meal at home. Each table can
accommodate six or more people which both increases capacity and makes Chowki an
attractive venue for groups. The fast turnaround and location makes Chowki well
suited for pre-and-post theatre meals.



The food is served in crockery that is based on the 'thali' which is a typical
Indian food bowl with several compartments for different components of the meal.
It differs from the traditional Indian dish in that it is not made of metal but
of white bone china to emphasise the colour of the food. It is also split into
two plates to accommodate a multicourse meal as opposed to a single course which
is more customary in India.



Pricing



The combination of restaurant capacity, a relatively quick customer turnaround
and a menu that focuses on a small number of freshly prepared meals, allows the
menu to be competitively priced. Set three course meals have recently been
priced at £10.95. Starters are priced in the range of £3.95 to £4.25, with
vegetarian options at a lower price. Main courses range from £10.95 to £11.95,
with vegetarian main courses generally at £7.95 and £8.85. Overall, a full meal
including a beverage usually costs less than £20.00 per person.



Employees



Chowki currently has 25 employees.



Awards/Critics

There have been numerous favourable reviews carried out on Chowki. Chowki was
ranked in the top 50 Indian restaurants in London by Time Out magazine dated 2
February 2005.



(ii) Mela and 3 Monkeys



Mela is located in the West End and 3 Monkeys is located in Herne Hill, in
South-East London. 3 Monkeys serves a similar menu to Mela. Post Admission, the
3 Monkeys restaurant will be rebranded under the Mela brand. Mela and 3 Monkeys
achieve an average weekly turnover of £23,500 and £10,000, serving a weekly
average of approximately 1,107 covers and 255 covers, respectively. The 3
Monkeys takings include takeaway revenue.



Cuisine



Mela and 3 Monkeys offer freshly prepared, Indian food cooked in an authentic
Indian style. They both have a menu which is wider than that offered by Chowki
with dishes drawn from a greater number of regions in the Indian sub-continent.
Mela offers a 'create-it-yourself' lunch menu where guests can choose, for
example, what kind of flour they wish to be used in cooking their dish, and as
such both are open for all-day dining. Both restaurants host a theatre kitchen
where the food is cooked in front of guests.



Style



Mela and 3 Monkeys have a modern, urban design, however, the tables generally
seat smaller groups of people much like a traditional restaurant and as opposed
to having 'chowki' style tables and seating.



Pricing



The average price of a meal at Mela is £20 to £25 per head.



Employees



Mela currently has 26 employees and 3 Monkeys has 21 employees.



Awards/Critics



There have been a number of reviews carried out on Mela by restaurant critics
who commented upon the exceptional value and high quality of the food served at
Mela. As with Chowki, Mela is an award winning restaurant winning the Moet &
Chandon/Carlton TV "Best Indian Restaurant of the Year" in 2001.



Competition



The Enlarged Group Board do not believe that any competitor in the UK has
achieved national dominance in the market for Indian cuisine in a comparable
restaurant format to that of Mela or Chowki. More generally, competition tends
to be defined by specific location e.g. other restaurants in the immediate
vicinity. The Chowki and Mela formats have already demonstrated an ability to
trade in locations where there are other restaurants offering a range of
cuisines. The Enlarged Group Board intend to build on the success of this format
by establishing further outlets where competition may be as intense.



Mela Events



The Mela Group also provides events catering. The Enlarged Group Board intend to
develop and expand this operation to target the Indian wedding market and
outdoor events more generally.



Growth Strategy



The Directors and Proposed Directors intend to identify locations which offer
good commercial opportunities. In the 12 to 15 month period following Admission,
the Enlarged Group intends to

embark upon a realistic roll out programme subject to market conditions and site
availability.



Current trading and prospects



Turnover in November and December 2007 for the Mela Group was 3 per cent. down
on the equivalent period for 2006 with a stronger performance in Mela Events
offsetting a 10 per cent. decline in restaurant takings.



The Directors and Proposed Directors believe that the current fragmented market
presents significant opportunities for organic growth and acquisition.



Shareholders



The Vendors and their potential interests in the Enlarged Share Capital, and
following issue of the Deferred Consideration Shares, are set out below:


Shareholder                 Number of                % of    Number of Ordinary        % of further
                                                           Shares held assuming      enlarged share
                             Ordinary            Enlarged     issue of Deferred    capital assuming
                                                           Consideration Shares   issue of Deferred
                      Shares held  on               Share    and no exercise of       Consideration
                                                                        options       Shares and no
                            Admission          Capital on                       exercise of options
                                                Admission


Kuldeep Singh               1,446,720               11.06             2,893,439               17.35
Ashraf Rahman               1,071,293                8.19             2,142,586               12.84
Dinesh Mody                 1,082,670                8.28             2,165,340               12.98
Total                       3,600,683               27.53             7,201,365               43.17



The members of the Concert Party do not hold any options over Ordinary Shares.
Amit Pau, Daniel Stewart plc and W.H. Ireland will, on Admission, hold 847,916,
222,222, and 261,597 options over Ordinary Shares, respectively. If all of these
options were exercised, this would have a dilutive effect on the maximum
controlling position of the Concert Party which would be reduced from 43.17 per
cent. to 39.98 per cent.



EXPECTED TIMETABLE OF PRINCIPAL EVENTS


Admission Document publication date                                                         28 January  2008
Latest time and date for receipt of completed Forms of Proxy                                 2.00 p.m. on 23
                                                                                              February  2008
General Meeting                                                                              2.00 p.m. on 25
                                                                                              February  2008
Completion date of the Acquisition                                                          26 February 2008
Admission effective and expected commencement of dealings in the Enlarged Share Capital    26 February  2008
Despatch of definitive share certificates in respect of the Initial Consideration Shares      11 March  2008
(where applicable)



ACQUISITION STATISTICS


Number of Existing Ordinary Shares in issue prior to the Acquisition                        9,479,167

Number of Initial Consideration Shares being issued pursuant to the Acquisition Agreement   3,600,683

Number of Ordinary Shares in issue immediately following Admission                          13,079,850

Number of Deferred Consideration Shares capable of being issued pursuant to the Acquisition 3,600,682
Agreement

Number of Ordinary Shares subject to options following Admission                            1,331,735

Percentage of the Enlarged Share Capital held by members of the Concert Party following     27.53%
completion of the Proposals

Percentage of the further enlarged share capital held by members of the Concert Party       43.17%
following completion of the Proposals and assuming the issue of the Deferred Consideration
Shares

Mid market price of an Existing Ordinary Share on 25 January 2008 (being the latest         20.5p
practicable date prior to publication of this document and the date on which the Ordinary
Shares were suspended from trading on AIM)

Estimated costs of the Proposals                                                            £0.275 million

Market capitalisation of the Enlarged Group on Admission at 20.5p                           £2.68 million




                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

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