TIDMDX.
RNS Number : 0021T
DX (Group) PLC
09 October 2017
9 October 2017
AIM: DL.
DX (Group) plc
("DX" or the "Company")
GBP24.0m Fundraising, CEO Appointment and Proposed Board
Changes
Fundraising
-- DX is pleased to announce that it has reached agreement on
legally binding heads of terms for a GBP24.0m fundraising (the
"Fundraising"), following the announcement regarding its funding
requirements on 22 September 2017
-- The Fundraising is time critical to address the short term
cash position of the Company which has become weak reflecting the
previously announced challenges in the business that have impacted
profitability and cash generation
-- The Fundraising is to be in the form of secured loan notes
with conditional conversion rights (the "Loan Notes"):
- Tranche 1 of GBP16.3m - to be issued principally to GCM
Partners II LP ("Gatemore") and the Proposed Directors
- Tranche 2 of GBP7.7m - to be issued principally to Hargreave
Hale Limited acting as investment manager for Marlborough Special
Situations Fund ("Hargreave Hale"), conditional on shareholder
approval of conversion rights
-- Subject to receiving the requisite shareholder approvals,
these convertible Loan Notes will be capable of conversion at 10
pence per new DX share, which represents a premium of c.28 per
cent. to the average closing price of DX ordinary shares over the
20 trading days immediately prior to the date of this
announcement
-- The Board considers that a fundraising by way of Loan Notes
with conditional conversion rights is the most appropriate route
for the Company to raise the capital it needs in the timescale
available
-- Refinancing of GBP2.0m unsecured term loan from Gatemore is included in the aggregate issue
-- The principal amount of Tranche 2 may be extended by up to
GBP2.0m, following the completion of the GBP7.7m subscription but
before 30 June 2018, and only on application of the Company and the
agreement of a 75 per cent. majority, in value, of the Lenders.
Such additional Tranche 2 Loan Notes would be offered pro-rata to
all Tranche 1 and Tranche 2 Lenders
-- The net proceeds of the Fundraising will be used to address
the working capital shortfall, and capital expenditure and
restructuring costs
Board Changes
-- Lloyd Dunn is appointed as CEO with immediate effect, initially a non-Board position
-- Ron Series, Lloyd Dunn, Russell Black and Paul Goodson (the
"Proposed Directors") are to be appointed to the Board as Chairman,
CEO and Non-executive Directors, respectively, on completion of
Tranche 1, with the announcement of final results for the year to
30 June 2017
-- The Proposed Directors are subscribing for GBP5.25m of Tranche 1 Loan Notes
-- The Proposed Directors bring significant collective
experience in managing and improving the performance of freight
operations, which is central to the proposed turnaround of DX's
performance
Bob Holt, Chairman of DX, said:
"I am delighted to announce details of DX's refinancing and new
leadership team. As of today, Lloyd Dunn will be taking the helm as
Chief Executive Officer and, on completion of the first tranche of
the fundraising, he will join the Board along with Ron Series, who
will join as Chairman, and Russell Black and Paul Goodson, who will
join as Non-executive Directors.
"These changes together mark a new chapter for DX and provide
firm foundations for the turnaround of the Group. I would like to
thank our shareholders, bankers, staff and customers, for their
ongoing support during a difficult time for the Group, and I view
the future for DX with renewed confidence."
Lloyd Dunn, newly appointed Chief Executive Officer and Ron
Series, Proposed Chairman of DX, commented:
"We believe that this refinancing is a critical step in the
exciting opportunity to turn DX around. Together with Russell Black
and Paul Goodson, and alongside DX's major institutional
shareholders, Gatemore and Hargreave Hale, we are pleased to be
directly participating in this fundraising, and we look forward to
leading the wider DX team as we translate the opportunity that we
see into sustainable revenue and profit growth for all
stakeholders."
Background
The Company notified the market on 22 September 2017 that it has
a near term, material funding requirement, over and above the
Company's existing resources, to address a working capital
shortfall, caused by the Company's recently reduced levels of
profitability, and to provide funds for the planned investment into
improving the financial performance of the DX business.
This statement was required as the forecast short-term cash
position of the Company had become weak. This reflects the
previously reported challenges in the business that have impacted
profitability and cash generation. In particular, the Company has
seen the underperformance of higher margin areas within DX Freight
combined with the fixed cost nature of this network result in
significant losses in this division. As previously stated,
divisionalisation is expected to provide greater flexibility in
managing costs and puts the Company in a better position to advance
its operational and sales performance, and to provide an enhanced
service to its customers.
Since the end of August 2017, the Board has been in detailed
discussions regarding its financing options with Gatemore and its
bankers. The Company's worsening cash position has necessitated a
faster route to securing the required funds and, accordingly, the
Board considers that a fundraising by way of Loan Notes with
conditional conversion rights is the most appropriate route for the
Company to raise the capital that it needs in the timescale
available. The support of certain of the Company's largest
shareholders and the Proposed Directors has been key to this.
Fundraising
DX is pleased to announce that it has agreed legally binding
heads of terms with respect to a GBP24.0m fundraising (before
expenses) through the issue of secured loan notes with conditional
conversion rights, principally to existing institutional investors
and the Proposed Directors (together the "Lenders").
The Loan Notes will be issued in two tranches. Tranche 1 of
GBP16.3m will be issued principally to Gatemore and the Proposed
Directors on completion of final documentation, which is expected
within the next few weeks with the announcement of the Company's
audited final results for the year ended 30 June 2017. Tranche 2
Loan Notes, of GBP7.7m, is conditional, inter alia, on DX
shareholder approval of the conditional conversion rights, which
will be sought as soon as reasonably practicable, and, in any case,
by no later than 31 December 2017. Tranche 2 will principally be
issued to Hargreave Hale. The principal amount of Tranche 2 may be
extended by up to GBP2.0m following the completion of the GBP7.7m
subscription, but before 30 June 2018, and only on application of
the Company and the agreement of a 75 per cent. majority, in value,
of the Lenders (the "Additional Notes"). Any Additional Notes will
be offered pro-rata to all Tranche 1 and Tranche 2 Lenders. No
listing of the Loan Notes, nor the Additional Notes, is proposed,
nor will the Loan Notes or the Additional Notes trade on a readily
available market.
A further announcement regarding the posting of a circular to
shareholders will be made when appropriate.
The Loan Notes and any Additional Notes will have a term of 36
months. Subject to shareholder approval, the conditional conversion
rights attaching to the Loan Notes will be crystallised and the
convertible Loan Notes will be capable of conversion into ordinary
shares of DX, at the election of the Lenders up to the maturity
date, at 10 pence per new DX share which represents a premium of
c.28 per cent. to the average closing price of DX ordinary shares
over the 20 trading days immediately prior to the date of this
announcement. Additional Notes will also be capable of conversion
into ordinary shares of DX, at the election of the Lenders up to
the maturity date, however the conversion shall be equal to a 30
per cent. premium to the average mid-market price of ordinary
shares of DX over the 20 trading days immediately prior to the date
of the Additional Notes subscription.
The aggregate issue of Loan Notes includes the refinancing of
the GBP2.0m unsecured term loan from GCM Partners II LP (a fund
controlled by Gatemore) as announced on 22 September 2017. The net
funds raised after expenses will be used to meet DX's near-term
material funding requirements, addressing its working capital
shortfall, as well as capital expenditure and restructuring costs.
The Loan Notes and Additional Notes are not to be used for
acquisitions or any other material capital item. Further details of
the Loan Notes and Additional Notes are included below.
CEO appointment and further proposed Board changes
DX is also pleased to announce the appointment of Lloyd Dunn as
Chief Executive Officer, with immediate effect. Mr Dunn has 38
years of experience in the transportation industry. In 1985, he
joined Russell Black as a founding member of Nightfreight Plc,
which was admitted to the Official List of the London Stock
Exchange in 1994. Mr Dunn was an Executive Director of the company
until it was sold to private equity in 2001. In 2002, Mr Dunn
joined Tuffnells Parcel Express Limited, becoming Managing Director
in 2003 and CEO in 2005. He led the company through a significant
turnaround and ultimately to a sale for a total consideration of
c.GBP135 million in 2014.
Mr Dunn's appointment is currently a non-Board position. It is
expected that Ron Series, Lloyd Dunn, Russell Black and Paul
Goodson (the "Proposed Directors") will be formally appointed to
the Board of DX as Chairman, CEO and Non-executive Directors,
respectively, on completion of Tranche 1 and the announcement of
the audited final results for the year ended 30 June 2017. On the
appointment of the Proposed Directors, it is intended that Bob Holt
and Paul Murray will retire from the Board, with Paul Murray
continuing in a consultancy role over a three month period. Ian
Gray will remain as a non-executive director of the Company until
the 2018 AGM to provide Board continuity. The Proposed Directors
have agreed to subscribe for GBP5.25m of Tranche 1 Loan Notes.
The Proposed Directors bring significant collective experience
in managing and improving the performance of freight and logistics
operations, which is central to the proposed turnaround of DX's
performance.
A further announcement on the proposed Board changes will be
made as appropriate in due course.
Overview of Loan Notes
The Loan Notes are being issued to certain existing
institutional investors and the Proposed Directors. The existing
institutional investors include Gatemore, which is a substantial
shareholder in the Company.
The key terms of the Loan Notes and Additional Notes, as
applicable, are:
1. Principal GBP24.0m as to Tranche 1 of GBP16.3m
Subscription and Tranche 2 of GBP7.7m. Existing
Amounts: GCM Partners II LP loan (GBP2.0m
principal amount) to be rolled
into the Tranche 1 subscription.
The total amount of Tranche 2 may
be extended with the issue of the
Additional Notes, subject to the
agreement of the Company and a
75 per cent. majority, in value,
of Lenders.
2. Interest: Interest at 8 per cent. per annum,
accruing monthly from date of issue
and payable annually in arrear.
On the application of the Company,
and at the election of a Lender,
which may be independently given
by any Lender, with or without
any other Lender, interest due
to that Lender on any interest
payment date may be rolled into
the principal as Payment in Kind
("PIK").
3. Repayment: In full together with all accrued
interest 36 months following date
of subscription, as may be adjusted
as described below ("Repayment
Date").
4. Use of Proceeds: General working capital purposes,
capital expenditure and restructuring
costs. Not to be used for acquisitions
or any other material capital item.
5. Prepayment: Permitted, without penalty.
6. Mandatory Repayment in full or pro-rata of
Early Repayment: the full amount outstanding upon
(i) equity issue(s) or debt refinancing(s)
(excluding any renegotiation or
replacement of DX's existing invoice
discounting facility) totalling
an aggregate of GBP20.0m or its
currency equivalent, or following
the subscription of Tranche 2,
GBP30.0m or its currency equivalent,
as measured over a 6 month period,
(ii) upon an event of default or
(iii) upon a delisting or take
private.
7. Shareholder DX to seek shareholder authority
Approvals: for the issue of new shares and
disapplication of pre-emptive rights
to permit the conversion of the
full amount of the Loan Notes,
plus any PIK interest thereon,
which is a condition to the subscription
of Tranche 2 Loan Notes (and any
agreed upon extension for Additional
Notes), by no later than 31 December
2017.
If shareholder authority is not
obtained by 31 December 2017 then:
(i) the repayment date for the
Tranche 1 notes will fall 18 months
following date of subscription;
and
(ii) from and including 1 January
2018, the annual interest on the
Tranche 1 Loan Notes will increase
by an additional 8 per cent. accruing
quarterly in arrears, all of which
increased interest will be rolled
into the principal as PIK
8. Conversion: Subject to the Company obtaining
all necessary shareholder approvals,
conversion of the Loan Notes and
Additional Notes will be at the
election of the Lenders, which
may be independently given by any
Lender with or without any other
Lender (either as to the whole
amount of the principal and interest
owed to such Lender, or any part
of it) into ordinary shares of
DX (Group) plc (i) for the Loan
Notes, at 10p per share and (ii)
for the Additional Notes, equal
to a 30 per cent. premium to the
average mid-market price of ordinary
shares of DX over the 20 trading
days immediately prior to the date
of the Additional Notes subscription,
on the Repayment Date or (to the
extent proposed to be prepaid)
the date of any prepayment. In
any case, the conversion price
will be adjusted to account for
any intervening share issue, stock
split or redenomination by the
Company.
9. Security: By not later than 31 December 2017,
DX will grant to the Lenders:
(i) a first fixed charge on freehold
properties, including the Willenhall
hub; and
(ii) a floating charge over the
entire undertaking of the DX group.
Security will be held by Lenders
jointly or by a security trustee
nominated and appointed by them.
If the security described above
is not put in place by 31 December
2017 then:
(i) the repayment date for the
Tranche 1 notes will fall 18 months
following date of subscription;
and
(ii) from and including 1 January
2018, the annual interest on the
Tranche 1 Loan Notes will increase
by an additional 8 per cent. accruing
quarterly in arrears, all of which
increased interest will be rolled
into the principal as PIK
For the avoidance of doubt, if
shareholder approval is not obtained
as set out in paragraph 7 above,
and the security is not put in
place as set out above, the interest
on the Tranche 1 Loan Notes will
increase in each case by 8 per
cent. to a total of 24 per cent.
10. Additional The Tranche 1 Lenders (which are
Risk Fee: Gatemore and the proposed directors)
shall be entitled to a fee in the
amount of 5 per cent. on their
subscribed Tranche 1 amounts, which
shall be added as PIK to the principal
amount owed under the Tranche 1
Loan Notes in full as at the subscription
date.
Related party transaction
Gatemore, as a substantial shareholder of the Company, is a
related party and therefore all of the legally binding arrangements
relating to the issue of Loan Notes to Gatemore constitute "related
party transactions" under the AIM Rules.
The Directors of the Company consider, having consulted with the
Company's Nominated Adviser, Zeus Capital, that the terms of such
arrangements are fair and reasonable insofar as the Company's
shareholders are concerned.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) 596/2014.
Enquiries
DX (Group) plc T: 020 3178 6378
(today)
Bob Holt, Chairman M: 07778 798816
Ian Gray, Non-executive Director
Zeus Capital (Financial Adviser T: 020 3829 5000
and Nominated Adviser to DX)
Nick How, Giles Balleny (Corporate
Finance)
Dominic King (Corporate Broking)
KTZ Communications T: 020 3178 6378
Katie Tzouliadis
Irene Bermont-Penn
Emma Pearson
Important notice
This announcement is not intended to, and does not, constitute
or form part of any offer, invitation or the solicitation of an
offer to purchase, otherwise acquire, subscribe for, sell or
otherwise dispose of, any securities pursuant to this announcement
or otherwise. The distribution of this announcement in
jurisdictions outside the United Kingdom may be restricted by law
and therefore persons into whose possession this announcement comes
should inform themselves about, and observe such restrictions. Any
failure to comply with the restrictions may constitute a violation
of the securities law of any such jurisdiction.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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