17 Sep 2009 07:01
17 September 2009
Redstone plc
("Redstone" or the "Group")
Issue of Loan Note / Related Party Transaction / Financial Update
As previously announced the Group has been exploring potential ways to further reduce indebtedness to a more sustainable level. The Board of Redstone has been working with its advisors in exploring potential ways of funding the business and today announces that it has secured up to GBP6 million of new funding for the Group and revised the agreements it has with other debt providers. The injection of new capital and revision of existing debt agreements helps secure the future development of the Group as it focuses on its key ICT strengths.
Eckoh Loan Facility
As announced on 8 September 2009 Redstone has been in discussions with Eckoh Technologies PLC ("Eckoh") regarding the loan facility between Symphony Telecom Holdings Limited ("Symphony"), a subsidiary of Redstone, Redstone and Eckoh (the "Eckoh Loan"). The Company is pleased to announce that it has reached a standstill agreement with Eckoh regarding the Eckoh Loan the key terms of which are as follows:
GBP1 million is repayable on 1 October 2011 and the balance of GBP1.7 million is repayable on 1 October 2012.
Interest is payable monthly in arrears.
Eckoh will be granted security which will be subordinated to Barclays Bank PLC ("Barclays") and the holders of the Loan Note.
Eckoh will no longer be entitled to convert the Eckoh Loan into shares in the Company; and
Issue of GBP6 Million Loan Note
The Group also announces that it has today completed a fundraising of up to GBP6 million, with the provision for a further GBP2 million through the issue of a loan note to SVG Investment Managers Limited ("SVG") and Gartmore Investment Limited ("Gartmore") (the "Loan Note"). The fundraising provides funds for general working capital purposes and to strengthen the Group's balance sheet.
Redstone has agreed, within the terms of the Loan Note, to seek shareholder approval for:
the authority to allot New Ordinary Shares in the case of conversion of the Principal Amount and Repayment Premium and the disapplication of pre-emption rights;
re-organisation of the share capital; and
a waiver of Rule 9 of the City Code on Takeovers and Mergers ("Whitewash"), as both SVG and Gartmore could hold more than 30% of the enlarged issued share capital of Redstone if they were to each convert their entire interest in the Loan Note (the "Resolutions").
The key terms of the Loan Note are as follows:
the Loan Note can be converted into shares at a conversion price of 1.37 pence per share;
the Loan Note will have the benefit of a second charge, ranking behind the indebtedness to Barclays;
a premium equal to two times the outstanding premium amount shall be payable on the maturity date (the "Repayment Premium");
in the event that shareholder approval and/or the approval of The Panel on Takeovers and Mergers to waive rule 9 of the City Code on Takeovers and Mergers ("the Code") is not obtained, as well as the Repayment Premium, a superpremium equal to two times the outstanding principal amount that the noteholders are unable to convert without being required to make an offer under Rule 9 of the Code shall be payable on the maturity date ("Repayment Superpremium");
the Loan Note may be issued in tranches on different dates with the initial tranche being an aggregate of GBP3 million;
the second tranche of up to GBP3 million, can be requested by the Company at any time provided that there has not been a Material Adverse Change (as defined in the Loan Note);
the maturity date shall be 1 October 2011 or, if earlier, the occurrence of a Major Transaction (as defined in the Loan Note).
Assuming the Loan Note attracts the Repayment Premium and full conversion of their entitlement by both SVG and Gartmore, existing Ordinary Shareholders at the date of this announcement would represent approximately 10% of the enlarged issued share capital of Redstone.
Variation of terms of existing senior debt facilities with Barclays
The Group also announces that it has agreed an amendment to the terms of its existing senior debt facilities with Barclays to effect the following changes:
a reduction in the level of commitment available under the senior debt facilities;
revised financial covenants, projections, forecast and budgets within which the Group must operate;
a reduction in on-going financing costs payable under the senior debt facilities;
shortening the term of the senior debt facilities by three months;
alteration to the repayment profile of the senior debt facilities to allow more senior term debt to be repaid on final maturity of the senior debt facilities;
additional monitoring rights over the Group for Barclays;
further restrictions on payments of dividends or other distributions by the Group;
intercreditor arrangements between Barclays, SVG and Gartmore as holders of the Loan Notes; and
tighter restrictions on the Group incurring additional debt.
Related Party Transactions
SVG, which currently holds 19.88% of the issued share capital of the Company, is a related party for the purposes of the AIM rules. The issue of GBP3 million of the Loan Note to SVG constitutes a related party transaction for the purpose of the AIM rules for companies ("AIM Rules").
Gartmore, which currently holds 14.59% of the issued share capital of the Company, is a related party for the purposes of the AIM Rules. The issue of GBP3 million of the Loan Note to Gartmore constitutes a related party transaction for the purpose of the AIM Rules.
Each of SVG and Gartmore will receive an arrangement fee of 0.5% of the aggregate facility (GBP6 million) (the "Arrangement Fee").
The Company's directors consider, having explored alternative strategic and financing options and having consulted with FinnCap, the Company's nominated adviser, that the terms of the transactions being entered into by Redstone with SVG and Gartmore are fair and reasonable insofar as its shareholders are concerned.
The Group will post a circular to shareholders in the near future seeking their approval to pass the Resolutions.
In relation to the preliminary approach to the business that was announced on 10 September 2009. The board will update shareholders in due course.
Alan Coppin, Chairman, comments: "I am pleased that the Group has been able to successfully refinance the business so that it will be able to continue to trade and build upon its strengths. During the last four months, the business has been refocused as an ICT business with the sale of the Telecoms division to Daisy Group plc and the awarding of the Birmingham BSF contract. This refocusing of the Group, coupled with the refinancing will, in the opinion of the Board, enable the Group to move forward and become a major player in the ICT sector within the UK and Ireland. I would like to thank Redstone's employees for their continued hard work through what has been a difficult period for the Group."
Enquiries:
Redstone plc
Tel: +44 (0)845 200 2200
Alan Coppin, Executive Chairman
Tim Perks, Chief Financial Officer
FinnCap
Tel: +44 (0)20 7600 1658
Corporate Finance - Marc Young
Corporate Broking - Tom Jenkins
ICIS
Tel. +44 (0)20 7651 8688
Tom Moriarty
Caroline Evans-Jones