Chamberlin & Hill Regulatory News (CMH)

19 February 2021

Chamberlin plc

(the "Company" or the "Group")

Share capital reorganisation

Adoption of new articles of association

Authority to allot shares and waiver of pre-emption rights

and

Notice of General Meeting

Chamberlin plc (AIM: CMH.L), the specialist castings and engineering group, announces that it will be posting a circular to shareholders (the "Circular") today including notice convening a general meeting ("Notice of General Meeting") to be held at 10.00 a.m. on 8 March 2021 at the Company's offices at Chuckery Road, Walsall, West Midlands WS1 2DU (the "General Meeting").

General Meeting

The Board has taken the decision that Shareholders, advisers and other guests will not be allowed to attend the General Meeting in person and anyone seeking to attend the General Meeting will be refused entry. The Company will arrange for the minimum quorum of two Shareholders present in person or by proxy necessary to conduct the business of the General Meeting to attend the General Meeting. Any other Shareholders attempting to attend the General Meeting in person will be refused admission. Shareholders are strongly encouraged to therefore submit their votes on the Resolutions as early as possible.

Shareholders should appoint the 'Chairman of the meeting' as their proxy. If a Shareholder appoints someone else as their proxy, that proxy will not be able to attend the General Meeting in person and cast the Shareholder's vote. Due to the COVID-19 situation, the Directors have taken the decision that voting on the Resolutions at the General Meeting will be taken on a poll, rather than a show of hands, to ensure that Shareholders' proxy votes are recognised.

The Circular is available to view on the Company's website at https://www.chamberlin.co.uk/investors/shareholder-information/shareholder-circulars. Capitalised terms in this announcement shall have the same meaning as in the Circular to be posted to shareholders today.

Background

The Company announces that it has received new funding of £200,000 from Mr Trevor Brown to help support the short-term working capital requirements of the Company. Trevor Brown has been a strategic investor in real estate and equities for more than 30 years.

Trevor Brown has worked as a director in a number of businesses over many years and is currently CEO of IQ-AI Limited, CEO of Braveheart Investment Group plc and a non-executive director of Remote Monitored Systems plc. He was previously a director of Feedback plc, Management Resource Solutions plc and Advanced Oncotherapy plc.

This funding has been advanced by way of an unsecured convertible loan note instrument, resulting in Trevor Brown being issued with £200,000 Notes. Subject to the passing of the Resolutions (as set out below), these Notes will automatically convert into 3,333,333 New Ordinary Shares (at a Conversion Price of 6 pence per New Ordinary Share). The Conversion Price represents a discount of 14.3 per cent. to the closing middle market price of 7 pence per Existing Ordinary Share on 3 January 2021 (prior to suspension of the Existing Ordinary Shares from trading on AIM which took effect at 7.30 a.m. on 4 January 2021). The 3,333,333 New Ordinary Shares will represent approximately 29.5 per cent. of the Enlarged Share Capital.

Alongside the issuance of the Notes, the Board has also agreed that, upon Conversion and conditional on the passing of the Resolutions at the General Meeting, Trevor Brown will be appointed as a non-executive director to the Company. As part of this appointment, Trevor Brown has agreed to explore with the Board all potential options of further funding to help stabilise the short-to-medium term working capital requirements of the Company. It is hoped that, following this Transaction, and a future fundraising (which may include further equity fundraisings), the Company will be in a position with its auditors to be able to publish its annual audited accounts for the year ended 31 March 2020 on a going concern basis and the interim results for the six months ended 30 September 2020, which should, in turn, result in the current suspension of trading of the Existing Ordinary Shares (and, following Admission, the New Ordinary Shares) on AIM being lifted by the London Stock Exchange.

The Conversion of the Notes is conditional, inter alia, on: (i) the approval of Shareholders of resolutions to re-organise the share capital of the Company that will have the effect of reducing the nominal value of each Existing Ordinary Share in the Company to a level below the Conversion Price, and (ii) the granting of the necessary share allotment authorities to the Directors in accordance with the Companies Act in order for the Directors to allot the New Ordinary Shares and the power to disapply statutory pre-emption rights in respect of the New Ordinary Shares. The Resolutions are contained in the Notice of General Meeting which is set out at the end of the Circular.

In light of the delay to the publication of the 2020 audited annual results, as was announced by the Company on 18 December 2020, the general authorities obtained from shareholders at the Company's last annual general meeting on 19 July 2019 have expired. Consequently, unless the Resolutions are passed by Shareholders at the General Meeting, not only can the Conversion not take place nor can any future equity fundraising. If this were to happen, the Directors believe that this would prejudicially impact the already limited funding options available to them and should the Company fail to obtain further funds in the short term, the Directors believe the Company will be unable to continue trading as a going concern. In addition, unless the Resolutions are passed by Shareholders at the General Meeting, the Company is expected to be unable to comply with one or more financial covenants that are in place under the terms of its existing facilities with its lending banks. In such circumstances, if the Company is unable to reach agreement on alternative arrangements with its lending banks and other creditors (including HM Revenue & Customs), then this could lead to enforcement action over all or part of the Group's assets including executing a disposal of such assets. In the event that the Resolutions are not passed, the Directors would likely seek to place the Company into some form of insolvency proceeding, or a creditor may take action to enforce or initiate an insolvency proceeding. Any such proceeding would be likely to result in little or no value for Shareholders. Accordingly it is important that Shareholders vote in favour of all of the Resolutions so that the Conversion may proceed and all funding options are available to the Board.

Current Trading and Outlook

The Group is an established foundry and engineering group operating across three subsidiaries:

Chamberlin & Hill Castings Ltd - Casting Facility and Machining Facility

Chamberlin & Hill Castings Ltd, based in Walsall, is a leading supplier of turbocharger components with a proven track record in supplying high-volume components with very accurate tolerances. The divisions' products are supplied to range of sectors such as automotive, construction, general engineering, fitness, highways, heating and hydraulics. In addition, the Group has a high speed leading CNC machining facility capable of producing 600,000 machined parts per year to exacting standards. The division had a recent focus on the European turbocharger market with 4.0 million units produced by the Company in 2018. Production orders fell in the run up to Brexit triggering a Group restructuring process which was completed in March 2020. Having returned to profitability in Q4 2019/20, the division then faced a disruptive impact on both operations and demand from COVID-19.

On 23 November 2020, the Company announced that its machine shop had been experiencing volatile demand due to Brexit, COVID-19 and customer safety stock building. The customer of the largest contract representing approximately 75% of the machine shop's output informed Chamberlin of an earlier transition to the next product evolution which was awarded to another supplier and that ongoing customer orders were likely to be a fraction of the original contract. The Company was to pursue a claim relating to the earlier than planned transition and in the meantime all staff in the machine shop were furloughed.

On 16 December 2020, the Company announced that it had received notice from its major customer, BorgWarner Turbo Systems Worldwide Headquarters GmbH, of its intention to cancel all contracts with effect from 22 January 2021.

On 21 January 2021, the Company announced that it had received revised orders from BorgWarner through to 22 March 2021, the Board had implemented further measures to reduce costs and was exploring options to strengthen the balance sheet, including investigating the possibility of new equity capital and alternative measures to ensure the Company's future. Additionally, the Group has been pursuing an aggressive marketing approach underway to minimise the loss of the BorgWarner business, particularly with non-automotive customers based in the UK, and potential opportunities due to a significant reduction in global foundry capacity more generally.

Russell Ductile Castings Ltd

Russell Ductile Castings Ltd, the Group's Scunthorpe based foundry, produces specialised castings in a variety of iron types and grades, ranging from 10kg - 7,000kg and steel castings from 10kg - 1,000kg used in various industrial applications including power generation, oil & gas pumps and valves, steel production, railways and construction. In addition, the division produces specialist complex castings for components such as gas turbine components, suspension system castings and furnace oven doors. RDC is currently profitable, operating with a full order book and anticipating strong growth prospects over the next year assisted by a reduction in overall market capacity. Key clients across a diverse range of markets such as waste, power, energy and steel manufacture include: Siemens Industrial Turbomachinery, IESA (British Steel), Saint Gobain, Carnaud Metalbox, Johnson Matthey and the Thames Tideway project.

Petrel Ltd

Petrel Ltd is the Group's specialist industrial lighting business with customers being supplied with ATEX approved products throughout the UK, EU and International markets in key sectors including oil & gas, petrochemical, marine and defence. The Group is looking to expand into healthcare opportunities with UV-C lighting and new product lines driven by continued demand for the switch to LED lighting. In addition, the division has new linear and handheld products in development. Petrel is current profitable and there has been a recent strengthening of the division's order book driving improved profitability and cash generation through revenue growth and improved margins. Key clients include SA Equipment, City Electrical Factors, BAE Systems, Dron & Dickson, Rexel UK and Babcock.

Background and Reasons for the Transaction

As was announced in the Company's trading update on 16 December 2020, the Board has been rigorously investigating the possibility of new equity capital and alternative measures to ensure the Company's future. After evaluating all current options with its advisers, the Board was of the opinion that the initial funding by Trevor Brown (by way of this Transaction) represented the best short-term opportunity, whilst continuing to explore all other funding possibilities.

Given Trevor Brown's experience, the Board believe his appointment as a non-executive director (conditional on the passing of the Resolutions at the General Meeting and upon Conversion), will be significantly beneficial and help maximise the ability to exploit all other avenues of funding which might be available to the Group.

Further, given that the Existing Ordinary Shares were suspended from trading on AIM on 4 January 2021 at a price of 7 pence, the Conversion Price for the Notes (which are unsecured and interest free) is considered by the Board to be fair and reasonable when evaluated against the ongoing trading risks and financial pressures the Group are under.

As a result, the Transaction with Trevor Brown is believed by the Board to be the best first step in hopefully demonstrating to the Company's auditor (and creditors, including HSBC) that the Company is able to continue to trade on a going concern basis in order to be able to publish and file its annual audited accounts for the year end 31 March 2020, publish its interim results for the six months ended 30 September 2020 and apply for the suspension of trading of the Existing Ordinary Shares (and, following Admission, the New Ordinary Shares) on AIM to be lifted by the London Stock Exchange.

The Notes are unsecured and interest free. Conversion can only occur upon specific shareholder authority being passed to allot the requisite shares and dis-apply the statutory pre-emption rights over such shares (as is being proposed at the General Meeting). Should a Conversion not occur, the Notes are repayable only at the Board's sole discretion (there is no redemption or long stop date). On entering into the Convertible Loan Note Instrument, the Company has agreed to procure the convening of the General Meeting but no assurance on ever being able to undertake a Conversion has been given. Nevertheless, the Board does unanimously believe that such a Conversion (and the passing of the Resolutions generally) is in the long term best interests of the Company and all Shareholders given the experience Trevor Brown will bring to the Board and the ability to then consider all potential other options of funding for the Group.

Share Capital Reorganisation

As at the date of this announcement, the Company has 7,958,126 Existing Ordinary Shares in issue. The Existing Ordinary Shares traded (at the time of their suspension from trading on AIM on 4 January 2021) below their nominal value of 25 pence. The Company is prohibited by the Companies Act from issuing Ordinary Shares at a price below their nominal value. Accordingly, the Board proposes to sub-divide each Existing Ordinary Share into one ordinary share of 0.1 pence each and one Deferred Share of 24.9 pence each. The effect of this will be to reduce the nominal value of an Existing Ordinary Share from 25 pence to 0.1 pence, which is sufficiently below the Conversion Price and will therefore enable the Company to proceed with the Conversion.

On completion of the Share Capital Reorganisation, Shareholders would own one Existing Ordinary Share of 0.1 pence (nominal value) and one Deferred Share for every Existing Ordinary Share of 25 pence that they owned prior to the Share Capital Reorganisation. By way of example a Shareholder who owns 100 Existing Ordinary Shares of 25 pence each will, on completion of the Share Capital Reorganisation, own 100 Existing Ordinary Shares of 0.1 pence each and 100 Deferred Shares of 24.9 pence each. As explained below, the Deferred Shares will effectively be worthless and will not be admitted to trading on AIM. In due course, the Company is likely to buy back and cancel the Deferred Shares in order to simplify its balance sheet. Percentage holdings of individual Shareholders will not change as a result of the Share Capital Reorganisation. It is not anticipated that the Share Capital Reorganisation will have any impact on the market price of an Ordinary Share (acknowledging that the shares are suspended in any event) and the Existing Ordinary Shares of 0.1 pence each are expected to trade at the same price as the Existing Ordinary Shares of 25 pence each, assuming normal market conditions.

The rights attached to the Ordinary Shares of 0.1 pence each will be identical in all respects to those of the Existing Ordinary Shares of 25 pence each. The Share Capital Reorganisation will not affect the voting or other rights of holders of Existing Ordinary Shares of 25 pence each who receive Ordinary Shares of 0.1 pence each.

The Deferred Shares will have the minimal rights described in the paragraph headed "Amendment to the Articles", below. No application will be made to the London Stock Exchange for admission of the Deferred Shares to trading on AIM nor will any such application by made to any other exchange. As a consequence, the Deferred Shares will effectively be worthless and under the provisions of the amended Articles are likely to be bought back and cancelled for an aggregate of £1.00 out of the proceeds of the Transaction or any other issuance of New Ordinary Shares at a later date.

Application will be made to the London Stock Exchange for the New Ordinary Shares of 0.1 pence each (assuming the Share Capital Reorganisation resolution is approved at the General Meeting) to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the New Ordinary Shares (assuming the Share Capital Reorganisation resolution is approved at the General Meeting) will commence on 9 March 2021. For the avoidance of doubt, the current suspension of trading of the Existing Ordinary Shares on AIM will not be lifted by the London Stock Exchange as a result of Admission.

Amendment to the Articles

It is proposed to adopt new Articles at the General Meeting which will amend the current Articles to create a new class of shares, being the Deferred Shares and to set out the rights of the holders of the Deferred Shares with regard to their dividend, capital, voting, transfer, conversion and variation rights, as follows:

Income

The holders of Deferred Shares shall not be entitled to receive any dividend or other distribution.

Capital

The holders of Deferred Shares shall only be entitled to the amount paid up on such shares on any return of capital on a winding up (and only after the holders of Ordinary Shares have received the sum of £0.001 for each Ordinary Share held by them) and shall have no other right to participate in the assets of the Company.

Voting

The Deferred Shares will not carry any right to receive notice of or attend and vote at any general meeting of the Company.

Transfer Rights

The Company is authorised at any time to appoint a person to execute on behalf of the holders of the Deferred Shares a transfer thereof and/or an agreement to transfer the same, without making any payment to the holders thereof and persons so entitled, to such persons as the Company may determine as holder thereof beneficially entitled thereto and pending any such transfer not to issue certificates for the Deferred Shares.

Conversion Rights

The Deferred Shares will have no conversion rights.

Variation Rights

Neither: (i) the passing by the Company of any resolution for a reduction of capital involving the cancellation of the Deferred Shares without any repayment of capital in respect thereof, or a reduction of share premium account, or the obtaining by the Company or the making by the court of an order confirming any such reduction of capital or share premium account of the making effective of such order nor (ii) the purchase by the Company in accordance with the provisions of the Companies Act 2006 of any of its own shares or other securities or the passing of a resolution to permit any such purchase, shall constitute a modification, variation or abrogation of the rights attaching to the Deferred Shares and accordingly the Deferred Shares may at any time be cancelled for no consideration by means of a reduction in capital or purchased by the Company, at its option at any time, in accordance with the provisions of the Companies Act 2006, without making any payment to the holder thereof and without recourse to the holder, and to cancel the same without making any payment to or obtaining the sanction of the holder or holders thereof the Company may, at its option at any time, purchase all or any of the Deferred Shares then in issue, at a price not exceeding £1 in aggregate

General Meeting

A notice is set out at the end of the Circular convening the General Meeting to be held at the offices of the Company at Chuckery Road, Walsall, West Midlands WS1 2DU at 10.00 a.m. on 8 March 2021 at which the following Resolutions (all of which are conditional on the passing of all of the other resolutions) will be proposed:

(A) Resolution 1 which will be proposed as an ordinary resolution, seeks approval for the sub-division of each of the Existing Ordinary Share of 25 pence each into one Ordinary Share of 0.1 pence each and one Deferred Share of 24.9 pence each;

(B) Resolution 2, which will be proposed as a special resolution, is to adopt new articles of association;

(C) Resolution 3, which will be proposed as an ordinary resolution, is to authorise the Directors to allot relevant securities up to an aggregate nominal value of £3,333.33 in connection with the Conversion and (ii) £83,333.3333 otherwise than in connection with the Transaction; and

(D) Resolution 4 which will be proposed as a special resolution, disapplies statutory pre-emption rights, provided that such authority shall be limited to, inter alia, the allotment of equity securities in connection with the Conversion, and otherwise the allotment of equity securities up to an aggregate nominal amount of £86,666.6633.

Resolutions 1, and 3 are ordinary resolutions and require a simple majority of those voting to vote in favour of those Resolutions. Resolutions 2 and 4 are special resolutions and will require not less than 75 per cent. of those voting in person or on a poll by proxy to vote in favour of those Resolutions.

Resolution 3 authorises the allotment of such number of New Ordinary Shares as are necessary for the Conversion, as well as providing the Directors with a standing authority to allot equity securities up to an aggregate nominal value of £83,333.3333 (representing approximately 1,089 per cent. of the Enlarged Share Capital but if allotted at the Conversion Price of 6 pence per share would equate to £5 million). Similarly, Resolution 4 authorises the disapplication of statutory pre-emption rights in respect of such number of New Ordinary Shares as are necessary for the Conversion as well as providing the Directors with a standing authority to allot equity securities otherwise than in accordance with statutory pre-emption rights up to an aggregate nominal value of £83,333.3333 (representing approximately 1,089 per cent. of the Enlarged Share Capital, as explained above).

As detailed above, should all the Resolutions be duly passed at the General Meeting, it is expected that Trevor Brown will become a director of the Company.

Recommendation

The Directors consider the Transaction (and therefore the Conversion) to be in the best interests of the Company and the Shareholders as a whole and, accordingly, unanimously recommend that Shareholders vote in favour of all of the Resolutions to be proposed at the General Meeting as they intend to do in respect of their own beneficial holdings amounting, in aggregate, to 120,127 Existing Ordinary Shares, representing approximately 1.51 per cent. of the Existing Ordinary Shares.

The Conversion and ability for the Company to consider and exploit all future funding options are conditional, inter alia, upon the passing of all of the Resolutions at the General Meeting.

In the event that the Resolutions are not passed, the Directors would likely seek to place the Company into some form of insolvency proceeding, or a creditor may take action to enforce or initiate an insolvency proceeding. Any such proceeding would be likely to result in little or no value for Shareholders. The Company is now putting the Resolutions to Shareholders for approval. Shareholders should carefully consider them as they fundamentally affect the future of the Company and Shareholders' interests in it.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the UK version of the EU Market Abuse Regulation (2014/596) which is part of UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and supplemented from time to time.

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