Mouchel Group plc Announcement of Restructuring (0101J)

TIDMMCHL

RNS Number : 0101J

Mouchel Group plc

01 August 2012

Mouchel Group plc - Announcement of Restructuring

The Board of Mouchel Group plc ("Mouchel" or the "Company"), the infrastructure and business services group, announces that following a period of negotiations with its Lenders, it has agreed a restructuring of the Company, which will place the business on a firm financial footing for the future. This will be achieved by implementing a Debt for Equity Swap and amending the terms relating to the Company's outstanding debt facilities.

As previously communicated to Shareholders, on 29 March 2012 and 11 June 2012, in light of the unsustainable levels of debt on the Company's balance sheet, the restructuring options under consideration would have resulted in limited value for Shareholders. In reaching this agreement with its Lenders on the terms of the Restructuring, the Board has sought to ensure that Shareholders have the opportunity to recover some value from their investment. Accordingly, Shareholders will be entitled to receive a special dividend of 1 pence per Ordinary Share following, and conditional upon, completion of the Restructuring. Following payment of the special dividend, shares entitled to the special dividend will be repurchased by the Company, for which Shareholders will receive no further payment.

Over the past six months, the Board has explored extensively various potential means of addressing the Company's current financial position. The Board believes that the Restructuring is the best available means of preserving the Group's business, including safeguarding its existing customer contracts and job security for more than 8,000 employees, and represents the only viable and deliverable option for delivering value to Shareholders. The Restructuring, achieved with the support of the Company's Lenders - RBS, Lloyds Banking Group and Barclays - will enable Mouchel to continue with business as usual.

Under the terms of the Restructuring, the Debt for Equity Swap will comprise the Lenders together releasing GBP87 million of the Group's existing debt liabilities for a majority interest in the Company. This will leave the Company with GBP60 million of outstanding debt, a level the Board believes appropriate for a company of Mouchel's size and prospects. Mouchel is currently dependent upon the support of its Lenders and a default is expected under the terms of its existing borrowings on 30 August 2012 unless it restructures its existing borrowings. The Board believes that the Restructuring will provide a sustainable capital structure for Mouchel to operate its business. Though the underlying business is performing broadly in line with management expectations, performance in the current year continues to be impacted by the financial uncertainty surrounding the Group and associated costs involved in the operational restructuring of the business.

The Board believes there are good opportunities across both divisions, Mouchel Infrastructure Services and Mouchel Business Services. Whilst the Board believes that Mouchel is stable and has a strong underlying business, an appropriate and sustainable level of debt financing will greatly improve its perception in the marketplace and with its customers and suppliers. In addition, the significantly reduced interest payments resulting from the Restructuring should contribute positively to the Company's earnings and cash flow and enable the business to move forward with renewed vigour.

The Restructuring is subject to the approval of Shareholders at the General Meeting to be held on 24 August 2012. Assuming that Shareholders vote in favour of the Restructuring, the proposal will result in the Delisting of Mouchel, which is expected to take effect on 25 September 2012. Following the Delisting, the Restructuring will complete.

Commenting on the restructuring, David Shearer, Mouchel's Chairman said:

"As previously communicated to shareholders, our unsustainable debt levels meant the restructuring options under consideration would have resulted in limited value for shareholders. In reaching this agreement with our lenders, we have sought to ensure that our shareholders have the opportunity to recover some value from their investment. The restructuring ensures we will have an appropriate level of debt and the right capital structure to take the Company forward."

Commenting on the restructuring, Grant Rumbles, Mouchel's Chief Executive said:

"We are pleased to announce today the terms of our financial restructuring, creating a stable platform for the long term future of Mouchel.

Given the circumstances, we believe the restructuring represents the best possible outcome for all of our stakeholders, safeguarding our existing customer and supplier contracts and preserving job security for Mouchel's employees.

Throughout this challenging period, we have continued to work with our customers, suppliers, employees and other key stakeholders to implement our strategic actions and we are encouraged by the progress made. With the continued support of our lenders, we now look to take Mouchel forward from here as a privately-owned company."

This press release should be read in conjunction with the full text of this announcement. A copy of the Circular containing the Notice of General Meeting will be posted to Shareholders later today and a copy will also be made available on the Company's website: www.mouchel.com.

For further information please contact:

Mouchel Group plc

Grant Rumbles, Chief Executive

Rod Harris, Group Finance Director

01483 731731

Brunswick Group

Mike Smith / Aideen Lee / Azhar Khan

020 7404 5959

Introduction

The Company today announces that the Group has agreed with its Lenders the terms of the proposed Restructuring. The Restructuring will comprise the following steps, all of which are interconditional and subject to the approval of Shareholders at the General Meeting to be held on 24 August 2012:

-- the release by the Lenders of MFL's obligations in relation to the Underperforming Debt and the Restructuring Fee in consideration for the issue of MFL Shares;

-- the transfer by the Lenders of the MFL Shares to the Company, together with the release and cancellation of the Existing Warrants, in consideration for the issue to the Lenders of A Shares;

-- the reclassification of the Ordinary Shares into Deferred C Shares (with very limited economic rights and no voting rights);

-- the cancellation by the Company of the admission to listing on the Official List and to trading on the London Stock Exchange's main market for listed securities of its shares;

-- the waiver by the Independent Shareholders of the mandatory offer requirements of Rule 9 of the Takeover Code;

-- the implementation of a new management incentive programme, involving the issue of MIP Shares; and

-- the adoption of the New Articles (containing, amongst other things, the share rights attaching to the A Shares, the MIP Shares and the Deferred Shares).

Following, and conditional upon, completion of the Restructuring, it is proposed that the Company pay a special dividend to Shareholders of 1 pence per Ordinary Share. As soon as reasonably practicable following completion of the Restructuring, the Company intends to repurchase the Deferred C Shares for a de minimis consideration of, in aggregate, 1 pence.

As part of the Restructuring, the Company will also refinance the facilities provided under the Existing Facilities Agreement.

Having explored extensively various potential means of addressing the Company's current financial situation, including raising third party equity investment, the Board has concluded that, given the Company's current financial position and with the volatile and uncertain conditions currently affecting the global equity markets, raising sufficient equity investment is not possible. Therefore, the Board believes that the Restructuring is the best available means of preserving the Group's business, including safeguarding its existing customer contracts and job security for more than 8,000 employees, and represents the only viable and deliverable option for delivering any value to Shareholders. The Board has received confirmation from the Lenders that, if Shareholders do not approve the Restructuring, the continuing support of the Lenders (including in relation to certain existing waivers under the Existing Facilities Agreement) would be limited to supporting the Directors' decision to appoint an insolvency practitioner with a view to effecting a sale of the Group through an insolvency process, as the most effective way of mitigating any further loss to the Company's creditors. In these circumstances, the Board expects that the Group would be sold either to a third party or parties or to a Lender-owned vehicle for nominal cash consideration and/or for certain debt relief granted by the Lenders to the Company. The Board believes that such a transaction would result in Shareholders receiving no value for their current shareholding. Consequently, the Board believes that the Restructuring and the payment of the Special Dividend represents the only realistic opportunity for Shareholders to recover any value in return for their investment in the Company. Whether the Restructuring is delivered via Shareholders approving the Resolutions or via an insolvency process, the Directors believe that the employment of the Group's employees and the position of the Group's commercial counterparties will remain materially unchanged with the intention that the business continues on a business-as-usual basis.

This announcement should be read in conjunction with the Circular, which outlines in full the background to and reasons for the Restructuring and the Special Dividend and to explain why the Board is seeking the requisite approvals from the Shareholders for the Resolutions at the General Meeting.

Background to and Details of the Proposed Restructuring

Historic performance

Following the merger of Mouchel and Parkman in 2002, the Group became a leading infrastructure services group. Since then, the Group has successfully grown into a leading highways consultancy business, a leading provider of local authority business process outsourcing services and has a strong position supporting utility providers. Between 2004 and 2009, the Group increased adjusted earnings per share on average by 16 per cent. annually as the Group benefitted from a strategy of focussing on UK public sector outsourcing, together with expansion into support services in a buoyant Middle East market. The Group also made two significant acquisitions during that time:

-- in August 2007, the Group acquired HBS, a business process outsourcing business, for GBP47.3 million net; and

   --      in March 2008, Hedra, the management consultancy, was bought for GBP51 million. 

Both of these acquisitions positioned the Group for the growing number of opportunities available to the Group at the time, as the public sector continued to accelerate outsourcing. Following the cash outlays on these acquisitions, the Group was left with a geared balance sheet, which was still prudent for the market conditions at the time, particularly given the Group's extensive order book. However, the subsequent integration of Hedra was more complex than originally anticipated and coincided with a downturn in the market for management consulting services in the public sector, a trend which was exacerbated by the economic downturn and the austerity measures that were implemented in the United Kingdom following the publication of the CSR in October 2010.

Recent financial performance

The Group experienced a difficult year in FY2011, with Group revenue falling by 14.7 per cent. (excluding exceptional items) and underlying operating profit falling by 61.9 per cent. In H1 2012, trading conditions remained challenging, with revenue essentially flat and an underlying operating loss of GBP1.0 million.

To address these issues, the Directors have taken a number of actions since the beginning of FY2011, including:

-- refinancing the Group's principal banking facilities in January 2011, amending and restating them in November 2011 and further amending them in March 2012;

-- disposing of the Group's rail and pipeline design businesses to focus on the Group's core competencies;

   --      installing a new chairman, Chief Executive and Group Finance Director; 
   --      implementing cost reduction programmes; 
   --      controlling capital expenditure; 
   --      right-sizing the Group's position in the Middle East and Management Consulting; 
   --      implementing a weekly cash forecast and review process; and 
   --      reorganising the Group's operating structure. 

Despite these actions, trading conditions remain difficult and the Group has undertaken a strategic review, under which further steps are being implemented (such as simplifying the Group's organisational and corporate structure and reducing overall costs). The Group's currently over-leveraged balance sheet is restricting the Company from competing effectively for, and winning, new business. The Restructuring is fundamental to the implementation of Mouchel's strategic review as it will result in a sustainable level of debt from which the Group can deliver its operational plans for the long-term viability of the business.

Current trading and performance

The Directors believe that the market in which the Group operates in the United Kingdom is likely to remain flat in the short term and do not envisage significant growth in the United Kingdom market in the next 12 to 18 months.

Performance in the current year continues to be impacted by the financial uncertainty surrounding the Group and associated costs involved in the operational restructuring of the business. Apart from the Middle East and management consulting operations, the underlying business is performing broadly in line with management expectations. However, a combination of the costs involved in the Restructuring and one-off items relating to legacy issues identified as part of the Restructuring will impact in the current year.

The Directors further believe that the Group's underlying business continues to be resilient despite the uncertainty around its balance sheet. The Group's underlying divisions are generating contribution margin in line with expectations and continue to make progress toward the Group's divisional contribution target of above 10 per cent in the medium term. The Group has made improvements to its working capital management and expects to be cash generative in H2 2012 at an underlying business level before costs associated with the Restructuring. In addition, in connection with the Restructuring, management will make provisions for impairment on goodwill and intangible assets to bring the carrying values of those items into line with the new operational structure and recognising the changes in the scale of the business.

The Directors believe there are good opportunities across each division of Mouchel Infrastructure Services and Mouchel Business Services.

Serious loss of capital

It has recently been brought to the attention of the Board that the value of Mouchel's net assets are now less than half of its called up share capital. It is a requirement of the Companies Act that where the net assets of a public company are half or less of its called up share capital, the directors must call a general meeting of the company to consider whether any, and if so what, steps should be taken to deal with the situation. Accordingly the business to be conducted at the General Meeting will include consideration of what, if any, such steps should be taken. If the Restructuring is implemented, the Directors do not consider that any additional action needs to be taken to address the serious loss of capital.

Reasons for the Restructuring

In recent months, it became clear that a full refinancing of the Group's Existing Lending Facilities would not be achievable and, in light of the market developments described above, the Board considered that it would be necessary to pursue the Restructuring to give the Group a less-leveraged capital structure from which to operate its business.

The Board has received confirmation from the Lenders that, for so long as proposals regarding the Restructuring are being considered by Shareholders, support from the Lenders is likely to continue. However, the Group is currently dependent upon the ongoing support of the Lenders to continue as a going concern and, unless the Restructuring is approved by Shareholders, an event of default under the Existing Facilities Agreement is expected to arise on 30 August 2012. The Board has also received confirmation from the Lenders that as the enterprise value of the Group is only likely to deteriorate further given the impact that the current over-leveraged balance sheet is having on the ability of the Group to secure new contracts, if Shareholders do not approve the Restructuring, the continuing support of the Lenders would be limited to supporting the Directors' decision to appoint an insolvency practitioner with a view to effecting a sale of the Group through an insolvency process, as the most effective way of mitigating any further loss to the Company's creditors.

It is therefore likely that, if Shareholders do not support the Restructuring, full repayment of the Group's Existing Lending Facilities will be required by the Lenders following the occurrence of the event of default which is expected to arise on 30 August 2012. It is expected that an insolvency practitioner would be appointed within a short period following the failure by Shareholders to approve the Resolutions, subject to the Board receiving appropriate advice to this effect and the finalisation of the relevant transaction documents necessary to effect an insolvency process. In these circumstances, the Board expects that the Group would be sold either to a third party or parties or to a Lender-owned vehicle for nominal cash consideration and/or for certain debt relief granted by the Lenders to the Company. The Board believes that such a transaction would result in Shareholders receiving no value for their current shareholding. Whether the Restructuring is delivered via Shareholders approving the Resolutions or via an insolvency process, the Directors believe that the employment of the Group's employees and the position of the Group's commercial counterparties will remain materially unchanged with the intention that the business continues on a business-as-usual basis.

The Board has explored extensively various potential means of addressing the Company's current financial situation, including raising third party equity investment, and concluded that, given the Company's current financial position and with the volatile and uncertain conditions currently affecting the global equity markets, raising sufficient equity investment is not possible. Therefore, in light of the alternative outcome of an insolvency process described above, the Board believes that the Restructuring is the best available means of preserving the Group's business, including safeguarding its existing customer contracts and job security for more than 8,000 employees, and that the Restructuring and the payment of the Special Dividend represent the only realistic opportunity for Shareholders to recover any value in return for their investment in the Company.

Change of Accounting Date

Conditional upon completion of the Restructuring, the Company intends to change its financial reporting year end from 31 July to 30 September. This will enable Mouchel's next set of financial statements, which will be for the 14 months to 30 September 2012, to reflect the full impact of the Restructuring.

Terms of the Restructuring

Debt for Equity Swap and Amended Facilities Agreement

As the Company has previously reported, it has been engaged in discussions with the Lenders concerning a restructuring of its Existing Lending Facilities, currently comprising a term loan facility in an aggregate amount equal to GBP128,920,500, a multicurrency revolving credit facility and bonding facility in an aggregate amount equal to GBP35,000,000, and a revolving credit facility in an aggregate amount equal to GBP16,000,000. The Group owed GBP169,998,693.54 (including the Restructuring Fee) under its Existing Facilities Agreement as at 26 July 2012.

Following several months of negotiation with the Lenders, the Directors have determined that the prevailing level of debt is incompatible with the Company operating on a going concern basis going forward.

The Company has reached agreement with the Lenders to restructure the Existing Lending Facilities including, among other things, by reducing the overall amount of the Group's indebtedness. This will be done by effecting the Debt for Equity Swap and amending the terms relating to the Company's remaining indebtedness under the Existing Facilities Agreement. The Board believes this will provide a more sustainable capital structure going forward.

The Debt for Equity Swap will comprise (i) the release by the Lenders of MFL's obligations in relation to the Underperforming Debt in consideration for an issue of MFL Shares to the Lenders; (ii) the waiver by the Lenders of MFL's obligations in relation to the Restructuring Fee in consideration for an issue of MFL Shares to the Lenders; (iii) the transfer to the Company by the Lenders of the MFL Shares issued under (i) and (ii) above in consideration for the issue of 7,999,998 A Shares to the Lenders; and (iv) the release and cancellation of the Existing Warrants by Barclays and RBS in consideration for the issue of 1 A Share to each of Barclays and RBS, in each case as set out in the Transfer and Subscription Agreement.

The Amended Lending Facilities will comprise a term loan facility in an aggregate amount equal to GBP60,000,000 and a multicurrency revolving credit facility and bonding facility in an aggregate amount equal to GBP40,000,000.

Provided the Resolutions are passed, the Restructuring is expected to become effective immediately following the Delisting which is anticipated to occur at 8.00 a.m. on 25 September 2012. If the Restructuring is not approved by Shareholders, the Group will continue to be subject to the financial covenants and other obligations contained in the Existing Facilities Agreement, which are expected to be breached on 30 August 2012.

Special Dividend and Deferral

Acknowledging that Shareholders may have little incentive to vote on the Resolutions while, at the same time, firmly believing that the Restructuring is the best available means of preserving the Group's business, including safeguarding its existing customer contracts and job security for more than 8,000 employees, the Board has agreed with the Lenders that a Special Dividend will be paid to Shareholders in conjunction with the Restructuring. The Special Dividend is conditional on all the Resolutions being passed and will be paid to Shareholders as soon as possible, and in any event, by no later than seven days, after completion of the Restructuring. The Board has established that, on completion of the Restructuring, the Company will have sufficient distributable reserves to pay a special dividend of 1 pence per Ordinary Share, representing a cash return to Shareholders of, in aggregate, approximately GBP1,142,270.

The Lenders have agreed to the Special Dividend on the condition that, in connection with the payment of the Special Dividend, the Ordinary Shares are reclassified into Deferred C Shares. Following the Deferral, Shareholders will no longer hold any ordinary shares in the Company. The Deferred C Shares will have no voting rights and very limited economic rights meaning that, in practice, they have no economic value. Accordingly, Shareholders will cease to have any meaningful interest in the Company following the Deferral. On completion of the Restructuring, share certificates in respect of the Ordinary Shares will cease to be valid and entitlements to Ordinary Shares held within CREST will be cancelled. There will be no share certificates issued or entitlements created within CREST in respect of the Deferred C Shares. As soon as reasonably practicable following completion of the Restructuring, the Company intends to exercise its right (set out in the New Articles) to repurchase all of the Deferred C Shares for a de minimis consideration of, in aggregate, 1 pence. The Deferred C Shares will then be cancelled.

The Board has concluded that the Special Dividend represents the only realistic opportunity for Shareholders to recover some value in return for their investment in the Company.

Goldman Sachs is satisfied that, upon completion of the Restructuring, the Company will have sufficient resources available to satisfy the payment of the Special Dividend.

Delisting

If the Restructuring is effected, the Company will no longer comply with Listing Rule 9.2.15R, which requires an ongoing 25 per cent. of the Company's shares to be in public hands in order for the Company to maintain its listing on the Official List. However, the Board believes that the improvement in the balance sheet position of the Group as a result of the reduced debt levels following the Restructuring is critical to the Company's ability to continue as a going concern. The Delisting will also provide the following benefits to the Company:

-- it will remove the ongoing compliance costs associated with maintaining a listing on the Official List; and

-- it will remove the need for the Company to publicly announce material events or transactions which the Board believes has in the past had a negative impact on the trading environment for the Group.

The Board considers that the Delisting is necessary in the context of the Restructuring as a whole. As such, the approval of Shareholders is sought to Delist the Company.

Under the Listing Rules, the Delisting can be effected by the Company only after securing the approval of the holders of not less than 75 per cent. of the Ordinary Shares who attend and vote at the general meeting or by proxy, and the expiration of a period of not less than 20 Business Days from the date of such Shareholder approval. Subject to the approval of Shareholders, the Company will apply to the UK Listing Authority and to the London Stock Exchange for cancellation of admission of all Ordinary Shares to the Official List and to trading on the London Stock Exchange's main market for listed securities. The Delisting is then anticipated to take effect from 8.00 a.m. on 25 September 2012, being not less than 20 Business Days following the passing of Resolution 1 as required by the Listing Rules.

Waiver of Rule 9 of the Takeover Code in relation to the Restructuring

The Takeover Code is issued and administered by the Panel on Takeovers and Mergers. The Takeover Code applies to all takeover and merger transactions, however effected, where the offeree company is, inter alia, a listed or unlisted company with its place of central management in the United Kingdom. The Company is such a company and shareholders are entitled to the protections afforded by the Takeover Code.

The Restructuring gives rise to certain considerations under the Takeover Code as a result of which the Company is required to seek the approval of the Independent Shareholders to waive the mandatory offer requirements of Rule 9 of the Takeover Code. The Lenders are deemed by the Panel to be acting in concert for the purpose of the Takeover Code.

Under Rule 9, any person who acquires an interest (as such term is defined in the Takeover Code) in shares which, taken together with the shares in which any person and persons acting in concert (as such term is defined in the Takeover Code) with such person are interested, carry 30 per cent. or more of the voting rights in a company that is subject to the Takeover Code is normally required to make a general offer to all of the remaining shareholders to acquire their shares. Similarly, when any person, together with any persons acting in concert with such person, is interested in shares which in aggregate carry not less than 30 per cent. but does not hold shares carrying more than 50 per cent. of the voting rights of such a company, a general offer will normally be required if any further interests in shares are acquired by such a person.

Immediately following implementation of the Restructuring, the voting rights in the Company held by the Lenders will be divided between the Lenders as follows: (i) RBS, 30.471 per cent., (ii) Lloyds Banking Group, 26.87 per cent. and (iii) Barclays, 22.659 per cent. Following the Restructuring, RBS will therefore hold more than 30 per cent. of the voting rights in the Company, and upon operation of the 2012 MIP (further details of which are set out below), Lloyds Banking Group could also hold more than 30 per cent. of the voting rights in the Company. This would result in RBS being obliged to make an offer for the Company pursuant to Rule 9 as a result of the Restructuring, and Lloyds Banking Group potentially being obliged to make an offer for the Company pursuant to Rule 9 as a result of the operation of the 2012 MIP. In addition, upon completion of the Restructuring, the Lenders together will hold more than 30 per cent. of the voting rights in the Company. The Panel, has agreed, subject to the approval of Independent Shareholders on a poll, to waive any obligations under Rule 9 on the Lenders (or any of them) to make a mandatory offer for the Ordinary Shares not already owned by them that would otherwise arise as a result of the Restructuring (and, in future, in connection with the operation of the 2012 MIP). This is known as the "whitewash procedure".

If the Restructuring is implemented, the Lenders will together hold more than 50 per cent. of the voting rights in the Company and (for so long as they continue to be deemed by the Panel to be acting in concert for the Purpose of the Takeover Code) may accordingly increase their aggregate interests in shares in the Company without incurring any obligation under Rule 9 to make a general offer.

Similarly, if the Restructuring is implemented, RBS will and Lloyds Banking Group could (depending on the operation of the 2012 MIP) each hold more than 30 per cent. but would not hold more than 50 per cent. of the voting rights in the Company and, in such circumstances, any further increase (save in connection with the operation of the 2012 MIP) in either RBS or Lloyds Banking Group's interests in shares in the Company would be subject to the provisions of Rule 9 and would require prior Panel consent.

Information on RBS

The Royal Bank of Scotland Group plc is the holding company of a large global banking and financial services group (the "RBS Group"). Headquartered in Edinburgh, the RBS Group operates in the United Kingdom, the United States and internationally through its two principal subsidiaries, The Royal Bank of Scotland plc ("RBS plc") and National Westminster Bank Plc ("NatWest"). Both RBS plc and NatWest are major UK clearing banks whose origins go back over 275 years. Globally, the RBS Group has a diversified customer base and provides a wide range of products and services to personal, commercial and large corporate and institutional customers.

Further information on the RBS Group's business activities is available on the group's website at www.rbs.com.

Information on Lloyds Banking Group

Lloyds Banking Group plc, together with its subsidiaries, is a leading UK-based financial services group providing a wide range of banking and financial services, primarily in the UK, to personal and corporate customers. Lloyds Banking Group's main business activities are retail, commercial and corporate banking, general insurance, and life, pensions and investment provision. Lloyds Banking Group operates the UK's largest retail bank and has a large and diversified customer base. Services are offered through a number of well recognised brands including Lloyds TSB, Halifax, Bank of Scotland, Scottish Widows, Clerical Medical and Cheltenham & Gloucester, and a range of distribution channels including the largest branch network in the UK.

Further information on Lloyds Banking Group's business activities is available on the group's website at www.lloydsbankinggroup.com.

Information on Barclays

Barclays PLC is the holding company of a major global banking and financial services group of which Barclays Bank PLC is a principal operating company. Barclays PLC, together with its subsidiaries, is a major global financial services provider engaged in personal banking, credit cards, corporate and investment banking and wealth and investment management with an extensive international presence in Europe, the Americas, Africa and Asia.

Further information on Barclays' business activities is available on the group's website at www.barclays.com.

Intentions of the Lenders

The relationship between the Lenders is only that they are, individually, lenders to the Group providing debt facilities under the terms of the Existing Facilities Agreement. Although each Lender is a party to the Existing Facilities Agreement and the Amendment and Restatement Agreement, each Lender operates as its own independent entity in pursuit of its own interests. For the purposes of complying with the Takeover Code, the Lenders have, separately confirmed that they are not presently proposing any changes with regard to the continued employment of the employees of the Company or to the deployment of the fixed assets of the Group and that their current intention, following completion of the Restructuring, is that the business of the Company should continue to be run in substantially the same manner as at present and in line with the strategic review undertaken by the Company. For the reasons stated above, it is not the intention to maintain the existing trading facilities of the Ordinary Shares.

The Lenders have no current intentions to transfer the A Shares following issue.

2012 MIP, Shareholders' Agreement and New Articles

The Company proposes to put in place a new management incentive scheme, the 2012 MIP, in connection with the Restructuring, in order to aid the retention and incentivisation of the MIP Participants following completion of the Restructuring. The MIP Participants will initially comprise David Shearer, Grant Rumbles and Rodney Harris (being the Chairman, CEO and CFO of the Company, respectively) and Craig Apsey, Phil Atkinson, Keith Jackson and Michael Gates (being members of the Group's senior management team) and the 2012 EBT. The 2012 MIP will align the MIP Participants' interests with those of the Lenders, to enhance the equity value of the share capital of the Company. The 2012 MIP terms have been incorporated into the Shareholders' Agreement and the MIP Subscription Agreement (which have been entered into as part of (and conditional upon) the Restructuring) and into the New Articles. The Independent Directors have approved the terms of the 2012 MIP, subject to the approval of Shareholders.

Pursuant to the terms of the 2012 MIP, the Company will issue in aggregate 2,000,000 MIP Shares, to or on behalf of the MIP Participants for cash consideration. The individual allocations have been approved by the Independent Directors. MIP Shares issued to the 2012 EBT will be available for future MIP Participants. Any MIP Shares held by the 2012 EBT which have not been allocated immediately prior to an Exit will be allocated by the 2012 EBT to those existing MIP Participants who are employees of the Group in accordance with a recommendation from the Company to the 2012 EBT in such proportions and on such terms as may be determined by the Remuneration Committee in its absolute discretion.

The MIP Shares will constitute a separate class of ordinary shares and, under the terms of the New Articles, will be subject to transfer restrictions, leaver provisions and drag-along and tag-along provisions. The New Articles provide that any holder of MIP Shares who leaves the Group must transfer some or all of his MIP Shares and any MIP Shares held by his family members and other permitted transferees to such person or persons as the Remuneration Committee nominates. The price the relevant individual receives for the MIP Shares, and the number of MIP Shares he is required to transfer, will vary depending on the date and circumstances of his departure.

The MIP Shares will be subject to a ratchet (the "Ratchet") which will deliver the agreed participation of the MIP Shares in the Company's equity value at an Exit. To deliver the requisite value, a proportion of the MIP Shares will be converted into Deferred B Shares, depending on the equity value achieved.

If at Exit the equity value of the Company is:

-- less than GBP86.2 million (representing c. GBP10 million above the Underperforming Debt), the MIP Shares will, after operation of the Ratchet, represent 5 per cent. of such equity value;

-- equal to or more than GBP86.2 million but less than or equal to GBP177.2 million (representing c. GBP24 million above two times the Underperforming Debt), the MIP Shares will, after operation of the Ratchet, receive 5 per cent. of the equity value up to GBP86.2 million and 10 per cent. of the equity value above GBP86.2 million; and

-- more than GBP177.2 million, the MIP Shares will, after operation of the Ratchet, receive 5 per cent. of the equity value up to GBP86.2 million, 10 per cent. of the equity value up to GBP177.2 million and 20 per cent. of the equity value above GBP177.2 million.

In addition, the Company has reached agreement with the Lenders to grant to the Investor Majority certain rights in relation to the composition of the boards of directors of the Company and its subsidiaries, and any committees of such boards, including a standard list of reserved matters for the Investor Majority in relation to certain business affairs of the Group. These rights are set out in the Shareholders' Agreement and the New Articles.

The benefits available to MIP Participants under the 2012 MIP will not be pensionable.

Awards under the Current Share Incentive Plans

As at 26 July 2012, awards are outstanding over, in aggregate, approximately 5.6 million Ordinary Shares of the Company under the Current Share Incentive Plans. This represents approximately 5 per cent. of the Company's total issued ordinary share capital as at 26 July 2012.

The Restructuring will not have any effect on outstanding awards, which will continue to subsist until they are exercised, vest or lapse pursuant to the relevant plan rules.

All awards will vest or be exercised only if certain performance conditions are satisfied and/or on payment by the employee of a pre-determined exercise price. Given the recent financial performance of the Company, it is unlikely that any applicable performance conditions will be met with the result that awards subject to such conditions will lapse (in most cases, during the course of 2012). Similarly, given the recent fall in price of the Ordinary Shares, the exercise price of any awards that are not subject to a performance condition is likely to be significantly above the market value of the Ordinary Shares and such awards are, therefore, unlikely to be exercised. To ensure equal treatment for participants in the Current Share Incentive Plans with the treatment of Shareholders under the Restructuring, if a participant does acquire Ordinary Shares in the Company on the vesting or exercise of an award following completion of the Restructuring, the New Articles provide that (i) they will be entitled to receive a payment by or on behalf of the Company equal to 1 pence per Ordinary Share and (ii) on issue, the Ordinary Shares will automatically be reclassified into Deferred C Shares.

Following payment, it is intended that (subject to the Companies Act) the Deferred C Shares will be immediately repurchased by or on behalf of the Company for de minimis consideration and cancelled.

Pensions

In connection with the negotiation of the Amended Lending Facilities, the Company has reached agreement with the trustees of its UK Defined Benefit Schemes under the Pensions Framework Agreement, in order to provide greater certainty over future cash flows, and in particular those costs which may arise from any future increases in the funding deficit.

The Company received clearance from the Pensions Regulator on 30 July 2012 in relation to the agreement reached with the trustees of the UK Defined Benefit Schemes. By granting clearance the Pensions Regulator has confirmed that it will not exercise its anti-avoidance powers in relation to the agreement reached with the trustees and issue a contribution notice or a financial support direction on the Company or the Directors, provided that the circumstances described in the clearance application do not materially differ from the actual circumstances.

General Meeting

The Circular containing the Notice of General Meeting, setting out the Resolutions and convening the General Meeting to be held at the offices of Freshfields Bruckhaus Deringer LLP, 65 Fleet Street, London EC4Y 1HS at 10.00 a.m. on 24 August 2012 will be posted to Shareholders later today.

If the Resolutions are passed by the Shareholders at the General Meeting, the Restructuring is expected to become effective immediately following the Delisting. It is anticipated that the Delisting will occur at 8.00 a.m. on 25 September 2012.

Importance of the Resolutions

In the event that the Restructuring is not approved by Shareholders, the Directors believe that the Group will remain in compliance with the financial covenants contained in the Existing Facilities Agreement only until 30 August 2012. On that date, the Directors believe that the Group will be unable to demonstrate compliance with the minimum EBITDA financial covenants under the Existing Facilities Agreement, which will be tested by reference to the period of 12 months ending on 31 July 2012. This would constitute an event of default under the Existing Facilities Agreement and would give the Lenders the right, but not the obligation, to demand immediate repayment of all amounts due to them, subject only to 66.6 per cent. of the Lenders (by value) approving such action.

If such a right is exercised, the Company would need to find alternative financing sufficient to fund the full repayment of the Existing Lending Facilities. Having explored extensively other financing and equity-based options, the Board believes that there is no realistic prospect of such funds being available.

The Board has received confirmation from the Lenders that, for so long as proposals regarding the Restructuring are being considered by Shareholders, support from the Lenders is likely to continue. The Board has also received confirmation from the Lenders that, as the enterprise value of the Group is only likely to deteriorate further given the impact the current over-leveraged balance sheet is having on the ability of the Company to secure new contracts, if Shareholders do not approve the Restructuring, the continuing support of the Lenders (including in relation to certain existing waivers under the Existing Facilities Agreement) would be limited to supporting the Directors' decision to appoint an insolvency practitioner with a view to effecting a sale of the Group through an insolvency process, as the most effective way of mitigating any further loss to the Company's creditors.

It is therefore likely that, if Shareholders do not approve the Restructuring, full repayment of the Group's Existing Lending Facilities will be required by the Lenders following the occurrence of the event of default which is expected to arise on 30 August 2012. It is expected that an insolvency practitioner would be appointed within a short period following the failure by Shareholders to approve the Resolutions, subject to the Board receiving appropriate advice to this effect and the finalisation of the relevant transaction documents necessary to effect an insolvency process. In these circumstances, the Board expects that the Group would be sold either to a third party or parties or to a Lender-owned vehicle for nominal cash consideration and/or for certain debt relief granted by the Lenders to the Company. The Board believes that such a transaction would result in Shareholders receiving no value for their current shareholding.

The Directors consider the Delisting to be a necessary part of the Restructuring, as the Restructuring will result in the Company no longer being able to satisfy the requirements of Listing Rule 9.2.15R regarding the maintenance of a sufficient proportion of shares in public hands.

In deciding whether or not to vote in favour of the Resolutions, Shareholders should take into consideration, among other things, (i) that the Company (and its subsidiaries) is currently dependent upon the ongoing support of the Lenders to continue as a going concern; (ii) the Lenders' confirmation of their support for the Directors' decision to appoint an insolvency practitioner, should Shareholders fail to approve the Resolutions; and (iii) that unless the Restructuring is approved by Shareholders at the General Meeting, an event of default under the Existing Facilities Agreement is expected to arise on 30 August 2012. The Board has explored extensively various potential means of addressing the Company's current financial situation, including raising third party equity investment, and concluded that, given the Company's current financial position, and with the volatile and uncertain conditions currently affecting the global equity markets, raising sufficient equity investment is not possible. The Board believes that the Restructuring is the best available means of preserving the Group's business, including safeguarding its existing customer contracts and job security for more than 8,000 employees and that the Restructuring and the payment of the Special Dividend represent the only realistic opportunity for Shareholders to recover any value in return for their investment in the Company. Whether the Restructuring is delivered via Shareholders approving the Resolutions or via an insolvency process, the Directors further believe that the employment of the Group's employees and the position of the Group's commercial counterparties will remain materially unchanged with the intention that the business continues on a business-as-usual basis.

Recommendation

The three members of the Board who are MIP Participants (namely David Shearer, Grant Rumbles and Rodney Harris) did not take part in the Board's consideration of the opinions and the recommendation set out below. For these purposes therefore, the opinions and recommendation of the Board set out below are those of the Independent Directors only.

The Board, who has been so advised by Goldman Sachs, considers the proposals set out in the Resolutions to be fair and reasonable and in the best interests of Shareholders as a whole.

In particular, the Board, who has been so advised by Goldman Sachs, considers the terms of the 2012 MIP to be fair and reasonable and in the best interests of Shareholders as a whole.

The Board has received financial advice in respect of the proposals set out in the Resolutions (including the 2012 MIP) from Goldman Sachs who, in providing such advice, has performed its customary financial analysis and has taken into account the commercial assessments of, and the other advice received by, the Board, including their conclusion that the Restructuring and the Special Dividend represent the only realistic opportunity for Shareholders to recover some value in return for their investment in the Company.

Accordingly, the Board recommends that you vote in favour of the Resolutions as they intend to do in respect of their own beneficial holdings of, in aggregate, 65,760 Ordinary Shares, representing approximately 0.0576 per cent of the Existing Issued Share Capital.

Definitions

The following definitions apply throughout this announcement, unless the context requires otherwise:

 
 "2012 EBT"                   means the Mouchel Group Employee Benefit 
                               Trust 2012; 
 "2012 MIP"                   means the new management incentive scheme 
                               as described in this announcement; 
 "Amended Facilities          means the Existing Facilities Agreement 
  Agreement"                   as amended and restated pursuant to the 
                               Amendment and Restatement Agreement; 
 "Amended Lending             means the facilities made available pursuant 
  Facilities"                  to the Amended Facilities Agreement; 
 "Amendment and               means the amendment and restatement agreement 
  Restatement Agreement"       pursuant to which the Existing Facilities 
                               Agreement shall be amended and restated, 
                               in order to, among other things amend 
                               the terms relating to the Group's remaining 
                               indebtedness; 
 "A Shares"                   means class A ordinary shares of 0.0001 
                               pence each in the capital of the Company 
                               having the rights set out in the New Articles; 
 "Barclays"                   means Barclays Bank PLC, with registered 
                               address 1 Churchill Place, London E14 
                               5HP, or the relevant member of its group; 
 "Business Days"              means a day (other than a Saturday or 
                               Sunday) on which banks are open for general 
                               business in London; 
 "Chairman"                   means David Shearer; 
 "Circular"                   meaning the Company's circular setting 
                               out details of the Restructuring dated 
                               31 July 2012; 
 "Companies Act"              means the Companies Act 2006; 
 "Company"                    means Mouchel Group plc, a public limited 
                               company incorporated under the laws of 
                               England and Wales; 
 "CREST"                      means the relevant system (as defined 
                               in the CREST Regulations) for the paperless 
                               settlement of trades in listed securities 
                               in the United Kingdom, of which Euroclear 
                               Limited is the operator (as defined in 
                               the CREST Regulations); 
 "CSR"                        means the United Kingdom Government's 
                               comprehensive spending review; 
 "Current Share               means the Mouchel Group plc Performance 
  Incentive Plans"             Share Plan; the Mouchel Group plc Sharesave 
                               Plan; the Mouchel Group plc Restricted 
                               Share Plan; the Mouchel Group plc Approved 
                               Executive Share Option Plan; the Parkman 
                               Approved Executive Share Option Plan; 
                               and the Parkman Unapproved Share Option 
                               Plan; 
 "Debt for Equity             means (i) the release by the Lenders of 
  Swap"                        MFL's obligations in relation to the Underperforming 
                               Debt in consideration for the issue of 
                               MFL Shares to the Lenders; (ii) the waiver 
                               by the Lenders of MFL's obligations in 
                               relation to the Restructuring Fee in consideration 
                               for the issue of MFL Shares to the Lenders; 
                               (iii) the transfer to the Company by the 
                               Lenders of the MFL Shares issued under 
                               (i) and (ii) above in consideration for 
                               the issue of 7,999,998 A Shares to the 
                               Lenders; and (iv) the release and cancellation 
                               of the Existing Warrants by Barclays and 
                               RBS in consideration for the issue of 
                               1 A Share to each of Barclays and RBS, 
                               in each case as set out in the Transfer 
                               and Subscription Agreement; 
 "Deferral"                   means the reclassification of Ordinary 
                               Shares into Deferred C Shares upon completion 
                               of the Restructuring; 
 "Deferred B Shares"          means the class B deferred shares of 0.0001 
                               pence each in the capital of the Company 
                               having the rights set out in the New Articles; 
 "Deferred C Shares"          means the class C deferred shares of 0.25 
                               pence each in the capital of the Company 
                               having the rights set out in the New Articles; 
 "Deferred Shares"            means the Deferred B Shares and the Deferred 
                               C Shares; 
 "Delisting"                  means the proposed cancellation of the 
                               admission of the Ordinary Shares to the 
                               Official List and to trading on the London 
                               Stock Exchange's main market for listed 
                               securities, and "Delist" shall be construed 
                               accordingly 
 "Directors" or               means the Chairman, the Executive Directors 
  "Board"                      and the Non-Executive Directors; 
 "Executive Directors"        means Grant Rumbles and Rodney Harris; 
 "Existing Articles"          means the articles of association of the 
                               Company as at the date of this document; 
 "Existing Facilities         means the GBP179,920,500 existing facilities 
  Agreement"                   agreement dated 26 January 2011, as amended 
                               and restated on 29 November 2011 and as 
                               further amended on 28 March 2012 and 31 
                               July 2012 between, among others, the Company 
                               and the Lenders; 
 "Existing Issued             means the 114,226,989 ordinary shares 
  Share Capital"               of 0.25 pence each in the capital of the 
                               Company and in issue on 26 July 2012 being 
                               the latest practicable date prior to the 
                               publication of the Circular; 
 "Existing Lending            means the facilities made available under 
  Facilities"                  the Existing Facilities Agreement; 
 "Existing Warrants"          means the 3,708,201 Warrants outstanding 
                               on 26 July 2012 being the latest practicable 
                               date prior to the publication of this 
                               document, 1,573,176 of which are held 
                               by Barclays and 2,135,025 of which are 
                               held by RBS 
 "Exit"                       means: 
                              (a) a sale of the entire issued share 
                               capital of the Company (other than to 
                               another member of the Group); 
                              (b) a disposal of all or substantially 
                               all of the business and assets of the 
                               Group (other than to another member of 
                               the Group); 
                              (c) the admission to listing on any recognised 
                               investment exchange of any of the equity 
                               shares in the Company or in any holding 
                               company inserted for the purposes of such 
                               an admission; or 
                              (d) a winding up of the Company, 
                              in each case either pursuant to one transaction 
                               or a series of related transactions; 
 "Financial Services          means the Financial Services Authority 
  Authority"                   acting in its capacity as the competent 
                               authority for the purposes of Part VI 
                               of FSMA; 
 "FSMA"                       means the Financial Services and Markets 
                               Act 2000, as amended; 
 "FY2011"                     means the Company's financial year ended 
                               31 July 2011; 
 "FY2012"                     means the Company's financial year ending 
                               31 July 2012; 
 "General Meeting"            means the general meeting of the Company 
                               to be held at 10.00 a.m. on 24 August 
                               2012, notice of which is set out at the 
                               end of the Circular; 
 "Group"                      means the Company and its subsidiary undertakings 
                               and, where the context requires, its associated 
                               undertakings; 
 "H1 2012"                    means the first six months of FY2012, 
                               beginning on 1 August 2011; 
 "H2 2012"                    means the second six months of FY2012, 
                               beginning on 1 February 2012; 
 "Independent Directors"      means Sir Michael Lyons, Seamus Keating 
                               and Richard Rae; 
 "Independent Shareholders"   means Shareholders, other than the Lenders 
                               and the MIP Participants (to the extent 
                               that they are Shareholders); 
 "Investor Majority"          means the holders of 60 per cent. or more 
                               of the A Shares in issue from time to 
                               time; 
 "Lenders"                    means RBS, Barclays and Lloyds Banking 
                               Group; 
 "Listed"                     means admitted to the Official List; 
 "Listing Rules"              means the listing rules of the Financial 
                               Services Authority; 
 "Lloyds Banking              means Lloyds Banking Group plc, with registered 
  Group"                       address The Mound, Edinburgh EH1 1YZ, 
                               or the relevant member of its group; 
 "London Stock Exchange"      means the London Stock Exchange plc, a 
                               public limited company incorporated under 
                               the laws of England and Wales; 
 "MFL"                        means Mouchel Finance Limited, a private 
                               limited company incorporated under the 
                               laws of England and Wales and an indirect, 
                               wholly-owned subsidiary of Mouchel; 
 "MFL Shares"                 means ordinary shares in the capital of 
                               MFL; 
 "MIP Participants"           means David Shearer, Grant Rumbles, Rodney 
                               Harris, Craig Apsey, Phil Atkinson, Keith 
                               Jackson, Michael Gates (being either directors 
                               or members of the Group's senior management 
                               team) and the 2012 EBT, and any other 
                               persons to whom MIP Shares are issued 
                               or transferred from time to time pursuant 
                               to the 2012 MIP; 
 "MIP Shares"                 means class B ordinary shares of 0.0001 
                               pence each in the capital of the Company 
                               having the rights set out in the New Articles; 
 "MIP Subscription            means the subscription agreement dated 
  Agreement"                   on or around the date of this document 
                               between the Company, David Shearer, Grant 
                               Rumbles, Rodney Harris, Craig Apsey, Phil 
                               Atkinson, Keith Jackson, Michael Gates 
                               and the 2012 EBT; 
 "Mouchel"                    means Mouchel Group plc, a public limited 
                               company incorporated under the laws of 
                               England and Wales; 
 "New Articles"               means the proposed new articles of association 
                               of the Company to be adopted upon completion 
                               of the Restructuring; 
 "Non-Executive               means Sir Michael Lyons, Seamus Keating 
  Directors"                   and Richard Rae; 
 "Notice of General           means the notice of General Meeting set 
  Meeting"                     out at the end of the Circular; 
 "Official List"              means the Official List of the Financial 
                               Services Authority; 
 "Ordinary Shares"            means ordinary shares of 0.25 pence each 
                               in the capital of the Company having the 
                               rights set out in the articles of association 
                               of the Company as amended from time to 
                               time (and which, for the avoidance of 
                               doubt, does not include the A Shares or 
                               the MIP Shares); 
 "Panel"                      means the Panel on Takeovers and Mergers; 
 "Pensions Framework          means the pensions framework agreement 
  Agreement"                   dated on or around the date of this document 
                               between the Pensions Trustee, the Company, 
                               Mouchel Limited and Mouchel Business Services 
                               Limited; 
 "Pensions Regulator"         means the United Kingdom regulator of 
                               work-based pension schemes; 
 "Pensions Trustee"           means the trustee of the UK Defined Benefit 
                               Scheme; 
 "Ratchet"                    has the meaning given to it in this announcement; 
 "RBS"                        means The Royal Bank of Scotland Group 
                               plc, with registered address 36 St Andrew 
                               Square, Edinburgh EH2 2YB, or the relevant 
                               member of its group; 
 "Remuneration Committee"     means the remuneration committee of the 
                               Company from time to time; 
 "Resolutions"                means the resolutions to be proposed at 
                               the General Meeting which are set out 
                               in the Circular; 
 "Restructuring"              means the arrangements as described in 
                               this document, other than the Special 
                               Dividend, including, in particular the 
                               Debt for Equity Swap and the coming into 
                               effect of the Amendment and Restatement 
                               Agreement; 
 "Restructuring               the fee of GBP10,250,000 payable to the 
  Fee"                         Lenders by MFL on the earlier of completion 
                               of the Restructuring and 31 July 2013; 
 "Rule 9"                     means Rule 9 of the Takeover Code; 
 "Shareholder"                means a holder of Ordinary Shares from 
                               time to time; 
 "Shareholders'               means the shareholders' deed dated on 
  Agreement"                   or about the date of this document between 
                               the Company, the Lenders, David Shearer, 
                               Grant Rumbles, Rodney Harris, Craig Apsey, 
                               Phil Atkinson, Keith Jackson, Michael 
                               Gates and the 2012 EBT; 
 "Special Dividend"           means the proposed special dividend of 
                               1 pence per Ordinary Share as described 
                               in this document; 
 "Sponsor" or "Goldman        means Goldman Sachs International; 
  Sachs" 
 "Takeover Code"              means the City Code on Takeovers and Mergers; 
 "Transfer and Subscription   means the transfer and subscription agreement 
  Agreement"                   dated on or around the date of this document 
                               between, among others, the Company, MFL, 
                               the Lenders and The Royal Bank of Scotland 
                               plc in its capacity as Facility Agent 
                               under the Amended Facilities Agreement; 
 "UK Defined Benefit          means the Mouchel Superannuation Fund, 
  Schemes"                     the Mouchel Staff Pension Scheme and the 
                               Mouchel Business Services Limited Pension 
                               Scheme (Final Salary Section); 
 "UK Listing Authority"       means the Financial Services Authority 
                               acting in its capacity as the competent 
                               authority for the purpose of Part VI of 
                               FSMA; 
 "Underperforming             means a proportion of the outstanding 
  Debt"                        debt under the Existing Facilities Agreement, 
                               equal to GBP76,620,500 on 26 July 2012; 
 "Warrant Instrument"         means the warrant instrument dated 29 
                               November 2011 and executed by the Company; 
                               and 
 "Warrants"                   means the warrants issued by the Company 
                               on 29 November 2011 pursuant to the terms 
                               of the Warrant Instrument. 
 

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