TIDMWFC
RNS Number : 9127K
Watford Leisure PLC
28 April 2010
28 April 2010
Watford Leisure PLC
("Watford Leisure" or the "Company")
Proposed Issue of Secured Bonds with Detachable Warrants
and Notice of Extraordinary General Meeting
Watford Leisure announces that it will today post a circular (the "Circular") to
its shareholders convening an extraordinary general meeting of the Company (the
"EGM") in connection with a proposed issue of secured bonds with detachable
warrants.
1. Introduction
Subject to the passing of the Resolution at the EGM, the Company intends to
allot and issue Secured Bonds with detachable Warrants to the value, in
aggregate principal amount of Secured Bonds, of approximately GBP10.142 million.
The Proposed Subscription will not be made on a pre-emptive basis. Secured Bonds
with detachable Warrants are intended to be subscribed by David Fransen, a
non-executive director of Watford Leisure (in exchange for the cancellation of
GBP2.05 million of his existing loans to the Group), former Chairman, Graham
Simpson (in exchange for the cancellation of GBP0.592 million of his existing
convertible loan notes issued by the Company which fell due for repayment on 31
March 2010), those Qualifying Shareholders who wish to participate and Fordwat
(in exchange for the cancellation of up to GBP5.99 million of its existing
secured loan to the Club and up to a further GBP1.51 million subject to take up
by other Qualifying Shareholders).
It is expected that Qualifying Shareholders will, in due course, be invited to
participate in the Proposed Subscription and subscribe for Secured Bonds (with
detachable Warrants) in proportion to their existing shareholdings as at the
Record Date, with such Secured Bonds (with detachable Warrants) not taken up by
Qualifying Shareholders taken up by Fordwat. For every GBP1 of Secured Bonds
subscribed, Qualifying Shareholders who participate in the Proposed Subscription
will receive 20 detachable Warrants.
In order to enable the Company to issue the Warrants, and to provide flexibility
to the Directors to issue up to a further 37,008,854 Ordinary Shares for general
working capital purposes, the Board is now seeking authority from Shareholders
to allot on a non pre-emptive basis up to, in aggregate, 239,848,854 new
Ordinary Shares or rights to subscribe for such new Ordinary Shares. The
Proposed Subscription is conditional upon the passing of the Resolution.
The precise terms and conditions of the Proposed Subscription are currently
being discussed with certain Substantial Shareholders; however the principal
commercial terms of the proposed Secured Bonds and Warrants are set out in
paragraph 3 below.
David Fransen and certain Substantial Shareholders, being Fordwat and Graham
Simpson, have agreed in principle, and subject to the passing of the Resolution,
to subscribe for Secured Bonds with detachable Warrants by way of the
cancellation of existing debt and, in the case of Fordwat, for cancellation of
existing debt and for new cash. Fordwat has also agreed in principle to
underwrite those Secured Bonds and Warrants offered to, but not taken up by,
Qualifying Shareholders. The Proposed Subscription and debt cancellations are
deemed to be related party transactions under the AIM Rules for Companies.
Accordingly, the Independent Directors consider, having consulted with Strand
Hanson, that the proposed principal commercial terms of the Secured Bonds and
Warrants and the proposed debt cancellations in connection with the Proposed
Subscription are fair and reasonable insofar as Shareholders are concerned.
2. Background to and reasons for the Proposed Subscription
David Fransen and certain Substantial Shareholders have agreed in principle, and
subject to the passing of the Resolution, to subscribe for GBP10.142 million in
aggregate value of Secured Bonds with detachable Warrants, as set out in
paragraph 5 below. The Proposed Subscription will be used to consolidate and
replace GBP8.632 million of the Group's existing indebtedness and raise
additional (gross) cash proceeds of approximately GBP1.51 million.
As Shareholders are aware from, inter alia, the Company's announcement of 23
December 2009 and the interim results announcement of 15 March 2010, Watford
Leisure has been, and continues to be, dependent on the financial support of
certain Substantial Shareholders and Directors until its operating and
administrative costs can be brought into line with revenues. The Board has been
diligently reviewing and evaluating the Group's funding arrangements and
potential financing options for some time, and has determined that the Proposed
Subscription is the best capital raising structure currently available to the
Company in order to provide essential short term working capital.
The Board has taken the decision to pursue implementation of the Proposed
Subscription following extensive discussions and consultation with certain
Substantial Shareholders regarding various methods by which its working capital
requirements might best be addressed. The key advantages of the Proposed
Subscription, relative to a rights issue structure as previously contemplated
and discussed with Fordwat, are the much lower implementation costs for Watford
Leisure (thereby maximising the proceeds available to the Company) and the
reduced timetable to obtain the necessary funds to enable the Company to move
forward and implement its current business strategy.
As a result of these discussions, the Board has decided that the Proposed
Subscription of the Secured Bonds with detachable Warrants is in the best
interests of the Company and its Shareholders as a whole. In the meantime and as
announced on 26 March 2010, Fordwat has advanced a further GBP1 million to the
Club under its existing secured loan agreement and has agreed to provide up to
an additional GBP1.51 million under this facility to enable the Company to
continue to trade whilst the Proposed Subscription is finalised.
Documentation of the precise terms and conditions of the Secured Bonds and
Warrants is expected to be finalised, and the Proposed Subscription implemented,
shortly following (and subject to) the passing of the Resolution at the
Extraordinary General Meeting.
As part of the Proposed Subscription, the Company proposes to replace and
consolidate the majority of its existing indebtedness to Fordwat, David Fransen
and Graham Simpson with Secured Bonds. Although the Proposed Subscription, if
successful, will also provide additional working capital of approximately
GBP1.51 million (gross), the Company will still need to trade player
registrations, if it is to achieve financial stability, in this summer's
transfer window and on an ongoing basis thereafter.
In order for the Proposed Subscription to achieve the level of certainty
required by the Company, Fordwat has agreed, in principle, to underwrite the
Proposed Subscription for up to GBP7.5 million, subject to Qualifying
Shareholders being invited to participate in the Proposed Subscription pro rata
to their existing shareholdings in the Company. To expedite the Proposed
Subscription, only Qualifying Shareholders are being afforded an opportunity to
participate in the Proposed Subscription. Qualifying Shareholders are those
persons (other than any Overseas Shareholders) who held as at 5.00 p.m. on the
Record Date in aggregate at least 219,429 Ordinary Shares, representing
approximately 0.5 per cent. of the Existing Ordinary Shares (or such other
number and percentage as the Board in its absolute discretion may determine).
The Secured Bonds and detachable Warrants will be separately transferable, but
neither will be tradable on the London Stock Exchange.
The Board has chosen to use this method to implement the issue of the Secured
Bonds with detachable Warrants as it provides the best practical opportunity for
as many Shareholders as possible to participate in the Proposed Subscription,
given the timing constraints, the significant additional costs and protracted
timetable associated with implementing a rights issue and the level of funding
certainty required to address the Company's immediate working capital
requirements.The selected fundraising structure is not a pre-emptive offer and
accordingly most Shareholders will regrettably not be able to participate in the
Proposed Subscription.
Further information on the Proposed Subscription and the full terms and
conditions on which it is to be made, including the procedure for application
and payment, will be set out in a letter from the Company to be sent to
Qualifying Shareholders subject to, and following, the passing of the Resolution
at the Extraordinary General Meeting and finalisation of the necessary
documentation.
Having considered a number of options, the Board believes that the Proposed
Subscription is the most efficient and viable option available and in the
Company's best interests, in light of its current financial position, as it
achieves the necessary level of essential working capital on the most expedited
timetable with the degree of certainty that the Board believes is required for
the Company to continue to trade. However, unless the Resolution is passed, the
Proposed Subscription will not be able to proceed. Fordwat has advised the
Company that its willingness to provide funding is limited solely to the support
encompassed within the Circular. Furthermore the Secured Bond, which is a short
term loan instrument, has been structured to give the Board time to engineer a
longer term solution to the Company's financial predicament, which may involve
the identification of a new strategic investor. The Board believes that the
Proposed Subscription meets the immediate cash requirements of the Company,
although material further funds will still be required early in the Company's
new financial year from alternative sources, including media and TV income and
player trading, and additional player trading will also be required in future
years in order to maintain financial stability.
Accordingly, the Board strongly recommends that Shareholders vote in favour of
the Resolution at the EGM. The Resolution is to be proposed as a special
resolution and, to be passed, therefore requires at least a 75 per cent.
majority vote in favour.
3. Key terms of the Secured Bonds and Warrants
The material commercial terms of the Secured Bonds and Warrants will be as
follows:
· The Proposed Subscription will comprise the issue of up to GBP10,142,000
in aggregate principal amount of Secured Bonds (with detachable Warrants) at 100
per cent. of face value in denominations of Secured Bonds of GBP1 each, which
will be used to consolidate and replace GBP8.632 million of the Group's existing
indebtedness and will raise up to GBP1.51 million of additional working capital
(before expenses). There will be 20 detachable Warrants for every GBP1 in
principal amount of Secured Bonds issued.
· The Secured Bonds will have similar security to the existing Fordwat
secured loan to the Club (which is proposed to be cancelled by Fordwat in
exchange for Secured Bonds with detachable Warrants in connection with the
Proposed Subscription), comprising a debenture over the Vicarage Road Stadium
and all other assets of the Company but ranking behind the existing secured
creditors.
· The Secured Bonds will be in registered form and freely transferable, but
will not be publicly traded. They will have a term of 364 days and accrue
interest at the rate of 4.5 per cent. above the base rate from time to time of
Barclays, with all interest accrued being paid at the earlier of redemption and
maturity.
· The Warrants will be in registered form and freely transferable, but will
also not be publicly traded in order to minimise costs. Each Warrant will
entitle the holder to subscribe for one new Ordinary Share at a price of 4 pence
(subject to adjustment in certain prescribed circumstances) at any time between
the date of issue and the fifth anniversary of the date of issue. The
Subscription Price represents a 46.67 per cent. discount compared to the closing
middle market price of 7.5 pence per Ordinary Share on 27 April 2010, the latest
practicable dealing day prior to the date of the Circular.
Assuming full exercise of all the Warrants proposed to be issued in connection
with the Proposed Subscription, the Enlarged Share Capital would comprise
246,725,693 Ordinary Shares (an increase of approximately 462 per cent. over the
Existing Ordinary Shares) and Shareholders who are not Qualifying Shareholders
(and Qualifying Shareholders who do not elect to participate) would accordingly
suffer a dilution of their interest in the Company's share capital of
approximately 82 per cent. as a result of implementation of the Proposed
Subscription.
4. Rule 9 of the City Code
Watford Leisure is subject to the provisions of the City Code which is issued
and administered by the Panel pursuant to the Act. There are certain
implications under the City Code with respect to any future exercise by Fordwat
of Warrants taken up by it in the Proposed Subscription.
Under Rule 9 of the City Code ("Rule 9"), any person who acquires an interest in
shares which, taken together with shares in which he is already interested and
in which persons acting in concert with him are interested, carry 30 per cent.
or more of the voting rights of a company which is subject to the City Code, is
normally required to make a general offer to all the remaining shareholders to
acquire their shares.
Under Rule 9, when any person or group of persons acting in concert individually
or collectively are interested in shares which in aggregate carry not less than
30 per cent. of the voting rights of a company but does not hold shares carrying
more than 50 per cent. of the voting rights of a company and such person or any
person acting in concert with him acquires an interest in any other shares,
which increases the shares carrying voting rights in which he is interested,
then that person or group of persons is normally required by the Panel to make a
general offer in cash to all shareholders of that company at the highest price
paid by them for any interest in shares in that company during the previous
twelve months.
Under the City Code, a concert party arises where persons acting together
pursuant to an agreement or understanding (whether formal or informal) actively
co-operate to obtain or consolidate control of a company or to frustrate the
successful outcome of an offer for a company. Control means the holding, or
aggregate holdings, of interests in shares carrying 30 per cent. or more of the
voting rights of the company, irrespective of whether the holding or holdings
give de facto control.
In the context of the Proposed Subscription, Fordwat, Strand Associates Limited
and Andrew Wilson (a former director and interim Chairman of Watford Leisure)
are currently considered to be persons acting in concert for the purposes of the
City Code in relation to the Company (the "Fordwat Concert Party"). Fordwat and
Strand Associates Limited are companies in which Lord Ashcroft has an interest
and accordingly are deemed to be acting in concert. Andrew Wilson is also
considered to be acting in concert with both Fordwat and Strand Associates
Limited, as Andrew Wilson works with Lord Ashcroft on a regular basis in an
advisory capacity and is on the board of Strand Associates Limited. Their
combined shareholdings total 17,657,329 Ordinary Shares, representing 40.23 per
cent. of the voting rights of the Existing Ordinary Shares. As Fordwat has
agreed, in principle, to underwrite the Proposed Subscription for up to GBP7.5
million, it is possible that Fordwat will be required to take up Bonds with
detachable Warrants exercisable into 150,000,000 Ordinary Shares (assuming no
take up by Qualifying Shareholders and that David Fransen and Graham Simpson
subscribe for GBP2.05 million and GBP0.592 million respectively in accordance
with their in principle agreements), giving it up to approximately 67.41 per
cent. of the Enlarged Share Capital if all the Warrants were to be exercised.
The Fordwat Concert Party could therefore hold, in aggregate, 167,657,329
Ordinary Shares or 67.95 per cent. of the Enlarged Share Capital if all the
Warrants were to be exercised.
As set out above, under Rule 9, if the Fordwat Concert Party were to exercise
any Warrants it would normally be obliged in such circumstances to make a
general offer to all shareholders at not less than the highest price paid by any
member of the concert party, or any person acting in concert with it, within the
preceding 12 months for shares of that class. However, the Panel has agreed to
waive this requirement for the Fordwat Concert Party (or any of them) to make a
mandatory offer under Rule 9 that would ordinarily arise as a result of the
future exercise of any Warrants received under the Proposed Subscription
provided that this waiver is approved by the holders of a majority of the shares
not held by the members of the Fordwat Concert Party and Graham Simpson (who is
not deemed by the Panel to be an independent shareholder in the context of the
Proposed Subscription) in general meeting.
The Panel further has the discretion to waive the requirement for such approval
to be obtained in general meeting where the holders of a majority of the shares
capable of being voted on such resolution confirm in writing to the Panel that,
were such a meeting to be held, they would vote in favour of the relevant
resolution. The Panel has exercised its discretion to grant such a waiver
because Valley Grown Salads has irrevocably undertaken to the Panel that,
amongst other things, were a resolution (known as a "Rule 9 Whitewash"
resolution) to be put to the Shareholders (other than members of the Fordwat
Concert Party and Graham Simpson) to remove the need for a mandatory offer to be
made pursuant to Rule 9 as a result of the potential future exercise of Warrants
issued to the Fordwat Concert Party under the Proposed Subscription, they would
vote in favour of such resolution. The existing shareholding of Valley Grown
Salads in the Company is such that it would represent a majority of the votes
held by the independent shareholders in the Company (that is shareholders who
are independent of the Fordwat Concert Party and Graham Simpson) were a Rule 9
Whitewash resolution to be put to such shareholders. Therefore, its vote in
favour of such a resolution would be sufficient to guarantee that such
resolution would be passed.
As a result, no approval of the waiver of the obligation that would otherwise
arise under Rule 9 for the members of the Fordwat Concert Party to make a
general offer as a result of Fordwat exercising any of the Warrants received as
a result of its underwriting of the Proposed Subscription is being sought in
this case. Shareholders should be aware that following implementation of the
Proposed Subscription, if all the Warrants were to be exercised, the members of
the Fordwat Concert Party may, depending on the take-up by Qualifying
Shareholders, between them be interested in excess of 50 per cent. of the voting
rights attaching to the Enlarged Share Capital and, for so long as they continue
to be treated as acting in concert, would be entitled to increase their
aggregate interest in the voting rights of the Company without incurring an
obligation under Rule 9 to make a general offer to all Shareholders to acquire
their Ordinary Shares, although individual members of the Fordwat Concert Party
will not be able to increase their percentage holdings through 30 per cent. or
between 30 per cent. and 50 per cent. without Panel consent.
In addition, Valley Grown Salads has undertaken to the Company that in the event
that the Resolution is passed and the Proposed Subscription proceeds, it will
not subscribe for Secured Bonds with detachable Warrants under the Proposed
Subscription if, and to the extent that, the Warrants so subscribed by it would,
if exercised, result in it or any persons acting in concert with it holding 30
per cent. or more of the voting rights of the Company. Consequently, no Rule 9
Whitewash resolution is needed in relation to Valley Grown Salads and the
Proposed Subscription.
5. Irrevocable undertakings and commitments in principle to subscribe
The Company has received irrevocable undertakings from the following
Shareholders that they will exercise or procure the exercise of, in person or by
proxy, all of the voting rights attached to their holdings of Ordinary Shares in
favour of the Resolution:
+------------------------------+------------+--+-------------+
| Name of Shareholder | No. of | | Percentage |
| | Existing | | of Existing |
| | Ordinary | | Ordinary |
| | Shares | | Shares |
+------------------------------+------------+--+-------------+
| Fordwat Limited | 16,306,437 | | 37.16 |
+------------------------------+------------+--+-------------+
| Valley Grown Salads | 13,156,953 | | 29.98 |
| BNY Mellon Nominees Limited | 1,294,228 | | 2.95 |
+------------------------------+------------+--+-------------+
| Graham and Yianna Simpson | 7,368,796 | | 16.79 |
+------------------------------+------------+--+-------------+
| | | | |
+------------------------------+------------+--+-------------+
| Total: | 38,126,414 | | 86.88 |
+------------------------------+------------+--+-------------+
The following Director and Substantial Shareholders have agreed in principle
with the Company, on a non-legally binding basis, that, subject to the passing
of the Resolution and finalisation of the precise terms and conditions of the
Secured Bonds and Warrants, they will subscribe for Secured Bonds (with
detachable Warrants) in connection with the Proposed Subscription in the amounts
set out below:
+----------------------------+---------------+
| Director/Substantial | Amount of |
| Shareholder | Secured Bonds |
| | to be |
| | subscribed |
| | GBP |
+----------------------------+---------------+
| Fordwat* | 7,500,000 |
+----------------------------+---------------+
| David Fransen** | 2,050,000 |
+----------------------------+---------------+
| Graham Simpson*** | 592,000 |
+----------------------------+---------------+
| | |
+----------------------------+---------------+
| Total: | 10,142,000 |
+----------------------------+---------------+
Notes:
* - this assumes no take up by Qualifying Shareholders and would result in
approximately GBP5.99 million plus accrued interest being satisfied by way of
cancellation in full of its existing secured loan to the Club.
** - to be satisfied by way of cancellation of GBP2.05 million of Mr Fransen's
outstanding loans of GBP2.55 million to the Group.
*** - to be satisfied by way of cancellation in full of Mr Simpson's existing
unsecured convertible loan notes 2010 issued by the Company.
- subject to clawback/reduction in the event of subscriptions being made by
Qualifying Shareholders.
6. Extraordinary General Meeting
In order to enable the Proposed Subscription to be implemented, an EGM is being
convened for 6.00 p.m. on Monday 17 May 2010 at the Company's registered office
at Vicarage Road Stadium, Watford, Hertfordshire WD18 0ER to seek Shareholders
approval of the Resolution.
A copy of the Circular containing further details of the Proposed Subscription
and incorporating a notice of EGM is being posted to Shareholders today and will
shortly be made available to download from the Company's website at
www.watfordleisureplc.com.
7. Expected timetable
The expected timetable is summarised below:
+-------------------------------------+----------------------------+
| Record date for Qualifying | close of business on 27 |
| Shareholders | April 2010 |
| | |
| Publication of the Circular | 28 April 2010 |
+-------------------------------------+----------------------------+
| Latest time and date for receipt of | 6.00 p.m. on 15 May 2010 |
| Forms of Proxy | |
+-------------------------------------+----------------------------+
| Extraordinary General Meeting | 6.00 p.m. on 17 May 2010 |
+-------------------------------------+----------------------------+
Unless the context otherwise requires, defined terms used in this announcement
shall have the meanings given to them in the Circular to shareholders of the
Company dated 28 April 2010.
Enquiries:
Watford Leisure PLC
Tel: 01923 496 000
Graham Taylor, Chairman
Julian Winter, Chief Executive Officer
Strand Hanson Limited
Tel: 020 7409 3494
Rory Murphy
Matthew Chandler
Square1 Consulting Ltd
Tel: 0207 929 599
Paul McGoohan
David Bick
This information is provided by RNS
The company news service from the London Stock Exchange
END
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