RNS Number : 2503I
Coffee Republic PLC
17 November 2008
17 November 2008
Coffee Republic Plc
("Coffee Republic" or the "Company")
Approval for waiver of obligation under Rule 9 of the City Code on Takeovers and Mergers
Placing of up to 2,666,667 New Ordinary Shares at 30p per share to enable Debt Compromise
Irrevocable subscriptions already received for over 2,000,000 New Ordinary Shares representing over �600,000
Peter Breach (Chairman), Steven Bartlett (Vice-Chairman) and James Muirhead (Finance Director) all participating in Placing either
directly or through related parties
Trading Update
Change of Nominated Adviser and Broker
and
Notice of Extraordinary General Meeting
Coffee Republic announces that it has negotiated a significant restructure of the Company's finances which, provided the necessary
resolutions are approved at the forthcoming EGM, will benefit the Company substantially and place the business on a sound financial
footing.
Chairman and CEO Peter Breach said: "Our portfolio of UK and International franchise outlets is growing consistently, as are the associated
revenues. With the additional benefit of the restructure, I look forward to the future with confidence."
Steven Bartlett, Vice Chairman commented: "The Company can now move forward firmly and decisively. I would like to thank our loyal
shareholders for their continued support and belief in the brand."
James Muirhead, Finance Director said "The debt compromise with Barclays offers the Company a significant opportunity to eliminate its
debt position on commercially attractive terms and move towards a cash flow positive and self-funding position."
The Company has agreed to a debt compromise arrangement with Barclays (the "Debt Compromise"). In order to fund the payment required to
be made to Barclays under the terms of the Debt Compromise, and to raise further working capital, the Company intends to complete a placing
of up to 2,666,667 New Ordinary Shares at a price of �0.30 per New Ordinary Share. In order to conclude the Placing and the Debt Compromise,
it is necessary to seek an extension to the existing shareholder authorities obtained at the recent annual general meeting to enable the
Directors, amongst other matters, to allot New Ordinary Shares for cash on a non pre-emptive basis pursuant to the Placing and the Warrant
Agreement.
The Directors consider the Proposals to be in the best interests of the Company and the Shareholders as a whole.
In addition, the Independent Shareholders will be asked to waive an obligation on the Concert Party which will arise under Rule 9 of the
City Code as a result of their subscription for New Ordinary Shares pursuant to the Placing, and/or the grant of options pursuant to the
Proposed Option Awards.
A circular has been sent to Shareholders seeking their approval of the Proposals. The Circular contains a notice convening an
Extraordinary General Meeting of the Company to approve the Proposals, to be held on 1 December 2008.
BACKGROUND TO AND REASONS FOR THE DEBT COMPROMISE AND PLACING
Agreement has been reached in relation to the compromise of the existing debt owed by the Company to Barclays under certain existing
facilities. In outline, Barclays has agreed to release the Debt in exchange for a single compromise payment and the issue to Barclays of
warrants over 250,000 Ordinary Shares at an exercise price of �0.50 per Ordinary Share. Whilst the detailed terms of the Debt Compromise are
commercially sensitive, it is the unanimous view of the Directors that the terms of the Debt Compromise represent an extremely favourable
deal for the Company and its Shareholders.
The Directors believe that the Debt Compromise will enable Coffee Republic to bring into balance its current cash flow position and
place the Company on a sound footing for future growth. Additional working capital is required in the short term, and accordingly the
Company proposes to raise additional funds to those required to satisfy the Debt Compromise.
Adequate irrevocable acceptances have been received to enable the Debt Compromise to proceed and to provide additional working capital,
subject to approval of the relevant resolutions at the EGM. The Board anticipates further irrevocable acceptances from investors in the
coming days.
CURRENT TRADING AND PROSPECTS
Total Coffee Republic outlets have now reached 200 and cumulative like-for-like network sales since the beginning of the financial year
(excluding those bars recently returned to Company ownership) are up 0.6 per cent., which is an improvement since the time of last month's
AGM statement. Total network sales are now running at 30 per cent greater than at this time last year.
For the six months ended 28 September 2008, weekly franchise and concession income has covered head office costs. Before the calendar
year end the Company is expecting 10 more UK and international outlets to open.
The Company's debt position has constrained the extent to which the Company has been able to fund investment from its own cash resources
for a number of years. The Debt Compromise with Barclays offers the Company a significant opportunity to eliminate this debt on commercially
attractive terms and move towards a cash flow positive and self-funding position.
Shareholders should note that, although funds have been committed, if the relevant resolutions are not passed at the EGM to allow the
Placing to occur, the Debt Compromise cannot be completed, in which case the future prospects for the Company would be uncertain.
TABLE SHOWING GROWTH OF BARS AND OTHER OUTLETS
As at 25 March 2007 As at 30 March 2008 As at 28 August 2008 As of 5 November
2008
Company Operated Bars 16 7 16 19
Franchise Operated Bars 25 53 53 53
Co-branded CR locations/*CR 2 109 114 114
Served Here*
Total CR locations in the UK 43 169 183 186
International Bars - 5 9 14
Total CR Locations Worldwide 43 174 192 200
Regional Development 6 10 4 3
Franchises
International Master 2 10 12 12
Franchises
THE PLACING
It is a condition to the Debt Compromise that Barclays receives the compromise payment referred to above on 2 December 2008. Given the
prevailing economic conditions, the Directors believe that this deadline can only be met, and the Placing carried out on terms favourable to
the Company, if members of senior management participate in the Placing to demonstrate their commitment to, and support of, the Company.
Accordingly, the Company has received irrevocable commitments from Surthurst Limited (a company related to Peter Breach) and a related
party of Steven Bartlett to subscribe for 1,000,000 New Ordinary Shares in aggregate at the Placing Price of �0.30 per New Ordinary Share,
conditional upon (i) the passing of the Resolutions other than resolution 5; (ii) investors (including certain Directors and Concert Party
members) entering into irrevocable undertakings in substantially similar form to subscribe for New Ordinary Shares for an aggregate
subscription amount of not less than �500,000; and (iii) admission of the New Ordinary Shares to be subscribed by them to trading on AIM
occurring no later than 2 December 2008. The Directors anticipate receipt of further irrevocable undertakings from potential placees on
substantially the same terms, provided that the maximum amount to be subscribed pursuant to the Placing shall not exceed �800,000.
Irrevocable undertakings on equivalent terms to those signed by the Committed Investors have been received in respect of further New
Ordinary Shares having an aggregate subscription price of �326,500 (including an irrevocable undertaking from James Muirhead, the finance
director of the Company, in relation to New Ordinary Shares having a subscription price of �10,000). Accordingly the relevant condition
referred to in the paragraph above has been satisfied on the basis that commitments have been received in respect of New Ordinary Shares
having an aggregate subscription price of �626,500.
The Placing Price represents a premium of 1.66 per cent. to the middle market quotation on 14 November 2008, being the last practicable
date prior to the posting of the Circular.
Settlement and dealings
Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that
such Admission will occur on 2 December 2008.
The New Ordinary Shares will, when issued, rank pari passu in all respects with the Existing Shares including the right to receive
dividends and other distributions declared following Admission.
Participation by Concert Party in the Placing
For the purposes of the City Code, Surthurst Limited, Peter Breach, his sons Harry and Alex Breach, and Steven Bartlett (together with
their respective related parties) are deemed to be a concert party with regard to their interests in the issued share capital of Coffee
Republic. The Concert Party currently holds 27.39 per cent. of the entire issued capital of the Company.
Under Rule 9 of the City Code, any person who acquires an interest (as such term is defined in the City Code) in shares which, taken
together with the shares in which he and persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights
in a company that is subject to the City 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 him, 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. Such an offer would have to be made in
cash at a price not less than the highest price paid by him, or by any member of the group of persons acting in concert with him, for any
interest in shares in the Company during the 12 months prior to the announcement of the offer.
As explained in more detail below, the Independent Shareholders are being asked to waive this requirement in order to permit the Placing
to proceed and to secure the Debt Compromise, which will be of significant benefit to Coffee Republic.
PROPOSED OPTION AWARDS
As indicated in the Chairman's Statement for the year ended 30 March 2008, Peter Breach and Steven Bartlett have to date not received
any compensation by way of salary since their appointment as Directors in October 2006, given the financial condition of the Company. At a
meeting of the remuneration committee of the Company held on 24 September 2008, the committee determined that an appropriate award under the
Company's share scheme adopted at the recent annual general meeting (or equivalent arrangements in respect of Steven Bartlett to reflect his
non-employee status) should be made to each of Peter Breach and Steven Bartlett. Whilst the details of the share option awards have yet to
be finalised and no award has currently been made, the committee has determined that the maximum number of Ordinary Shares over which
options may be granted to each of Peter Breach and Steven Bartlett shall not exceed 191,667 (which prior to the Placing, would have ensured
that the Concert Party's aggregate shareholding following the grant of the options was less than 30 per cent. of the entire issued share capital of the Company).
As any grant of options pursuant to the Proposed Option Awards following Completion, or their subsequent exercise, may otherwise trigger
a requirement for the Concert Party to make a mandatory offer pursuant to Rule 9 of the City Code (as explained above), the Independent
Shareholders are also being asked to waive this requirement to enable option grants under the Proposed Option Awards to be made. If the
Placing Whitewash Resolution is not passed, there will be no further requirement to pass the Option Whitewash Resolution (on the basis that
the Concert Party's aggregate shareholding will not exceed 30 per cent. of the entire issued share capital of the Company even if the
Proposed Option Awards were granted in full) and accordingly it will lapse.
Whether or not the Option Whitewash Resolution is passed, separate authorities will be sought at the EGM in respect of the issue of
options to Steven Bartlett pursuant to the Proposed Option Awards (it being intended that, as an employee of the Company, any options
granted to Peter Breach and shares issued thereunder will not constitute "relevant securities" or "equity securities" for the purposes of
sections 80 and 89 of the Act, respectively).
It is currently intended that grant of options pursuant to the Proposed Option Awards will be made in December 2008, following
publication of the Company's interim results for the six months ended 28 September 2008, at the then prevailing share price. The options
will be subject to a two to three year vesting period, such vesting to be subject to suitable performance based criteria based on share
price performance over the relevant period. Any grant of options pursuant to the Proposed Option Awards, will be subject to the approval of
the remuneration committee of the Company.
WAIVER OF THE OBLIGATION TO MAKE A MANDATORY OFFER UNDER RULE 9 OF THE CITY CODE IN RELATION TO THE PLACING AND THE PROPOSED OPTION
AWARDS
The Panel has agreed, subject to the Placing Whitewash Resolution being passed on a poll by the Independent Shareholders at the EGM, to
waive the requirement under Rule 9 of the City Code for the Concert Party, collectively and/or individually, to make a mandatory offer for
the Ordinary Shares not already owned by it or persons connected with it as would otherwise arise on the subscription for 1,000,000 New
Ordinary Shares by the Committed Investors, as members of the Concert Party, pursuant to the Placing.
The Panel has agreed, subject to the Option Whitewash Resolution being passed on a poll by the Independent Shareholders at the EGM, to
waive the requirement under Rule 9 of the City Code for the Concert Party, collectively and/or individually, to make a mandatory offer for
the Ordinary Shares not already owned by it or persons connected with it as would otherwise arise on the grant to each of Peter Breach and
Steven Bartlett, as members of the Concert Party, of options over not more than 191,667 New Ordinary Shares pursuant to the Proposed Option
Awards, and their exercise from time to time.
POTENTIAL VOTING RIGHTS OF THE CONCERT PARTY
Maximum holding in the event that only the Placing is sanctioned by the Independent Shareholders
If the Placing Whitewash Resolution is passed at the EGM, but the Option Whitewash Resolution is not, on the assumption that:
(a) 1,666,667 New Ordinary Shares (being the minimum number of New Ordinary Shares to be issued pursuant to the Placing) are issued
pursuant to the Placing, of which 1,000,000 New Ordinary Shares are subscribed by the Committed Investors at a price of �0.30 per New
Ordinary Share; and
(b) there are no other changes to the issued share capital during the period,
the voting rights attributable to the Ordinary Shares held by the Concert Party would constitute 31.91 per cent. of all the voting
rights in the Company.
Following completion of the Placing the members of the Concert Party will between them be interested in Ordinary Shares carrying 30 per
cent. or more of the Company's voting rights, but will not hold Ordinary Shares carrying more than 50 per cent. of such voting rights and,
for as long as they continue to be treated as acting in concert for the purposes of the City Code, any further increase in that aggregate
interest in Ordinary Shares will be subject to the provisions of Rule 9 of the City Code.
Maximum holding in the event that both the Placing and the Proposed Option Awards are sanctioned by the Independent Shareholders
If both Whitewash Resolutions are passed at the EGM, on the assumption that:
(a) 1,666,667 New Ordinary Shares (being the minimum number of New Ordinary Shares to be issued pursuant to the Placing) are issued
pursuant to the Placing, of which 1,000,000 New Ordinary Shares are subscribed by the Committed Investors at a price of �0.30 per New
Ordinary Share;
(b) the Proposed Option Awards are granted and exercised in full; and
(c) there are no other changes to the issued share capital during the period,
the voting rights attributable to the Ordinary Shares held by the Concert Party would constitute 33.99 per cent. of all the voting
rights in the Company.
Following completion of the Placing and on the basis that the Proposed Option Awards are granted and exercised in full, the members of
the Concert Party will between them be interested in Ordinary Shares carrying 30 per cent. or more of the Company's voting rights, but will
not hold Ordinary Shares carrying more than 50 per cent. of such voting rights and, for as long as they continue to be treated as acting in
concert for the purposes of the City Code, any further increase in that aggregate interest in Ordinary Shares will be subject to the
provisions of Rule 9 of the City Code.
INTENTIONS OF THE CONCERT PARTY
The Concert Party is not intending to seek any changes to the Board and has confirmed that it would be its intention that, following any
increase in its proportionate shareholding as a result of the participation by the Committed Investors in the Placing and/or on the exercise
of any options granted under the Proposed Option Awards, the business of the Company would be continued in substantially the same manner as
at present, with no major changes. With this in mind, there will be no repercussions on employment or the location of the Company's places
of business and no redeployment of the Company's fixed assets.
The Concert Party is also not intending to prejudice the existing employment rights, including pension rights, of any of the employees
or management of the Group nor to procure any material change in the conditions of employment of any such employees or management.
EXTRAORDINARY GENERAL MEETING
The Circular contains a notice convening an Extraordinary General Meeting of the Company to be held on 1 December 2008 at the offices of
Osborne Clarke at 1 London Wall, London EC2Y 5EB at 11.00 a.m., at which the Resolutions will be proposed for the purposes of implementing
the Proposals.
Resolution 1, which will be proposed as an ordinary resolution, is to increase the authorised share capital of the Company by the
creation of 6,666,667 Ordinary Shares.
Resolution 2, which will be proposed as an ordinary resolution and which is subject to the passing of Resolution 1, is to authorise the
Directors to allot relevant securities as follows:
(a) up to 2,666,667 New Ordinary Shares having an aggregate nominal value of �160,000.02 in connection with the Placing;
(b) warrants over 250,000 New Ordinary Shares having an aggregate nominal value of �15,000 in connection with the Warrant Agreement;
and
(c) options over up to 191,667 New Ordinary Shares having an aggregate nominal value of �11,500.02 in connection with the Proposed
Option Award to Steven Bartlett,
and otherwise relevant securities up to �239,545 in nominal value (representing 3,992,416 Ordinary Shares and one third of the issued
share capital assuming the authorities set out in sub-paragraphs (a), (b) and (c) above are fully utilised) provided that such authority
shall expire at the conclusion of the next annual general meeting of the Company except that the Company may at any time before such expiry
make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot
relevant securities in pursuance of such an offer or agreement as if this authority had not expired.
Resolution 3, which will be proposed as a special resolution and which is subject to the passing of Resolution 2, disapplies
Shareholders' statutory pre-emption rights in relation to further rights issues and the issue of equity securities pursuant to the Placing,
the Warrant Agreement and the grant of options pursuant to the Proposed Option Award to Steven Bartlett on the basis set out above, and
grants further authority to allot equity securities for cash on a non-pre-emptive basis up to an aggregate nominal amount of �72,589
(representing 1,209,816 Ordinary Shares and 10 per cent. of the issued share capital of the Company assuming the preceding authorities are
utilised in full) provided that such authority shall expire at the conclusion of the next annual general meeting of the Company except that
the Company may before the expiry of this power make an offer or agreement which would or might require equity securities to be allotted
after such expiry and the directors may allot equity securities in pursuance of such an offer or agreement as if this power had not expired.
Resolution 4 seeks the approval of the Independent Shareholders to the waiver granted by the Panel in connection with the Placing as set
out above.
Resolution 5, which is conditional on the passing of Resolution 4, seeks the approval of the Independent Shareholders to the waiver
granted by the Panel in connection with the Proposed Option Awards as set out above.
RECOMMENDATION IN RESPECT OF THE SHARE AUTHORITY RESOLUTIONS
The Directors consider the Proposals to be in the best interests of the Company and its Shareholders as a whole and accordingly
unanimously recommend Shareholders to vote in favour of the Share Authority Resolutions to be proposed at the EGM as they have irrevocably
undertaken to do in respect of their beneficial holdings amounting, in aggregate, to 2,618,058 Existing Shares, representing approximately
25.1 per cent. of the existing issued share capital of the Company.
INDEPENDENT RECOMMENDATION IN RESPECT OF THE PROPOSALS
The Independent Directors, who have been so advised by Teathers, consider that the Proposals are in the best interests of the Company
and the Independent Shareholders as a whole. Nicholas Jeffrey has irrevocably undertaken to vote in favour of the Whitewash Resolutions in
respect of his own beneficial holdings amounting to 13,475 Existing Shares, representing approximately 0.13 per cent. of the existing issued
share capital of the Company. In providing advice to the Independent Directors, Teathers has taken into account the Independent Directors'
commercial assessments.
Voting on the Whitewash Resolutions will be by means of a poll of Independent Shareholders.
The Concert Party will not vote on the Whitewash Resolutions at the EGM.
CHANGE OF NOMINATED ADVISER AND BROKER
Coffee Republic confirms that, in accordance with AIM Rule 17, the Company's nominated adviser and broker is Teathers, a division of
Straumur-Burdaras Investment Bank hf., of Berkeley Square House, Third Floor, Berkeley Square, London W1J 6BU.
For further information:
Coffee Republic Plc:Peter Breach, Chairman and Chief 020 7033 0600
Executive Officer
James Muirhead, Finance Director 020 7033 0639
Teathers:
Jeff Keating / Simon Brown 020 7426 9000
The following definitions apply throughout this
announcement unless the context otherwiserequires:
"Act" the Companies Act
1985 (as amended)
"Admission" admission of the New
Ordinary Sharesto be
issued pursuant to
the Placingto
trading on AIM
becoming effective
in accordance with
Rule 6 of the AIM
Rules
"AIM" the AIM Market
operated by the
London Stock
Exchange
"AIM Rules" the AIM rules for
companies published
by the London Stock
Exchange from time
to time
"Associate" has the meaning set
out in paragraph (1)
of the definition of
associate in the
City Code
"certificated form" or "in an Ordinary Share
certificated form" recorded on a
company's share
register as being
held in certificated
form (namely, not in
CREST)
"Barclays" Barclays Bank plc
"Circular" the circular posted
to Shareholders in
relation to the
Proposals
"City Code" the City Code on
Takeovers and
Mergers
"Committed Investors" means certain
Concert Party
members who have
signed Irrevocable
Undertakings in
connection with the
Placing
"Company" or "Coffee Republic" Coffee Republic plc
"Completion" completion of the
Placing in
accordance with its
terms
"Concert Party" Surthurst Limited,
Peter Breach, Harry
and Alex Breach,
Steven Bartlett and
their related
parties
"Debt" the debt currently
owed by the Company
to Barclays under
certain of its
existing facilities
"Debt Compromise" the conditional
compromise of the
Debt
"Directors" or "Board" the directors of the
Companyor any duly
authorised committee
thereof
"EGM" or "Extraordinary the extraordinary
General Meeting" general meeting of
the Company to be
heldat the offices
of Osborne Clarke, 1
London Wall,London
EC2Y 5EBat 11.00
a.m.on Monday 1
December 2008
"EGM Notice" or "Notice of the notice convening
Extraordinary General Meeting" the EGM
"Existing Shares" the Ordinary Shares
in issue at the date
of this
announcement, all of
which are admitted
to trading on AIM
"Form of Proxy" the form of proxy
for use in
connection with the
EGM which
accompanies the
Circular
"Group" the Company, its
subsidiaries and its
subsidiary
undertakings
"Independent Directors" James Muirhead and
Nicholas Jeffrey
"Independent Shareholders" the Shareholders
other than the
Concert Party
"Irrevocable Undertakings" the conditional
irrevocable
undertakings
received by the
Company from the
Committed Investors
in connection with
the Placing
"London Stock Exchange" London Stock
Exchange plc
"New Ordinary Shares" new Ordinary Shares
to be issued
pursuant to the
Share Authority
Resolutions
"Option Whitewash Resolution" the ordinary
resolution of the
Independent
Shareholders
concerning the
waiver of
obligations under
Rule 9 of the City
Code to be proposed
at the EGM in
connection with the
grant of options
pursuant to the
Proposed Option
Awards and set out
in the EGM Notice as
resolution numbered
5
"Ordinary Shares" ordinary shares of
�0.06 each in the
capital of the
Company
"Panel" the Panel on
Takeovers and
Mergers
"Placing" the conditional
placing of up to
2,666,667 New
Ordinary Shares
"Placing Price" �0.30 per New
Ordinary Share
"Placing Whitewash Resolution" the ordinary
resolution of the
Independent
Shareholders
concerning the
waiver of
obligations under
Rule 9 of the City
Code to be proposed
at the EGM in
connection with the
issue of New
Ordinary Shares to
certain members of
the Concert Party
pursuant to the
Placing and set out
in the EGM Notice as
resolution numbered
4
"Proposals" the Debt Compromise,
the Placing, the
Proposed Option
Awards, and the
related Waivers
"Proposed Option Awards" the proposed awards
of options over a
maximum of 383,334
New Ordinary Shares
to Steven Bartlett
and Peter Breach
"Resolutions" the resolutions set
out in the EGM
Notice
"Share Authority Resolutions" the resolutions to
increase the
authorised share
capital of the
Company and granting
the Directors
authority to allot
New Ordinary Shares
to be proposed at
the EGM and set out
in the EGM Notice as
resolutions numbered
1, 2 and 3
"Shareholders" holders of Ordinary
Shares
"Teathers" Teathers, a division
ofStraumur-Burdaras
Investment Bank hf,
the Company's
nominated adviser
and broker
"UK" the United Kingdom
of Great Britain and
Northern Ireland
"uncertificated" or "in an Ordinary Share
uncertificated form" recorded on a
company's share
register as being
held in
uncertificated form
in CREST and title
to which, by virtue
of the
Uncertificated
Securities
Regulations 2001,
may be transferred
by means of CREST
"Waivers" means the waivers
granted by the Panel
(subject to the
passing of the
Whitewash
Resolutions) in
respect of the
obligation of the
Concert Party to
make a mandatory
offer under Rule 9
of the City Code in
connection with the
Placing and the
Proposed Option
Awards
"Warrant Agreement" the warrant
agreement proposed
to be entered into
on completion of the
Debt Compromise
between the Company
(1) and Barclays (2)
granting Barclays
the right to
subscribe for up to
250,000 Ordinary
Shares at an
exercise price of
�0.50 per Ordinary
Share
"Whitewash Resolutions" the Option Whitewash
Resolution and the
Placing Whitewash
Resolution
This information is provided by RNS
The company news service from the London Stock Exchange
END
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