Proposed Placing, Rights Issu
10 July 2009
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR SOUTH AFRICA.
This announcement shall not constitute an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale or purchase of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. The availability of the Placing and Rights Issue to persons not resident in the United Kingdom may be affected by the laws of the relevant jurisdictions. Such persons should inform themselves about and observe any applicable requirements. This announcement is an advertisement and does not constitute a prospectus. Nothing in this announcement should be interpreted as a term or condition of the Placing or Rights Issue. Any decision to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of any Placing Shares, Provisional Allotment Letter, Nil Paid Rights, Fully Paid Rights, and/or New Ordinary Shares must be made only on the basis of the information contained in and incorporated by reference into the Prospectus.
NORTHGATE PLC
PROPOSED PLACING AND RIGHTS ISSUE
AND
REFINANCING OF THE GROUP'S LENDING FACILITIES
The Board of Directors of Northgate plc ('Northgate' or the 'Company' or the 'Group') today announces a fully underwritten Placing and Rights Issue to raise gross proceeds of approximately £114.4 million (£108.0 million net of expenses). The Placing and Rights Issue are subject to approval by Shareholders at an Extraordinary General Meeting to be held on at 11.00 a.m. on 27 July 2009.
In conjunction with the Placing and Rights Issue, the Board today announces that it has reached agreement on new committed lending facilities (including amended loan notes) for the Group totaling £880 million.
Highlights
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Placing and Rights Issue to raise gross proceeds of £114.4 million comprising the:
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Placing of £30.0 million through the issue of 50,000,000 Placing Shares at 60 pence per Placing Share, a 13% discount to the closing price on the London Stock Exchange of 68.75 pence per Ordinary Share on 9 July 2009 (being the last Business Day before the announcement of the terms of the Placing and Rights Issue);
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10 for 1 fully underwritten Rights Issue to raise £84.4 million through the issue of 1,205,480,450 New Ordinary Shares at 7 pence per New Ordinary Share, a 41% discount to the theoretical ex-rights price, when calculated by reference to the Placing Price of 60 pence per Placing Share; and
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Placees will be able to participate in the Rights Issue in respect of their Placing Shares in the same manner as Qualifying Shareholders.
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The Group has agreed New Lending Facilities with its lending banks and Amended US Loan Notes with its noteholders of approximately £880 million, which will become effective, subject to, inter alia, receipt of the proceeds of the Placing and Rights Issue.
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The Placing and Rights Issue, combined with the New Lending Facilities and Amended US Loan Notes, have been proposed to enable Northgate to:
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protect and enhance shareholder value;
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provide a more secure financial base from which to launch the Group's new strategic plan; and
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position the Group to take advantage of any future economic recovery in the UK and Spain.
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As set out in today's announcement of the Group's Unaudited Preliminary Financial Results for the year ended 30 April 2009, Steve Smith, who had intended to step down as Chief Executive on 1 August 2009, has agreed, in light of recent trading conditions, the Group's debt refinancing and the Placing and Rights Issue, to remain as Chief Executive until 30 June 2010, following which he will become Deputy Chairman for a period of nine months. It had been intended that Paul Tallentire, Deputy Chief Executive responsible for day to day operations of the Group, would take over the role of Chief Executive on 1 August 2009, but this has been deferred until 1 July 2010.
Philip Rogerson, Chairman of Northgate, said:
'We believe that the Placing and Rights Issue, combined with the New Lending Facilities and Amended US Loan Notes, provides the Group with greater financial flexibility in the event of any further decline in its core markets and will allow the Group to take advantage of opportunities which will arise when market conditions begin to improve.'
Current trading and future prospects of Northgate
Trading in the early part of the current financial year is broadly in line with the Group's internal expectations, with utilisation in the UK and Spain currently at 91% and 86% respectively. However, the Board remains cautious about the Group's outlook given the background of uncertain macro-economic conditions, which continue to adversely affect the Group's markets. Accordingly, the Group will continue to focus on maximising fleet utilisation, cash management and pursuing operational efficiencies during the current financial year.
The main objective of the Board is to ensure the Group emerges from the current economic downturn in a stronger position. The Board believes that, following the Placing and Rights Issue, the Group will, through a more resilient capital structure, be better positioned to deal with any further decline in its core markets and to take advantage of opportunities which may arise when market conditions begin to improve.
Dividends
As announced today in the Group's Unaudited Preliminary Financial Results for the year ended 30 April 2009, the Board believes that it is in the best interests of the Group for the Company not to pay a final dividend in relation to the Ordinary Shares for the year ended 30 April 2009. In addition, the New Lending Facilities and Amended US Loan Notes contain a restriction prohibiting the payment of a final dividend in relation to the Ordinary Shares in respect of the financial year ended 30 April 2009. The Board currently envisages the reintroduction of a progressive dividend policy when market conditions stabilise and the Board believes it is prudent to do so, taking into account the Group's earnings, cash flow and balance sheet position. The actions taken to date by the Board and the implementation of the Strategic Plan should help return the Group to a position where it is appropriate to pay dividends.
Future dividend policy in relation to the Ordinary Shares will be based upon maintaining a dividend cover ratio of at least three times. This reflects a requirement in the New Lending Facilities and Amended US Loan Notes that following the financial year ended 30 April 2009 (in which no final dividend may be paid) dividends can be paid by the Company provided Group earnings are equal to or in excess of three times the amount of the dividend and there being no actual or potential event of default pursuant to the New Lending Facilities and Amended US Loan Notes.
Analyst presentation
There will be a presentation to analysts at 12.00 p.m. today at RBS Hoare Govett, 250 Bishopsgate, EC2M 4AA. Please contact Hogarth on +44 (0) 207 357 9477 for dial in details.
Expected timetable of principal events (1)
Each of the times and dates in the table below is indicative only and may be subject to change.
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2009 |
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Expected publication of the Prospectus |
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10 July |
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Record Date for entitlements under the Rights Issue |
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23 July |
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Extraordinary General Meeting |
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11.00 a.m. on 27 July |
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Dealings in Placing Shares, fully paid, commence on the London Stock Exchange |
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8.00 a.m. on 28 July |
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Dealings in Nil Paid Rights commence on the London Stock Exchange |
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8.00 a.m. on 28 July |
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Latest time and date for acceptance, payment in full and registration of renunciation of Provisional Allotment Letters |
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11.00 a.m. on 11 August |
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Dealings in New Ordinary Shares, fully paid, commence on the London Stock Exchange |
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8.00 a.m. on 12 August |
Notes:
(1) The times and dates set out in the expected timetable of principal events above and mentioned throughout this announcement may be adjusted by the Company with agreement of the Sole Sponsor and Joint Bookrunners, in which event details of the new times and dates will be notified to the FSA, the London Stock Exchange and, where appropriate, Qualifying Shareholders and Placees. References to times in this timetable are to London times unless otherwise stated.
This summary should be read in conjunction with the full text of this announcement.
A prospectus relating to the Placing and Rights Issue (the 'Prospectus') is expected to be published today and will be available at the registered office of Northgate at Norflex House, Allington Way, Darlington DL1 4DY and on the Company's website, www.northgateplc.com.
Rothschild is acting as Sole Financial Adviser to the Company, Sole Sponsor to the Placing and Rights Issue and Joint Underwriter. RBS Hoare Govett is acting as Joint Bookrunner and Joint Underwriter. Oriel Securities is acting as Joint Bookrunner and (in association with Scotiabank Europe plc) as Joint Underwriter.
Contacts
For further information, please contact:
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Northgate plc: Steve Smith, Chief Executive Paul Tallentire, Deputy Chief Executive Bob Contreras, Finance Director |
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+44(0)1325 467558 |
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Rothschild (Sole Sponsor, Sole Financial Adviser and Joint Underwriter): David Forbes Stephen Griffiths |
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+44(0)113 200 1900 |
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RBS Hoare Govett Limited (Joint Bookrunner and Joint Underwriter): Andrew Foster Stephen Bowler John MacGowan Lee Morton (Syndicate) |
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+44(0)20 7678 8000 |
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Oriel Securities Limited (Joint Bookrunner and Joint Underwriter): Emma Ormond David Arch |
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+44(0)20 7710 7600 |
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Hogarth Partnership Andrew Jaques Barnaby Fry Anthony Arthur Simon Hockridge |
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+44(0)20 7357 9477 |
Shareholder enquiries
If you have any queries about the Placing and Rights Issue, please telephone the Shareholder Helpline on (0871 664 0321) (or, if you are calling from outside the United Kingdom, +44 208 639 3399). This helpline is available from 9.00 a.m. to 5.00 p.m. on any Business Day.
Calls to the 0871 number cost 10 pence per minute plus your service provider's network extras. Calls to the helpline from outside the UK will be charged at applicable international rates. Please note that for legal reasons, the Shareholder Helpline is only able to provide you with information contained in this announcement and, when published, the Prospectus and information relating to Northgate's register of members and is unable to give advice on the merits of the Placing and Rights Issue or provide legal, financial, tax or investment advice. If you are in any doubt as to the action you should take, you should immediately seek your own financial advice from your stockbroker, bank manager, solicitor, accountant, fund manager or other independent financial adviser authorised under FSMA or, if you are outside the UK, by another appropriately authorised independent financial adviser.
General
The Prospectus will give further details of the Placing Shares, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares (together 'the Securities') to be offered pursuant to the Placing and Rights Issue.
A copy of the Prospectus when published will be available from the registered office of Northgate at Norflex House, Allington Way, Darlington DL1 4DY during usual business hours on any weekday (Saturdays, Sundays and Bank Holidays excepted) up to 11 August 2009. The Prospectus will also be available on the Company's website, www.northgateplc.com
This announcement is not a prospectus but an advertisement and investors should not subscribe for any Securities referred to in this announcement except on the basis of the information contained in the Prospectus.
This announcement does not constitute an offer to sell, or a solicitation of an offer to subscribe for any Securities being issued in connection with the Placing and Rights Issue, in any jurisdiction in which such offer or solicitation is unlawful.
This announcement is not for distribution, directly or indirectly, in or into the United States, Australia, Canada, Japan, or South Africa or any other jurisdiction where the same would be unlawful. This announcement does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States. The Securities have not been and will not be registered under the US Securities Act of 1933, as amended (the 'US Securities Act') or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States except pursuant to an applicable exemption from the registration requirements of the US Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offer of any of the Securities in the United States. The Securities have not been approved or disapproved by the US Securities and Exchange Commission, any state's securities commission in the United States or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the Securities or the accuracy or adequacy of this announcement. Any representation to the contrary is a criminal offence.
The Placing Shares, the Nil Paid Rights, the Fully Paid Rights and the New Ordinary Shares will not be registered under the securities laws of Australia, Canada, Japan or South Africa and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within such jurisdictions except pursuant to an applicable exemption from and in compliance with any applicable securities laws. There will be no public offer in any of Australia, Canada, Japan or South Africa.
Rothschild, RBS Hoare Govett and Oriel Securities, each of which is authorised and regulated in the United Kingdom by the FSA, are acting exclusively for the Company and no one else in connection with the Placing and Rights Issue and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Placing and Rights Issue and will not be responsible to anyone other than the Company for providing the protections afforded to their respective clients or for providing advice in relation to the Placing and Rights Issue or any matters referred to in this announcement.
This announcement has been issued by and is the sole responsibility of the Company. Apart from the responsibilities and liabilities, if any, which may be imposed on Rothschild, RBS Hoare Govett and Oriel Securities by the FSMA, none of Rothschild, RBS Hoare Govett nor Oriel Securities (or any of their affiliates or agents) accepts any responsibility whatsoever for, and makes no representation or warranty, express or implied, in relation to, the contents of this announcement (including its accuracy, completeness or verification) or any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the Placing Shares, the Placing, the Nil Paid Rights, the Fully Paid Rights, the New Ordinary Shares or the Rights Issue. Each of Rothschild, RBS Hoare Govett and Oriel Securities accordingly disclaims to the fullest extent permitted by law all and any responsibility and liability, whether arising in tort, contract or otherwise (save as referred to above), which it might otherwise have in respect of this announcement or any such statement.
Neither the content of Northgate's website nor any website accessible by hyperlinks on Northgate's website is incorporated in, or forms part of, this announcement.
The distribution of this announcement and/or the Prospectus and/or the Provisional Allotment Letters and/or the transfer of Placing Shares, Nil Paid Rights, Fully Paid Rights and/or New Ordinary Shares into jurisdictions other than the United Kingdom may be restricted by law. No action has been taken by the Company or any of Rothschild, RBS Hoare Govett or Oriel Securities that would permit an offering of such rights or shares or possession or distribution of this announcement in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
This announcement contains certain forward-looking statements which may include reference to one or more of the following: the Group's financial condition, results of operations, cashflows, dividends, financing plans, business strategies, operating efficiencies or synergies, budgets, capital and other expenditure, competitive positions, growth opportunities for existing products, sales, prices of products, plans and objectives of management and other matters. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'anticipates', 'expects', 'intends', 'plans', 'annualised', 'goal', 'target', 'aim', 'may', 'will', 'would', 'could' or 'should' (or in each case, their negative or other variations or comparable terminology). Statements in this announcement that are not historical facts are hereby identified as 'forward-looking statements'. Such forward-looking statements, including, without limitation, those relating to future business prospects, revenue, liquidity, capital needs, expected cost savings, interest costs and income, in each case relating to Northgate, wherever they occur in this announcement, are not necessarily based on assumptions reflecting the views of Northgate and involve a number of known and unknown risks, uncertainties and other factors that could cause actual results, performance or achievements to differ materially from those expressed or implied by the forward-looking statements. Such forward-looking statements should, therefore, be considered in the light of various important factors. Important factors that could cause actual results to differ materially from estimates or projections contained in the forward-looking statements include, without limitation: economic and business cycles, the terms and conditions of Northgate's financing arrangements, including fluctuations in interest rates, foreign currency rate fluctuations, competition in Northgate's principal markets, acquisitions or disposals of businesses or assets and trends in Northgate's principal industries and markets.
These forward-looking statements are not guarantees of future performance. Rather, they are based on current views and assumptions and involve known and unknown risks, uncertainties and other factors, many of which are outside the control of the Company and are difficult to predict, that may cause actual results to differ materially from any future results or developments expressed or implied from the forward-looking statements.
These forward-looking statements speak only as of the date of this announcement. The information and opinions contained in this announcement are subject to change without notice and, subject to any obligations under the Prospectus Rules, Listing Rules or the Disclosure and Transparency Rules, and save as required by law, Northgate assumes no responsibility or obligation to update publicly or review any of the forward-looking statements contained herein and expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statement contained herein to reflect any change in Northgate's expectations with regard thereto or any change in events, conditions or circumstances on which such statement is based.
Past performance is no guide to future performance and persons needing advice should consult an independent financial adviser. No statement in this announcement is intended to be a profit forecast.
Proposed Placing and Rights Issue
1. Introduction
The Board of Northgate today announces that Northgate is proposing to raise approximately £114.4 million (£108.0 million net of expenses) by way of the Placing and Rights Issue.
Placees will subscribe for the Placing Shares at a Placing Price of 60 pence per Placing Share. The Placing comprises in aggregate 50,000,000 Placing Shares (which represent approximately 71 per cent. of Northgate's existing issued ordinary share capital) and will therefore raise gross proceeds of £30.0 million. The Placing Shares will represent approximately 4 per cent. of the Company's issued ordinary share capital immediately following completion of the Placing and Rights Issue. The Placing Price represents a 13 per cent. discount to the Closing Price of 68.75 pence per Ordinary Share on 9 July 2009 (being the last Business Day before the announcement of the Placing and Rights Issue).
The Rights Issue is being made on the basis of 10 New Ordinary Shares for every 1 Eligible Share at 7 pence per New Ordinary Share. The Rights Issue Price represents:
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a 41 per cent. discount to the theoretical ex-rights price of an Ordinary Share, calculated by reference to the Placing Price of 60 pence per Placing Share;
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a 45 per cent. discount to the theoretical ex-rights price of an Ordinary Share, calculated by reference to the Closing Price of 68.75 pence per Ordinary Share on 9 July 2009, the last Business Day prior to the announcement of the Placing and Rights Issue;
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a 43 per cent. discount to the theoretical ex-rights price of an Ordinary Share, calculated by reference to the Closing Price of 68.75 pence per Ordinary Share on 9 July 2009, as adjusted to take account of the Placing at 60 pence per Placing Share; and
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a 90 per cent. discount to the Closing Price of 68.75 pence per Ordinary Share on 9 July 2009.
The Placing and Rights Issue have been fully underwritten by RBS Hoare Govett, Oriel Securities (in association with Scotiabank Europe plc) and Rothschild and are conditional, inter alia, upon the passing of the Resolutions by Shareholders at the Extraordinary General Meeting. Rothschild is acting as Sole Financial Adviser to Northgate and as Sole Sponsor to the Placing and Rights Issue.
In addition, the Group has reached agreement with its banks and private placement note holders on the New Lending Facilities and Amended US Loan Notes which will become effective subject to, inter alia, the Company completing an equity fundraising of at least £100 million (net of equity fundraising expenses) by 30 September 2009 of which at least £85 million shall be used to repay the Existing Lending Facilities and the US Loan Notes.
2. Background to and reasons for the Placing and Rights Issue
Northgate is the leading light commercial vehicle rental business by fleet size in both the UK and Spain and has been operating in the sector since 1981. The Group's core business is the rental of vehicles on flexible length contracts, with the Group's customers primarily being business users from a wide range of industries including construction (largely infrastructure and government funded projects), support services (including providers of engineering, repair and maintenance services for local authorities, government agencies and utility companies) and distribution.
Following a period of nine years of consecutive growth in Northgate's sales and earnings, the second half of 2008 saw the Group's markets start to deteriorate rapidly. This was a reflection of the wider deterioration in general economic conditions witnessed around the world, including in the UK and Spain, which has had a significant negative impact on the Group's operating performance and balance sheet position, primarily through:
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a fall in the level of demand for the Group's services, which led to a decrease in vehicle utilisation to 86 per cent. in the year ended 30 April 2009 from 90 per cent. in the year ended 30 April 2008, as vehicles were returned faster than they could be hired to new customers or disposed of; and
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a substantial decline in Residual Values which led to an increase in the Group's depreciation charge of £20.8 million in the year ended 30 April 2009.
In response to the challenging trading conditions facing the Group, the Board implemented a number of operational actions and has also approved a new three-year strategic plan (the 'Strategic Plan'). In addition to and concurrent with these operational actions, the Board concluded that the Group's capital structure was no longer appropriate for the business going forward due to the reduced levels of hire activity. As a result, the Board announced on 25 February 2009 that the Group had initiated discussions with its lending banks and shortly thereafter also commenced discussions with the holders of its US Loan Notes with a view to restructuring the Group's Existing Lending Facilities and its US Loan Notes. The key objective of these discussions was to agree a revised financing and covenant package to address the pressure put on the Group's existing covenants from the difficult trading conditions, the impairment in asset values and the weakening of sterling against the euro in the second half of 2008. These discussions have now been concluded and agreement has been reached on the New Lending Facilities and Amended US Loan Notes which will become effective subject to, inter alia, the Company completing an equity fundraising of at least £100 million (net of equity fundraising expenses) by 30 September 2009 of which at least £85 million shall be used to repay the Existing Lending Facilities and the US Loan Notes. In addition, the lending banks and noteholders have agreed to defer the test date of certain of the financial covenants in the Existing Lending Facilities and the US Loan Notes until 30 September 2009. The Company did not seek to defer the test dates of a covenant in the Existing Lending Facilities and the US Loan Notes where the Company believed it had appropriate headroom.
In view of the New Lending Facilities and Amended US Loan Notes being conditional, inter alia, on the equity raising and repayment conditions referred to above and because of certain other characteristics of the New Lending Facilities and Amended US Loan Notes, the Board is proposing that the Group raises £108.0 million (net of expenses) of new equity by way of the Placing and Rights Issue.
If the Placing and Rights Issue proceeds are not received, the Board believes that it will not be possible for the Company to satisfy the equity fundraising and repayment conditions referred to above within the required timeframe and, accordingly, that the New Lending Facilities and Amended US Loan Notes will not become effective and the Group will remain subject to the Existing Lending Facilities and the US Loan Notes. Should this occur, the Board believes that it is highly likely that the Group would breach certain of its financial covenants under the Existing Lending Facilities and the US Loan Notes at the next covenant test date on 30 September 2009.
Under the New Lending Facilities and Amended US Loan Notes, the Board believes that the Group will have covenant and liquidity headroom throughout the period of the facilities.
The Board believes that the Placing and Rights Issue represents the only viable means of meeting the equity fundraising and repayment conditions of the New Lending Facilities and Amended US Loan Notes and that, in conjunction with the New Lending Facilities, the Amended US Loan Notes and the Strategic Plan, the Placing and Rights Issue should enable Northgate to protect and enhance shareholder value, provide a more secure financial base from which to launch the Strategic Plan and position the Group to take advantage of any future economic recovery in the UK and Spain through:
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reducing the Group's cost of debt;
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establishing a stronger and more resilient capital structure for the Group; and
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continued implementation of operational improvements.
3. Management response to market conditions
In response to the challenging trading conditions experienced by the Group, the Board has taken a number of actions as part of a full operational review of the Group to maximise cash generation and reduce the cost base, as set out in the Group's Unaudited Preliminary Financial Results for the year ended 30 April 2009. These actions have resulted in an improvement in utilisation and a reduction in the cost base, which the Board believes will benefit the Group's performance going forward.
As also announced in the Group's Unaudited Preliminary Financial Results for the year ended 30 April 2009, the Board has approved the Strategic Plan which, through efficient fleet management, further cost reductions and cash generation, aims to improve the Group's profitability and reduce the Group's borrowings.
Actions taken to date:
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Extension of the vehicle age profile
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Acceleration of vehicle disposals
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Adjustments in vehicle holding costs
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Temporary adjustment of hire rates
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Rationalisation and reorganisation of the UK operating structure
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Integration of Fualsa and Record head and back offices and cost reduction measures in Spain
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Development of used vehicle sales channels in Spain
Additional actions to be taken under the Strategic Plan:
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Improve revenue per vehicle in both the UK and Spain
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Further rationalisation of UK operating structure
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Workshop improvements in the UK
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Deliver a unified information technology system in the UK
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Further development of the Group's retail used vehicle sales channel in the UK
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Further improvement in utilisation in Spain
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Further reductions of maintenance costs in Spain
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Further development of the used vehicle sales operations in Spain
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Diversification of customer base in Spain
Overall, in the short to medium term, the Board intends to maintain the Group's focus on cash generation, operational and cost efficiency and achieving its targeted utilisation levels, whilst preserving the Group's ability to react to any improvement in its markets. The Board continues to believe that the medium to long term prospects for the Group in the UK and Spain remain strong due to:
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the Group's market position;
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the advantages for customers of vehicle rental over other forms of vehicle ownership; and
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the fact that rental penetration in the UK and Spain (and more so in other European countries, which the Board believes represent an area of future potential growth) remains low compared to more mature markets such as the United States.
In addition, the Board believes that many of the issues facing Northgate are also impacting, and will continue to impact, the Group's competitors, which may provide opportunities for Northgate to increase its market share.
4. New Lending Facilities and Amended US Loan Notes
The New Lending Facilities and Amended US Loan Notes will become effective subject to, inter alia, the Company completing an equity fundraising of at least £100 million (net of equity fundraising expenses) by 30 September 2009 of which at least £85 million shall be used to repay the Existing Lending Facilities and the US Loan Notes. Once the New Lending Facilities and Amended US Loan Notes become effective, they will replace the Existing Lending Facilities and the US Loan Notes. The New Lending Facilities and the Amended US Loan Notes will comprise committed secured facilities of approximately £880 million. The proceeds of the advances under the New Lending Facilities and Amended US Loan Notes shall be used, amongst other things, to refinance the Existing Lending Facilities, repay in part the US Loan Notes and support the general working capital needs of the Group.
The New Lending Facilities will mature in September 2012. Under the New Lending Facilities and Amended US Loan Notes, the Group is obliged to make three mandatory amortisation payments of £30 million on 31 December 2009, £40 million on 30 June 2010 and £40 million on 31 December 2010. The New Lending Facilities carry a higher interest rate than the Existing Lending Facilities. The New Lending Facilities contain a dividend restriction prohibiting the payment of a dividend in relation to Ordinary Shares in respect of the financial year ended 30 April 2009. Thereafter dividends can be paid by the Company provided Group earnings are equal to, or in excess of, three times the amount of the dividend and there being no actual or potential event of default pursuant to the New Lending Facilities and Amended US Loan Notes.
Under the Note Amendment Agreement, with effect from the Effective Date, certain terms of the US Loan Notes are amended to ensure consistency with the New Lending Facilities, including the principal operational covenants and financial covenants, and the coupon on the US Loan Notes is to be increased. The Amended US Loan Notes will mature in accordance with the original maturity dates under the US Loan Notes provided that the New Lending Facilities are refinanced in accordance with certain parameters set out in the Note Amendment Agreement.
The total fees and expenses payable by the Group to the lenders and the holders of the US Loan Notes in connection with the refinancing and the renegotiation of the Existing Lending Facilities and the US Loan Notes are £31.3 million.
5. Structure of the Placing and Rights Issue
The Company proposes to raise £114.4 million (£108.0 million net of expenses) by way of the Placing and Rights Issue. The Placing and Rights Issue will involve the following:
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Placing: subject to the conditions to the Placing being satisfied, the subscription by the Placees for an aggregate of 50,000,000 Placing Shares at 60 pence per Placing Share; and
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Rights Issue: subject to the conditions to the Rights Issue being satisfied, Qualifying Shareholders (other than, subject to certain exceptions, Excluded Territory Shareholders) and Placees will be offered New Ordinary Shares by way of rights at a price of 7 pence per New Ordinary Share on the basis of 10 New Ordinary Shares for every 1 Eligible Share held.
Further details on each of the Placing and Rights Issue are set out below.
6. Details of the Placing
Placees will subscribe for the Placing Shares at a Placing Price of 60 pence per Placing Share. The Placing comprises in aggregate 50,000,000 Placing Shares (which represents approximately 71 per cent. of Northgate's existing issued ordinary share capital) and will therefore raise gross proceeds of £30.0 million. The Placing Shares will represent approximately 4 per cent. of the Company's issued ordinary share capital immediately following completion of the Placing and Rights Issue.
The Placing Price represents a 13 per cent. discount to the Closing Price of 68.75 pence per Ordinary Share on 9 July 2009 (being the last Business Day before the announcement of the Placing and Rights Issue). The size of the placing discount was determined following discussions with both existing and potential new shareholders. The price per Placing Share is not directly connected to the Rights Issue Price.
The Placing is conditional upon, inter alia, the following conditions:
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the passing without amendment of the Resolutions at the Extraordinary General Meeting;
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the Underwriting Agreement not having been terminated in accordance with its terms prior to Placing Admission; and
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Placing Admission becoming effective.
Applications will be made for the Placing Shares to be admitted to listing on the Official List and to trading on the London Stock Exchange's main market. It is expected that Placing Admission will become effective and dealings in the Placing Shares will commence at 8.00 a.m. on 28 July 2009, being the first business day following the passing of the Resolutions.
The Placing Shares will, when issued and fully paid, rank pari passu in all respects with the Ordinary Shares, including the right to receive all dividends and other distributions (if any) declared, made or paid by Northgate after the date of issue of the Placing Shares. The Placees will be able to participate in the Rights Issue in respect of their Placing Shares in the same manner as Qualifying Shareholders.
The effect of the Placing will be to reduce the proportionate ownership and voting interests in the Ordinary Shares of holders of Existing Ordinary Shares by 41 per cent.
The Joint Bookrunners have agreed that each of them (acting severally) shall use reasonable endeavours to procure Placees to subscribe for Placing Shares at the Placing Price pursuant to the Placing and, failing which, the Joint Bookrunners have agreed severally to subscribe themselves for the Placing Shares at the Placing Price. Accordingly, the Placing is fully underwritten by RBS Hoare Govett, and by Oriel Securities (in association with Scotiabank Europe plc), pursuant to, and subject to, the terms of the Underwriting Agreement.
7. Principal terms and timing of the Rights Issue
The Company is proposing to raise gross proceeds of approximately £84.4 million by way of the Rights Issue.
The New Ordinary Shares will be offered by way of rights to Qualifying Shareholders (other than, subject to certain exceptions, Excluded Territory Shareholders) and to Placees, on the basis of:
10 New Ordinary Shares at 7 pence each for every 1 Eligible Share
held by Qualifying Shareholders or for which Placees subscribe pursuant to the Placing and so in proportion to any other number of Eligible Shares held. Holdings of Eligible Shares in certificated and uncertificated form will be treated as separate holdings for the purpose of calculating entitlements under the Rights Issue, as will holdings under different designations, in different accounts and on different registers.
Entitlements to New Ordinary Shares will be rounded down to the nearest whole number and resulting fractions of New Ordinary Shares will not be allotted to any Qualifying Shareholders or Placees, but will instead be aggregated and sold in the market for the benefit of the Company.
The Rights Issue Price of 7 pence per New Ordinary Share, which is payable in full on acceptance by no later than 11.00 a.m. on 11 August 2009 represents:
-
a 41 per cent. discount to the theoretical ex-rights price of an Ordinary Share, calculated by reference to the Placing Price of 60 pence per Placing Share;
-
a 45 per cent. discount to the theoretical ex-rights price of an Ordinary Share, calculated by reference to the Closing Price of 68.75 pence per Ordinary Share on 9 July 2009, the last Business Day prior to the announcement of the Placing and Rights Issue;
-
a 43 per cent. discount to the theoretical ex-rights price of an Ordinary Share, calculated by reference to the closing price of 68.75 pence per Ordinary Share on 9 July 2009, as adjusted to take account of the Placing at 60 pence per Placing Share; and
-
a 90 per cent. discount to the Closing Price of 68.75 pence per Ordinary Share on 9 July 2009.
Applications will be made to the UK Listing Authority and to the London Stock Exchange for the New Ordinary Shares to be admitted to the Official List and to trading on the London Stock Exchange, and Admission is expected to occur and dealings to commence in the New Ordinary Shares, nil paid, at 8.00 a.m. on 28 July 2009.
The latest time and date for payment in full under the Rights Issue is 11.00 a.m. on 11 August 2009.
The Rights Issue has been fully underwritten by RBS Hoare Govett, Oriel Securities (in association with Scotiabank Europe plc) and Rothschild and is conditional, inter alia, upon:
-
the passing, without amendment, of the Resolutions at the Extraordinary General Meeting;
-
the Company having applied to Euroclear for admission of the Nil Paid Rights and Fully Paid Rights to CREST as participating securities and no notification having been received from Euroclear on or before Admission that such admission has been or is to be refused;
-
the Underwriting Agreement becoming unconditional in all respects save for the condition relating to Admission and not having been terminated in accordance with its terms; and
-
Admission becoming effective by not later than 8.30 a.m. on 28 July 2009 (or such later time and/or date as the parties to the Underwriting Agreement may agree, but such that the latest date for Admission is not later than 4 August 2009).
The 1,205,480,450 New Ordinary Shares to be issued pursuant to the Rights Issue represent 1,000 per cent. of the issued ordinary share capital of Northgate following the Placing and 91 per cent. of the enlarged share capital following the Placing and Rights Issue. Qualifying Shareholders who take up their pro rata entitlement in full will suffer an immediate dilution of 41 per cent. to their interests in the Company as a result of the Placing but will suffer no further dilution, subject to fractions, to their interests in the Company as a result of the Rights Issue. Qualifying Shareholders who do not take up any of their rights to subscribe for the New Ordinary Shares will suffer an immediate dilution of 95 per cent. to their interests in the Company as a result of the Placing and Rights Issue.
8. Use of proceeds
The Directors will use the net proceeds of the Placing and Rights Issue, amounting to approximately £108.0 million, to reduce the Group's financial indebtedness and to satisfy the fees associated with the implementation of the New Lending Facilities and Amended US Loan Notes. Receipt of the net proceeds by the Group will enable Northgate to proceed with the New Lending Facilities and Amended US Loan Notes and to repay debt, thereby reducing the effective rate of interest payable under the New Lending Facilities and Amended US Loan Notes.
9. Current trading and future prospects of Northgate
Trading in the early part of the current financial year is broadly in line with the Group's internal expectations, with utilisation in the UK and Spain currently at 91% and 86% respectively. However, the Board remains cautious about the Group's outlook given the background of uncertain macro-economic conditions, which continue to adversely affect the Group's markets. Accordingly, the Group will continue to focus on maximising fleet utilisation, cash management and pursuing operational efficiencies during the current financial year.
The main objective of the Board is to ensure the Group emerges from the current economic downturn in a stronger position. The Board believes that, following the Placing and Rights Issue, the Group will, through a more resilient capital structure, be better positioned to deal with any further decline in its core markets and to take advantage of opportunities which may arise when market conditions begin to improve.
10. Changes in the senior management team
Steve Smith, the Chief Executive, joined the Company in 1987 holding various positions before being appointed Chief Executive in 1999. Steve had been due to step down as Chief Executive on 1 August 2009. However, in light of recent trading conditions, the Group's debt refinancing and the Placing and Rights Issue, he has agreed to remain as Chief Executive until 30 June 2010 following which he will become Deputy Chairman for a period of nine months. It had been intended that Paul Tallentire, Deputy Chief Executive responsible for day to day operations of the Group, would take over the role of Chief Executive on 1 August 2009, but this has been deferred until 1 July 2010. Paul has a strong track record of improving the financial and operating performance of multinational businesses.
11. Dividends and dividend policy
As announced on 10 July 2009, the Board believes that it is in the best interests of the Group for the Company not to pay a final dividend in relation to the Ordinary Shares for the year ended 30 April 2009. In addition, the New Lending Facilities and Amended US Loan Notes contain a restriction prohibiting the payment of a dividend in relation to the Ordinary Shares in respect of the financial year ended 30 April 2009. The Board currently envisages the reintroduction of a progressive dividend policy when market conditions stabilise and the Board believes it is prudent to do so, taking into account the Group's earnings, cash flow and balance sheet position. The actions taken to date by the Board and the implementation of the Strategic Plan should help return the Group to a position where it is appropriate to pay dividends.
Future dividend policy in relation to the Ordinary Shares will be based upon maintaining a dividend cover ratio of at least three times. This reflects a requirement in the New Lending Facilities and Amended US Loan Notes that following the financial year ended 30 April 2009 (in which no final dividend may be paid) dividends can be paid by the Company provided Group earnings are equal to or in excess of three times the amount of the dividend and there being no actual or potential event of default pursuant to the New Lending Facilities and the Amended US Loan Notes.
12. Extraordinary General Meeting
An Extraordinary General Meeting of the Company will be held at Norflex House, Allington Way, Darlington DL1 4DY at 11.00 a.m. on 27 July 2009 at which the following business will be considered:
|
1. |
to increase Northgate's authorised ordinary share capital from £4,250,000, to £67,500,000 by the creation of 1,265,000,000 additional Ordinary Shares (representing an increase of approximately 1,488 per cent.); |
|
2. |
to authorise the Directors, pursuant to section 80 of the 1985 Act, to allot relevant securities (within the meaning of section 80(2) of the 1985 Act) up to a maximum aggregate nominal amount of £62,774,022.50 (equivalent to 1,255,480,450 Ordinary Shares in the capital of the Company) in connection with the Placing and Rights Issue, such authority to expire at the end of the next annual general meeting of the Company; |
|
3. |
to disapply, pursuant to section 95 of the 1985 Act, the statutory pre-emption rights contained in section 89(1) of the 1985 Act in relation to the allotment of equity securities for cash pursuant to the authority conferred above in connection with the Placing and Rights Issue, such authority to expire at the end of the next annual general meeting of the Company; and |
|
4. |
to approve the terms of the Placing (including the discount at which the Placing Shares are being issued). |
DEFINITIONS
|
'Admission' |
|
the admission of the New Ordinary Shares to the Official List becoming effective in accordance with the Listing Rules and the admission of the New Ordinary Shares (nil paid) to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission Standards |
|
'Admission Standards' |
|
the Admission and Disclosure Standards issued by the London Stock Exchange |
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'Amended US Loan Notes' |
|
the new unsecured loan notes provided under the Note Amendment Agreement |
|
'Board' |
|
the Directors of the Company |
|
'Business Day' |
|
any day other than a Saturday or Sunday or public holiday on which banks in London are open for normal business |
|
'Closing Price' |
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the closing middle market quotation of an Ordinary Share as derived from the Daily Official List published by the London Stock Exchange |
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'Company' or 'Northgate' |
|
Northgate plc |
|
'CREST' |
|
the computerised settlement system operated by Euroclear which facilitates the transfer of shares |
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'Directors' |
|
the executive directors and non-executive directors of the Company |
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'Effective Date' |
|
the date on which the New Lending Facilities are drawn down |
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'Eligible Shares' |
|
the Existing Ordinary Shares together with the Placing Shares |
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'Euroclear' |
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Euroclear UK & Ireland Limited, the operator of CREST |
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'Excluded Territories' |
|
Australia, its territories and possessions, Canada, Japan, South Africa and the United States and any other jurisdiction where the extension or availability of the Rights Issue (or any transaction contemplated thereby and any activities carried out in connection therewith) would breach applicable law and 'Excluded Territory' means any one of them |
|
'Excluded Territory Shareholder' |
|
a Qualifying Shareholder who has a registered address, or is resident or located in any Excluded Territory |
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'Existing Facility Agreements' |
|
the existing revolving note facility agreements |
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'Existing Lending Facilities' |
|
the lending facilities provided under the Existing Facility Agreements |
|
'Existing Ordinary Shares' |
|
the Ordinary Shares in issue as at the Record Date |
|
'Extraordinary General Meeting' |
|
the extraordinary general meeting of the Company to be held on 27 July 2009 |
|
'FSMA' |
|
Financial Services and Markets Act 2000, as amended |
|
'Fualsa' |
|
Furgonetas de Alquiler S.A. |
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'Fully Paid Rights' |
|
rights to acquire New Ordinary Shares, fully paid |
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'Group' |
|
the Company and its subsidiary undertakings |
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'Joint Bookrunners' |
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RBS Hoare Govett and Oriel Securities |
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'Joint Underwriters' |
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RBS Hoare Govett, Oriel Securities and Rothschild when used in connection with the Rights Issue and RBS Hoare Govett and Oriel Securities when used in connection with the Placing |
|
'London Stock Exchange' |
|
London Stock Exchange plc |
|
'New Facilities Agreement' |
|
the new facilities agreement between the Company and its bank lenders |
|
'New Lending Facilities' |
|
the new lending facilities provided under the New Facilities Agreement |
|
'New Ordinary Shares' |
|
the new Ordinary Shares to be issued pursuant to the Rights Issue |
|
'Nil Paid Rights' |
|
New Ordinary Shares in nil paid form provisionally allotted to Shareholders (including Overseas Shareholders) on the register at the Record Date and to Placees pursuant to the Rights Issue |
|
'Note Amendment Agreement' |
|
the agreement between the Company and its noteholders and described in the Prospectus |
|
'Official List' |
|
the official list of the FSA |
|
'Ordinary Shares' |
|
the ordinary shares with a nominal value of 5 pence each in the share capital of the Company |
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'Oriel Securities' |
|
Oriel Securities Limited when used in connection with the role of Joint Bookrunner and Oriel Securities Limited (in association with Scotiabank Europe plc) when used in connection with the role of Joint Underwriter |
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'Placees' |
|
those persons who agree to subscribe for Placing Shares |
|
'Placing Admission' |
|
the admission of the Placing Shares to the Official List becoming effective in accordance with the Listing Rules and the admission of such shares to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards |
|
'Placing Price' |
|
60 pence per Placing Share |
|
'Placing Shares' |
|
the 50,000,000 Ordinary Shares to be issued pursuant to the Placing |
|
'Placing' |
|
the placing of Placing Shares as described in the Prospectus |
|
'Prospectus' |
|
the prospectus which is expected to be approved by the UK Listing Authority and published by the Company in connection with the Placing and Rights Issue |
|
'Provisional Allotment Letter' |
|
the renounceable provisional allotment letter expected to be despatched to Qualifying Non-CREST Shareholders (subject to certain exceptions) pursuant to the Rights Issue |
|
'Qualifying Non-CREST Shareholders' |
|
Qualifying Shareholders whose Ordinary Shares on the register of members of the Company on the Record Date are in certificated form |
|
'Qualifying Shareholder(s)' |
|
holder(s) of Ordinary Shares on the register of members of the Company on the Record Date |
|
'RBS Hoare Govett' |
|
RBS Hoare Govett Limited |
|
'Record' |
|
Record Rent a Car S.A. |
|
'Record Date' |
|
the close of business on 23 July 2009 |
|
'Residual Value' |
|
the price at which a vehicle is sold by the Group, typically at the end of its useful economic life to the Group |
|
'Resolutions' |
|
the Resolutions set out in the notice of Extraordinary General Meeting |
|
'Rights Issue' |
|
the proposed issue by way of rights of the New Ordinary Shares to Qualifying Shareholders and Placees as described in the Prospectus |
|
'Rights Issue Price' |
|
7 pence per New Ordinary Share |
|
'Rothschild' |
|
N M Rothschild & Sons Limited |
|
'Shareholders' |
|
the holders of Ordinary Shares from time to time and 'Shareholder' means any one of them |
|
'Sole Financial Adviser' |
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Rothschild |
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'Sole Sponsor' |
|
Rothschild |
|
'Strategic Plan' |
|
the new three-year strategic plan of the Company |
|
'Unaudited Preliminary Financial Results' |
|
the consolidated unaudited financial statements (including relevant accounting policies and notes) contained in the preliminary results of the Group as at and for the financial year ended 30 April 2009 |
|
'Underwriting Agreement' |
|
the agreement dated 10 July 2009 between the Company, the Sole Sponsor and the Joint Underwriters relating to the Placing and Rights Issue and described in the Prospectus |
|
'United Kingdom' or 'UK' |
|
the United Kingdom of Great Britain and Northern Ireland |
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'United States' or 'US' |
|
the United States of America, its territories and possessions and any state of the United States of America and the District of Columbia |
|
'US Loan Notes' |
|
the fixed rate unsecured senior loan notes with a total nominal value of US$357,000,000 and £21,000,000 issued by the Company between December 2006 and December 2007 |
This information is provided by RNS
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