20th Oct 2006 07:01
Turbo Power Systems Inc20 October 2006 Friday October 20th 2006 Turbo Power Systems Inc (the "Company" or "TPS") Placing, Loan Note Redemption, Transfer to AIM and alteration of Stock Option Plan Highlights • £6.0m raised through a placing of Common Shares and A-Shares• Received commitments to redeem £8.8m of loan notes• Proposed resolution to transfer the Company's listing to AIM• A special meeting of shareholders to be held on 27 November 2006 Colin Besant, Chairman commented: "The last 18 months have seen TPS make considerable commercial progress and weare now involved in a number of high profile programmes with blue chipcustomers. The funds from the placing announced today will ensure that we havethe infrastructure to service these programmes and can invest in sales andmarketing to underpin our continued growth. I am delighted that a significantnumber of our loan note holders have chosen to exchange their holdings forcommon stock and our balance sheet is substantially strengthened as a result.The proposed transfer to AIM will provide us with a regulatory framework moreappropriate to a company of our size and should provide the potential togenerate cost savings." Turbo Power Systems, the innovative power generation and power conditioningequipment provider, is pleased to announce that it has conditionally raised £6million (before expenses) by the placing (the "Placing") of a combination ofcommon shares of no par value in the Company ("Common Shares") and of A-Sharesof 8 pence each in the capital of its subsidiary, Turbo Power Systems Limited("TPSL" or "the Subsidiary"), (the "A-Shares"). In addition, the Company hasreceived conditional commitments from, and/or undertakings in respect of holdersof up to £8.8 million of loan notes to accept either Common Shares or A-Sharesupon a redemption of those Loan Notes by TPSL (the "Loan Note Redemption"). TheCompany will also issue 3,500,000 warrants over A-Shares to holders of certainloan notes. The Company also announces that it is today posting a circular to itsshareholders convening a special meeting of shareholders ("Special Meeting") toapprove the cancellation of its listing on the Official List of the UK ListingAuthority ("Official List") and transferring the Company's quotation to AIM (the"Transfer to AIM"). As required by the Listing Rules, a resolution will beproposed at the Special Meeting being convened for 27 November 2006 to cancelthe Company's listing on the Official List. Application will be made for theCompany's shares to be admitted to trading on AIM ("Admission") and it isexpected that the last date of dealings in the Company's shares on the OfficialList will be 27 December 2006 and admission to AIM is expected to occur at8.00a.m on the following day. The Toronto Stock Exchange ("TSX") hasconditionally approved the listing of these securities. Listing is subject tothe Company fulfilling all of the requirements of the exchange on or before 11January 2007. The Transfer to AIM will not affect the Company's listing on the TSX. Under the Placing, the Company has conditionally placed with institutions andother investors, in aggregate 50,000,000 new Common Shares (the "PlacingShares") and 25,000,000 new A-Shares (the "A-Placing Shares") at a price of 8pence per share. Once completed, the Placing will raise approximately £5.5 million (net ofexpenses). The total net proceeds of the Placing received will be used over timeas follows: approximately £5.0 million to fund working capital and £0.5 millionfor premises relocation. As part of the Placing, the directors of the Company ("the Directors") will inaggregate be subscribing for 612,500 Placing Shares under the terms of thePlacing. KBC Peel Hunt has agreed to subscribe or procure subscribers for 50,000,000Placing Shares which are not taken up by placees under the Placing. On Admission KBC Peel Hunt, the Company's financial adviser and broker, hasagreed to act as the Company's nominated adviser and broker. The Placing and the Loan Note Redemption are conditional, inter alia, on thepassing of the Special Resolution and Admission. Background to and reasons for the Placing The Company has made significant sales progress in 2005 and 2006 and has seencontinued order book growth, winning a number of new contracts with majorindustrial customers. Most of these contracts have design, prototype developmentand field-testing phases, which need to be completed before production revenueis available. Once into the production phase significant expenditure is made onstock and work in progress ahead of receiving payment for shipped productionunits, creating a requirement for additional working capital. Having experienced strong growth in its order book, the power electronicsdivision of the Company will require larger premises in the north-east ofEngland. The Company has today announced that a suitable site has been selectedand the relocation is expected to take place in early 2007. Conditional grantfunding of £550,000 has been confirmed by One North East, a regional grantdevelopment agency covering the north-east of England, but some additional fundsare required to complete the factory fit out. Although the majority of the Company's product development expenditure iscovered by customer funding in the pre-production phase of contracts, theCompany is continuing to develop its product portfolio, particularly in itslarger size motors and generators where the Directors see considerable marketpotential. Over the next six to nine months the Company has to raise additional cash tocontinue operations. The Company has identified a number of different methods ofraising the funds that it will require. However, the Directors believe that thePlacing is the most appropriate way to secure the Company's long-term future. If Shareholders do not vote in favour of the Transfer to AIM, there will beuncertainty relating to the Company's ability to continue as a going concern. Ifthe Special Resolution is not passed, the Directors will immediately startexploring alternative sources of funding. Based on current expectations theCompany will have to complete any fundraising by the end of June 2007, at thelatest, in order to continue its operations. The total net proceeds of the Placing received by the Company will be used overtime as follows: approximately £5.0 million to fund working capital and £0.5million for premises relocation. Reasons for the Loan Note Redemption The Directors believe that a Loan Note Redemption would be beneficial to theGroup, as it would result in a reduction in long-term debt and an associatedreduction in the Group's gearing which would help to strengthen the Group'sbalance sheet. The Directors believe that this would enhance the Group'sfinancial credibility with potential customers and partners. In addition, a LoanNote Redemption would result in a reduction in annual interest payments and sobe beneficial to the Group's cash flows. Background and reasons for the Transfer to AIM The Directors believe that AIM is a more appropriate market for the Company andshould lead to a simplification of administration requirements and lower ongoingcosts associated with being a public company. The Directors also believe thatthe intended admission to AIM will enable the Company to agree and executetransactions more quickly should any acquisition or other developmentopportunities arise in the future. The Directors, however, envisage noalteration in the standards of reporting and governance which the Groupcurrently achieves. The Directors therefore see the Company as continuing to beattractive to specialist institutional investors as well as to the retailinvestor Current Trading and Prospects During 2005 and 2006 the Company has made significant progress both in buildingits order book and reducing its cash burn. Revenues have grown significantly andsubstantial strides have been made in focusing resources on commercialprogrammes. First half results for 2006 show revenue and development income of £2.5 millionand operating cash outflow of £2.2 million. Since August 2005 the Company has announced a number of significant contractwins including: •Eaton Aerospace - In August 2005 the Company announced a contract for the supply of motor drive systems for the on-board fuel pumps used on the Boeing 787 'Dreamliner'. The contract is estimated to be worth in excess of US$20 million before after market sales, which could exceed US$10 million. •ALC - Also in August 2005 the Company announced a development contract for an oil field application to include field trials in Alaska. Subject to successful trial results, the contract includes the provision for a long-term production supply contract. The addressable market for the technology is in excess of 600,000 wells. •Trans-Elektro - In October 2005 the Company announced an agreement to supply power converters for use on the Dutch rail system. The initial production contract is worth £0.5 million. •Industrial motor/drive agreement with an international OEM - The Company announced in November 2005 that it had signed an agreement to supply a range of high speed motor and variable drive systems to an international OEM. Subject to satisfactory completion of prototype trials, the initial two year production contract is expected to yield revenues in excess of US$12.5 million. •National Rail Equipment Company ("NREC") - The Company announced a long-term supply agreement with NREC for the supply of traction motor controllers and low voltage power supply units in February 2006. Deliveries commenced in August 2006 and are expected to generate revenues in excess of US$5.5 million by the end of 2007. Orders have already been received for the launch quantity of 69 systems on behalf of Union Pacific Railroad. There is the potential for further significant orders. •Toronto Transit Commission - In March 2006 the Company announced a production contract to supply the Toronto Transit Commission with low voltage power supply units for Canadian light rail vehicles in Toronto. The initial production order is for £1.8 million. •Compact Power - In March 2006 Compact Power and Turbo Power Systems announced an agreement to collaborate in the development of a packaged biomass distributed generation system. The Company will supply generator and inverter technology to the programme. •Bombardier - In May 2006 the Company announced a contract to supply Bombardier Transportation with auxiliary power converters for use on the Beijing Capital International Airport link. The contract is expected to be worth US$1.5 million. •Bombardier (UK) - In July 2006 the Company announced a contract from Bombardier Derby for power converters and "at-seat" power supplies. The contract is worth £0.8 million. •Hamilton Sundstrand - In July 2006 the Company announced a contract to supply motor drives for use on the Boeing 787 'Dreamliner' estimated to be worth in excess of US$26 million with the potential for significant additional after market sales, which could exceed US$10 million. •PRC Lasers - In September 2006 the Company announced a follow-on order worth US$3.5 million from PRC Lasers for high voltage power supplies. The current contract, worth US$2.4 million and signed in December 2003 will continue until the end of 2006. The new contract will cover deliveries beginning in the first quarter of 2007 and continuing until early 2008. These contracts cover different production periods, with the longest being theHamilton Sundstand contract which extends to 2021. As a result of these contract wins the Company's order book has grownsubstantially and the Company now has long term trading relationships with anumber of blue chip customers. Most of the new contracts are characterised by anup front design, prototype and testing phase before moving into a productionphase. Whilst the majority of the contracts receive customer funding in theinitial phases it is in the production phase that the most significant revenuesand cash margins are expected to be achieved. Most contracts entered into by the Company have a pre-production phase of 12to18 months. As a consequence of this order book profile the Company expects tocontinue to make losses, and thus have a working capital requirement, until anumber of these contracts have moved into the production phase. The Company has noted a growing customer interest in its technology and hasincreased its investment in sales and marketing resources in 2006. In additionthe Company expects to expand its potential sales pipeline in the near term andis encouraged that opportunities, such as the recently announced HamiltonSundstrand contract, have arisen with the help of end customer referrals. Details of the Placing The Company is proposing to raise in total approximately £6.0 million (beforeexpenses) by means of the Placing. Pursuant to the terms of the PlacingAgreement, KBC Peel Hunt, as agent for the Company, has agreed conditionally toplace the Placing Shares and the A-Placing Shares with investors procured by it. The Placing Price of 8 pence per Placing Share and A-Placing Share represents adiscount of approximately 23.8 per cent. to the closing mid-market price of 10.5pence per Common Share on 19 October 2006, being the last dealing day prior tothe date of this document. The Placing Shares are equivalent to approximately 26.1 per cent. of theCompany's existing issued share capital (before redemption of the Loan Notes).The Placing Shares will, when issued, represent approximately 18.8 per cent. ofthe enlarged share capital of Common Shares in the Company assuming theimplementation of the Loan Note Redemption ("Enlarged Share Capital"). As partof the Placing, the Directors will in aggregate be subscribing for 612,500Placing Shares under the terms of the Placing. The issue of the Placing Shares is conditional, inter alia, upon: (i) the passing of the Special Resolution; (ii) Admission; and (iii) the placing agreement between the Company and KBC Peel Hunt (the "Placing Agreement") becoming unconditional in all other respects. An application will be made to the London Stock Exchange for the Placing Sharesto be admitted to trading on AIM. The Placing Shares are expected to be admittedto AIM and to commence trading at 8.00 a.m. on 28 December 2006. The TorontoStock Exchange ("TSX") has conditionally approved the listing of thesesecurities. Listing is subject to the Company fulfilling all of the requirementsof the exchange on or before 11 January 2007. For the avoidance of doubt, theA-Placing Shares will not be listed on any stock exchange. Under Canadian law there are no pre-emption rights attached to shares inCanadian companies. Accordingly no resolutions are required to be proposed atthe Special Meeting in order to issue the Placing Shares. In addition TPSL hasduly passed a resolution creating the A-Shares and altered its articles ofassociation to reflect this new class of shares. All A-Shares are exchangeableon no less than 61 days' written notice into Common Shares of the Company. Under the terms of the Placing Agreement, KBC Peel Hunt has agreed to subscribeor procure subscribers for 50,000,000 Placing Shares which are not taken up byplacees under the Placing. Details of the Loan Note Redemption and issue of warrants As at the date of this announcement, the Subsidiary has in issue £11,149,000 ofloan notes being £5,000,000 loan notes 2003 ("Loan Notes 2003") and £6,149,000loan notes 2005 ("Loan Notes 2005") (together the "Loan Notes"), details ofwhich are set out below. Loan Notes 2003 Amount in issue £5,000,000Annual interest 3.5%Conversion price of loan notes 20 pence Loan Notes 2005 Amount in issue £6,149,000Annual interest 6.5%Conversion price of loan notes 12 pence The Company has received commitments from holders of £5,000,000 of Loan Notes2003 and up to £3,780,000 Loan Notes 2005 that they are willing, conditionalupon Admission, to permit the Subsidiary to redeem such Loan Notes and to accepteither 24,475,000 Common Shares or 90,000,000 A-Shares on such redemption oftheir Loan Notes by the Subsidiary. The Loan Notes 2003 may, at the option of the Subsidiary, be redeemed at facevalue in exchange for A-Shares issued at a rate of 8 pence per share (equivalentto 12.5 A-Shares for every £1 of Loan Notes 2003 redeemed). The holders of LoanNotes 2003 would also receive 70 Warrants for every £100 of Loan Notes 2003 thatare redeemed by the Subsidiary, resulting in the possible issue of 3,500,000Warrants. The Company has received conditional undertakings in respect of certainregistered holders of £1,780,000 of the Loan Notes 2005 that such Loan Notes maybe redeemed at a premium of 10 per cent. to face value in exchange forRedemption Shares at a rate of 8 pence per share (equivalent to 13.75 RedemptionShares for every £1 of Loan Notes 2005 redeemed). An additional £2,000,000 of Loan Notes 2005 may, at the option of theSubsidiary, be redeemed at a premium of 10 per cent. to face value in exchangefor either A-Shares at a rate of 8 pence per share (equivalent to 13.75 A-Sharesfor every £1 of Loan Notes 2005 redeemed). The redemption of Loan Notes 2005 is conditional on the passing of a writtenextraordinary resolution to be proposed to the holders of Loan Notes 2005("Extraordinary Resolution of the Holders of Loan Notes 2005") which will besent to holders of Loan Notes 2005 shortly. The modifications under theExtraordinary Resolution of the Holders of Loan Notes 2005 provide, among otherthings, for the Loan Notes 2005 to be redeemable now to enable those holders ofthe Loan Notes 2005 who wish to participate in the Loan Note redemption to doso. They also remove the discretion of the Subsidiary to elect to satisfy thepayment of interest due through the issue of Common Shares, and provide insteadthat a holder may in its discretion elect to receive Common Shares insatisfaction of interest due. The Company has received undertakings in respect of holders of approximately 82per cent. of Loan Notes 2005 to vote in favour of the Extraordinary Resolutionof the Holders of Loan Notes 2005. This percentage will be sufficient to passthe Extraordinary Resolution of the Holders of Loan Notes 2005. For theavoidance of doubt Shareholders are not being asked to vote on the ExtraordinaryResolution of the Holders of Loan Notes 2005 at the Special Meeting. The redemption price for the Loan Notes represents a discount of approximately23.8 per cent. to the closing mid-market price of 10.5 pence per Common Share on19 October 2006, being the last dealing day prior to the date of thisannouncement. The Common Shares to be issued pursuant to the Loan NoteRedemption would represent approximately 9.2 per cent. of the Company's EnlargedShare Capital. The Loan Note Redemption is conditional, inter alia, upon: (i) the passing of the Special Resolution;(ii) the passing of the Extraordinary Resolution of Holders of Loan Notes 2005;(iii) Admission; and(iv) the Placing Agreement becoming unconditional in all other respects. Application will be made to the London Stock Exchange and to the TSX for theCommon Shares arising from the Loan Note Redemption to be admitted to trading onAIM and the TSX and it is anticipated that dealings in these shares willcommence at 8.00a.m on 28 December 2006. The A-Shares will not be listed on anystock exchange. Following the implementation of the Loan Note Redemption the Company would have£2,369,000 of Loan Notes 2005 still in issue. Stock Options Conditional upon the passing of an ordinary resolution ("Ordinary Resolution")being approved at the Special Meeting, the Directors propose to amend theCompany's current stock option plan (the "Stock Option Plan"). The Stock Option Plan currently provides that, subject to the aggregate numberof shares to be delivered upon the exercise of all options granted under theStock Option Plan does not exceed 20 per cent. of the issued shares of theCompany at the time of granting of options, the maximum aggregate number ofshares which may be reserved for the exercise of options under the Stock OptionPlan is 35,044,280. To be consistent with industry practice of similar companies listed on AIM andthe TSX, the Directors propose that the Stock Option Plan be amended to removethe reference to a maximum number of Common Shares to be reserved for theexercise of options under the Stock Option Plan and to authorize that theaggregate number of shares to be delivered upon the exercise of all optionsgranted under the Stock Option Plan will not exceed 14 per cent. of the issuedshare capital of the Company from time to time. Under the Stock Option Plan there are currently 27,771,083 stock options issuedand outstanding (which represents 14.5 per cent. of the Company's existing sharecapital). These stock options are exercisable at various dates between now and30 March 2016. Directors Interests As part of the Placing, the Directors will in aggregate be subscribing for612,500 Placing Shares under the terms of the Placing. Immediately followingAdmission the Directors will have the following interests in the Company: Name Title Common shares Common Shares % interest in subscribed held post Enlarged Share under the Admission Capital PlacingMichael Chief Executive 87,500 198,167 0.07Hunt Officer Stephen Chief Financial 87,500 198,167 0.07Sadler Officer Colin Non-executive Chairman 87,500 15,687,500 5.90Besant Nicholas Senior Independent 87,500 911,381 0.34Brigstocke Non-executive Director Wayne Non-executive Director 87,500 237,881 0.09Macleod Michael Non-executive Director 87,500 87,500 0.03Webber David Non-executive Director 87,500 87,500 0.03Hawksworth Special Meeting A Special Meeting has been convened for holders of Common Shares at 9.00 a.m. on27 November 2006 at the offices of KBC Peel Hunt, 111 Old Broad Street, London,EC2N 1PH to approve the Special Resolution and the Ordinary Resolution. At the Special Meeting the Special Resolution will be proposed to approve thecancellation of the listing of the Common Shares on the Official List and theadmission of the Enlarged Share Capital to trading on AIM. At the meeting theOrdinary Resolution to approve the Amended Stock Option Plan will also beproposed. A circular incorporating the notice convening the Special Meeting is beingposted to holders of Common Shares and will also be available for collectionfrom the offices of KBC Peel Hunt Ltd, 111 Old Broad Street, London EC2N 1PH fora period of one month from the date of this announcement. Importance of Special Meeting Shareholders should be aware that the Placing is conditional upon their votingin favour of the Special Resolution and so approving the Transfer to AIM. TheDirectors believe that the Placing is the most appropriate way to secure thelong-term future of the Company. They therefore believe that it is essential forShareholders to vote in favour of the Special Resolution and so effect thePlacing. If Shareholders do not vote in favour of the Transfer to AIM, there will beuncertainty relating to the Company's ability to continue as a going concern. Ifthe Special Resolution is not passed, the Directors will immediately startexploring alternative sources of funding. Based on current expectations theCompany will have to complete any fundraising by the end of June 2007, at thelatest, in order to continue its operations. Recommendation The Directors are of the opinion that the Transfer to AIM and the Amended StockOption Plan are in the best interests of the Company's shareholders as a whole.Accordingly, the Directors unanimously recommend that Shareholders vote infavour of both the Special Resolution and the Ordinary Resolution to be proposedat the Special Meeting, as they intend to do in respect of their own beneficialholdings of 16,795,596 Common Shares, representing 8.8 per cent of the Company'sissued share capital. Copies of the circular have been sent to the UK Listing Authority and willshortly be available for inspection at the UK Listing Authority's DocumentViewing Facility, located at: Financial Services Authority25 The North ColonnadeCanary WharfLondonE14 5HS For further information, please contact: Gavin Anderson & Company (PR) Tel: +44 (0)20 7554 1400Ken CroninMichael Turner Company Website: www.turbopowersystems.com NOTES TO EDITORS About Turbo Power Systems Turbo Power Systems develops innovative products for power generation and powerconditioning. The Group was established as a spin-off from Imperial College,London, was floated on the London stock exchange in July 2000 and soon afterobtained a secondary listing in Toronto. In July 2001, the Group acquiredIntelligent Power Systems Limited (I-Power), a company specialising in powerelectronics. Forward Looking statements This news release contains forward-looking statements. Forward-lookingstatements include statements concerning plans, objectives, goals, strategies,future events, or performance, and underlying assumptions and other statementsthat are other than statement of historical fact. These statements are subjectto uncertainties and risks including, but not limited to, the ability to meetongoing capital needs, product and service demand and acceptance, changes intechnology, economic conditions, the impact of competition, the need to protectproprietary rights to technology, government regulation, and other risks definedin this document and in statements filed from time to time with the applicablesecurities regulatory authorities. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
TPS.L