CTEA.L Regulatory News (CTEA)

8 Jul 2008 07:00

MILESTONE GROUP PLC

CAPITAL REORGANISATION AND SUBSCRIPTION

AIM listed Milestone Group PLC announces a proposed capital reorganisation and subscription intended to raise £300,000 and put in place new authorities enabling the Board to undertake further subscriptions to support the future development of the Company. The Subscription is conditional upon Shareholder approval at a General Meeting to take place on 31 July 2008.

Details of the proposals are set out below. A circular containing the Notice of General Meeting is being posted to Shareholders today. 

Milestone Chairman, John Sanderson, said:

"The Board is pleased to have secured new investment on terms which it believes to be fair and reasonable for Shareholders. The Board encourages all Shareholders to support these new funding arrangements at the General Meeting on 31 July." 

For further information

This announcement contains statements that are or may be forward looking with respect to the financial condition, results of operations and businesses of the Company. These statements can be identified by the use of forward looking terminology such as "believe", "expects", "prospect", "estimated", "target", "forecast", "plan", "should", "may" or the negative thereof, or other variations thereof, or comparable terminology indicating targets, expectations or beliefs concerning future events. These forward looking statements include risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors which could or may cause actual results or developments to differ materially from those expressed or implied by such forward looking statements. The Company disclaims any obligation to update any such forward looking statements to reflect future events or developments. These statements are not profit forecasts. They do not mean that the profits or earnings per share will necessarily be greater than those for any relevant preceding financial period. An investment in the Company involves a high degree of risk and could lead to some or the whole of the investment being lost. If you are in any doubt as to what action you should take you should seek independent advice from a person who is authorised under the Financial Services and Markets Act 2000.

Background

On 31 March 2008 the Company announced its Final Results. This was followed by the announcement of the Company's Interim Results on 30 June 2008. In both of these statements, the Company explained that it had been unable to draw down any funds under the terms of its Loan Facility with its former director, Jamie Bloom.

The Board consider the current funding uncertainty to be having an adverse impact on the Company's business, making it impossible to properly plan expenditure. Having reviewed the options available, the Board has concluded that the Company has an urgent requirement to put in place new funding arrangements if it is to be able to continue to trade and meet its working capital requirements in the short-term. To this end, the Company is pleased to have been able to secure commitments from new parties to supply funds on terms which the Board believe to be fair and reasonable for Shareholders, as set out in further detail under the heading "The Subscription" below. The Subscription is subject to all of the Resolutions being passed by Shareholders at the forthcoming General Meeting, notice of which is being posted to Shareholders today.

The Subscription 

The Company has conditionally raised £300,000 (before expenses) through a subscription for New Ordinary Shares and Loan Notes. Under the terms of the Subscription 21,875,001 New Ordinary Shares will be issued at 1.2p per share (representing a discount of approximately 24 per cent. to the average mid market closing price of an Existing Ordinary for the 20 business days prior to the date of this announcement and a discount of approximately 13 per cent. to the mid market closing price on 7 July 2008 (the latest practicable date prior to this announcement)) and 37,500 Loan Notes will be issued at par (being £1 per Loan Note) to certain investors. Completion of the Subscription is conditional upon the passing of the Resolutions.

Under the terms of the Loan Note Instrument, the Company may at any time before 31 July 2011, issue loan notes with an aggregate nominal value of £1 million. Pursuant to the Subscription the Company is proposing to issue Loan Notes at par with an aggregate nominal amount of £37,500. In addition the Company has granted an option to one investor to subscribe for an additional 100,000 loan notes under the terms of the Loan Note Instrument, further details of which are set out under the heading "Loan note option" below.

The Loan Notes will be issued under the terms of the Loan Note Instrument, as will any additional loan notes issued at a future date (at the Board's discretion) up to an aggregate nominal amount of £1 million. Under the terms of the Loan Note Instrument, interest will be payable on the loan notes at the rate of 3 per cent. above the base rate of the Bank of England (from time to time) per annum. The loan notes will be convertible in whole or in part (at the discretion of the Noteholder) at any time up to 31 July 2011 but limited to no more than four conversions in any one calendar year. The conversion price is equal to a 20 per cent. discount to the average mid market price of a New Ordinary Share over the preceding 20 business days, subject to a minimum conversion price of 0.1p and a maximum conversion price of 2.0p. Noteholders will not be permitted to convert their loan notes to the extent that such conversion would trigger an obligation on the Noteholder, together with any persons acting in concert with such Noteholder, to make a mandatory offer to all Shareholders to acquire their shares in accordance with Rule 9 of the City Code on Takeovers and Mergers.

The Company has the option to prepay (in whole or in part) any outstanding loan notes together with accrued interest at any time after the date which is 60 days following the issue of the loan notes. To the extent that they have not been converted or prepaid prior to such date, the loan notes will be repaid together with accrued interest on 31 July 2011.

Loan note option

The Company has granted an option to TRMK Estate Income Limited (who have agreed to subscribe for 6,250,000 Subscription Shares and 25,000 Loan Notes) to acquire up to a further £100,000 of loan notes in cash at par. The option may be exercised in whole or in tranches of £50,000 at any time on or prior to 30 September 2008.

Significant Shareholders

As at the date of this announcement, at Admission and on conversion of the Loan Notes, so far as the Directors are aware, the following persons will have, or could have, directly or indirectly an interest in three per cent. or more of the voting rights of the Company which is notifiable to the Company under the Disclosure and Transparency Rules:

* assuming a conversion price of 1.2p and that Noteholders do not elect to convert their interest. In the event that some or all of the Noteholders elect to convert their interest into New Ordinary Shares or the conversion price is lower than 1.2p, the number of New Ordinary Shares issued upon conversion of the Loan Notes would increase.

Capital Reorganisation

As a result of the current share price of the Existing Ordinary Shares, the Company is unable to issue any further Ordinary Shares (including the Subscription Shares and any shares issued pursuant to the conversion of the Loan Notes) due to provisions of the Act which prevent a company from issuing shares at less than their nominal value which, in the case of the Existing Ordinary Shares, is 10p. Accordingly, in order to implement the Subscription, the Company proposes to implement the Capital Reorganisation. Save for the dilution which will result from the issue of the Subscription Shares and any shares issued pursuant to the conversion of the Loan Notes the interests of existing Shareholders (both in terms of their economic interest and voting rights) will not be diluted by the implementation of the Capital Reorganisation.

At present, the authorised share capital of the Company is £5 million consisting of 50,000,000 ordinary shares of 10p each of which 27,605,095 Existing Ordinary Shares are in issue. In order to implement the Capital Reorganisation a resolution will be proposed at the General Meeting whereby each Existing Ordinary Share of 10p will be divided into one Deferred Share of 9.9p and one New Ordinary Share of 0.1p and each authorised but unissued Ordinary Share of 10p will be subdivided into 100 New Ordinary Shares of 0.1p. The New Ordinary Shares will have the same rights and benefits as the Existing Ordinary Shares. The number of New Ordinary Shares in issue following the Capital Reorganisation will be unchanged from the number of Existing Ordinary Shares in issue immediately prior to the Capital Reorganisation.

The Deferred Shares, which will not be listed, will be valueless, non-transferable and have no effect on the economic interest of the Shareholders. No share certificates will be issued for the Deferred Shares. Instead it is intended that, in due course, all the Deferred Shares will be repurchased by the Company for an aggregate of £1 and cancelled.

Application will be made for the New Ordinary Shares to be admitted to trading on AIM. Dealings in the Existing Ordinary Shares will cease at the close of business on the date of the General Meeting and dealings in the New Ordinary Shares are expected to commence on the following day (1 August 2008). Share certificates for the Existing Ordinary Shares will remain valid for the New Ordinary Shares.

Following the Capital Reorganisation, the Company will have in issue, and Shareholders' individual holdings will be for, the same number of New Ordinary Shares as the number of Existing Ordinary Shares immediately prior to the General Meeting.

With a nominal value of 0.1p the Company will be in a position to issue the Subscription Shares and any New Ordinary Shares issued pursuant to the conversion of the Loan Notes without breaching the provisions of the Act. Therefore, at the General Meeting, the Directors will also seek the authorities to allot New Ordinary Shares and disapply statutory pre-emption rights for (i) the Subscription (including any further issue of loan notes pursuant to the Loan Note Instrument and any New Ordinary Shares arising upon conversion of such loan notes); and (ii), by way of an ongoing general authority, up to a further 83,333,333 New Ordinary Shares (which would allow the Company to raise a further £1 million at the Subscription Price) in accordance with the Act. Due to the fact that the rate of interest in respect of the Loan Notes is not fixed it is not possible to predict the maximum number of shares that the Company may have to issue to satisfy the entitlements of the holders of the Loan Notes who wish to convert their interest into shares. Furthermore, it is likely the Company will have a requirement to raise further funds through a subscription for additional New Ordinary Shares and/or additional loan notes under the terms of the Loan Note Instrument, Accordingly the Board are of the view that it is appropriate to put such authorities in place.

General Meeting 

In the Circular posted to Shareholders today is a notice convening a General Meeting to be held at 11.00 a.m. on 31 July 2008 at the offices of Lawrence Graham LLP, 4 More London Riverside, London SE1 2AU. The resolutions which will be put to the General Meeting are (i) to authorise and facilitate the Capital Reorganisation; and (ii) to give the Directors the authorities to allot New Ordinary Shares and disapply statutory pre-emption rights for the Subscription; and (iii) to give the Directors the general authorities to allot New Ordinary Shares and disapply statutory pre-emption rights.

Whether or not intended to attend the General Meeting, Shareholders are requested to complete and return the Form of Proxy in accordance with the instructions printed thereon as soon as possible and in any event so as to be received by Capita Registrars, Proxies, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU not later than 48 hours before the meeting. The completion and return of a Form of Proxy will not prevent a Shareholder from attending the General Meeting and voting in person if he/she wishes to do so.

Irrevocable undertakings

The Company has received irrevocable undertakings from Shareholders who hold, in aggregate, 14,931,698 Existing Ordinary Shares (representing approximately 54.1 per cent. of the Existing Ordinary Shares) to vote in favour of the resolutions to be proposed at the General Meeting.

Potential further subscriptions

The Board appreciates that the proposed funding arrangements will dilute existing Shareholders. The Board is willing to consider placing further New Ordinary Shares or issuing further loan notes in accordance with the terms of the Loan Note Instrument. The Board will consider any approaches received from existing Shareholders who may be interested in participating in future arrangements of this nature. Expressions of interest should be sent to the registered office of the Company (without obligation) addressed to the Chief Executive by 31 July 2008 in order to enable the Board to ascertain the level of interest which exists amongst Shareholders in participating in future subscriptions.

Recommendation and voting intentions

The Board considers that the proposals described in this announcement are in the best interests of the Company and of Shareholders as a whole. Accordingly, the Board recommends that Shareholders should vote in favour of the resolutions to be proposed at the General Meeting. The Directors intend to vote in favour of the resolutions in respect of, in aggregate, 7,606,698 Existing Ordinary Shares (representing 27.56 per cent. of the Existing Ordinary Shares).

In accordance with the Companies Act 2006 Resolutions 1 and 3 require the approval on a show of hands of not less than 75 per cent. of members present and voting or on a poll the approval of members holding not less than 75 per cent. of the total voting rights. A failure to obtain the requisite support of Shareholders at the GM would prevent the Company from proceeding with the Subscription. Accordingly, the Board strongly urge all Shareholders to return their Form of Proxy and/or attend the General Meeting.

The Subscription is conditional upon the passing of the Resolutions at the forthcoming General Meeting. If all of the Resolutions are not passed at the General Meeting, the Company will be unable to complete the Subscription and, in the event that it is unable to secure alternative funding, would be required to cease trading. In such circumstances, it is highly unlikely that the Ordinary Shares of the Company would have any value.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

SUBSCRIPTION STATISTICS

*assuming that Noteholders do not elect to convert their interest into New Ordinary Shares.

DEFINITIONS

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