Turbo Power Systems Inc.
TSX : TPS
AIM : TPS

Turbo Power Systems Inc.

May 02, 2012 02:00 ET

Turbo Power Systems Inc: Notice of AGM, Debt Conversion, Share Consolidation & Appointment of Directors

CALGARY, ALBERTA--(Marketwire - May 2, 2012) - Turbo Power Systems Inc ("TPS" or the "Company") (TSX:TPS) (AIM:TPS), a leading UK based designer and manufacturer of innovative power solutions, today announces the posting to holders of common shares of the Company ("Shareholders" and "Common Shares", respectively) of a circular (the "Circular") containing proposals which will be put before Shareholders at the forthcoming annual and special meeting, to be held at the Company's offices at Unit 3, Heathrow Summit Centre, Skyport Drive, Hatch Lane, West Drayton, Middlesex, UB7 OLJ United Kingdom, on 25 May 2012 at 10:00 a.m (the "Meeting).

The proposals include:

  • Conversion of approximately £8.5m of its existing loan agreement with TAO Sustainable Power Solutions (UK) Limited ("TAO") into Common Shares of the Company at a price of 0.45 pence per share (the "Conversion")
  • Consolidation of the Common Shares of the Company on a basis to be agreed by the board of directors ("Board" and the "Consolidation"), but expected to be in the range of 100 to 300 existing Common Shares for every one new Common Share of the Company
  • To effect the appointment of Mr Peter Brown and Mr Paul Newall to the Board (together, the "Proposals")

A copy of the Circular, setting out full details of the resolutions to be put to Shareholders at the meeting and giving further details on the Proposals is available on the Company's website at www.turbopowersystems.com.

The purpose of the Conversion and Consolidation is to strengthen the Company's balance sheet and address matters raised by the Toronto Stock Exchange ("TSX") in their review of TPS' compliance with continued listing requirements, primarily in respect of the Company's current financial situation and share price, as notified on 30 January 2012. The TSX imposed a deadline of 29 May 2012 for the Company to rectify these matters.

Should the Conversion be approved by Shareholders, prior to the effect of the proposed Consolidation, TAO will hold an aggregate of 2,982,444,445 Common Shares representing approximately 89.4% of the Company's issued and outstanding Common Shares at the date of this announcement. The Conversion represents a related party transaction under the AIM Rules for Companies. Further information in respect of the Conversion and Consolidation is set out below.

Peter Brown, Chief Executive Officer since May 2011, has 21 years in the engineering and manufacturing industry with Vickers plc and finally with Rolls-Royce plc. At the Meeting, Mr Brown will also be appointed as a director of the Company's wholly-owned operating subsidiary, Turbo Power Systems Limited.

Paul Newall currently finance director of Tao, is proposed to be appointed as a non-executive director of the Company. Mr Paul Newall previously worked in a variety of operational and financial senior management positions within Bentley Motor Cars where Paul contributed to significant growth. Prior to joining Tao, Paul was Finance Director for Rolls Royce Plc's DGS division.

James Pessoa, Chairman, said: "As stated at the time of our full year results, the Board have explored a number of options for addressing the Company's financial constraints and the issues raised by the TSX.

We recommend Shareholders to vote in favour of the Conversion and Consolidation, which addresses the TXS's requirements whilst establishing a sound financial footing for the Company going forward.

We are pleased that TAO have continued to demonstrate a high level of commitment to the Company in agreeing to the Conversion whilst we continue to seek other routes for financing our expected growth.

TPS's prospects remain strong and we are pleased to welcome Peter Brown and Paul Newall to the Board of Directors."

Further information on the Consolidation and Conversion and disclosures in respect of Mr Brown and Mr Newall pursuant to Schedule 2(g) of the AIM Rules for Companies, are set out below.

Further details of the Conversion, the Consolidation and matters disclosable in respect of Mr Peter Brown and Mr Paul Newall pursuant to Schedule 2(g) of the AIM Rules for Companies:

The Conversion

In July 2010, TAO completed a significant equity investment in TPS of £6.5 million at a price of 0.6 pence per Common Share. Following completion of that investment, TAO is interested in approximately 75.4% of the issued and outstanding Common Shares of the Company before any dilution, and 56.7% of the Company's issued and outstanding Common Shares on a fully diluted basis.

As the Company's majority shareholder, TAO has had a significant interest in the Company's financial well being and ability to meet its working capital requirements. On 25 October 2010, TAO made an initial loan of £1.9 million to TPSL, the Company's wholly-owned subsidiary, repayable on or after 2 January 2012 and bearing interest at a rate of 6% per annum (the "Loan"). The Loan is secured over the assets of TPSL. Through a series of amendments to the loaned amount and the repayment date, the Loan, as of 31 December 2011, was outstanding to the amount of £8.503 million (including interest payable). In addition, subsequent to 31 December 2011, TAO has loaned the Company £1.02 million in February 2012, which is repayable on 30 days' notice, and subsequently £1.8 million in March 2012 which has a repayment date of 1 April 2014.

At the date of this announcement, therefore, the total outstanding Loan amounts to £9.17 million (excluding £1.8m repayable on 1 April 2014) which remains repayable on 30 days' notice with interest being accumulated onto the principal balance. It is apparent to the Directors that the Company would not be in a position to repay the outstanding Loan, with accumulated interest, if requested by Tao. The Company's current financial forecasts anticipate no further need for financial support from TAO past 30 June 2013.

It is proposed that £8,546,000 (representing the Company's borrowings from TAO as at 31 January 2012 plus accrued interest to that date) of the outstanding Loan be converted into Common Shares by the issue of 1,899,111,111 new Common Shares at a deemed price of 0.45 pence (CDN$0.007) per Common Share. These 1,899,111,111 new Common Shares equate to 132% of the current issued and outstanding number of Common Shares. Should the Conversion be approved by Shareholders, TAO will hold an aggregate of 2,982,444,445 Common Shares representing approximately 89.4% of the Company's issued and outstanding Common Shares on an undiluted basis and 78.7% on a fully diluted basis. After closing of the Conversion, the Company will have 3,336,865,922 Common Shares issued and outstanding (3,816,576,529 Common Shares fully diluted). The above figures are quoted prior to the effect of the proposed Consolidation.

The Company is also pursuing the Consolidation on the basis of 100 to up to 300 old Common Shares for 1 new common share of the Company. If the Consolidation is approved at the Meeting, the effective price of the share issuances under the Loan Conversion will be a deemed price of between £0.45 (CDN$0.72) (at 100:1) and £1.35 (CDN$2.16) (at 300:1) per Common Share of the Company. After the Consolidation, the number of Common Shares to be issued to TAO in respect of the Conversion will effectively be 18,991,111 new Common Shares (should the Consolidation be effected at 100:1) to 6,330,370 new Common Shares (should the Consolidation be effected at 300:1). The Board has not finalized the precise figures in the Consolidation, but will do so shortly following approval of the Consolidation by Shareholders.

Application will be made for the new Common Shares to be issued on the completion of the Conversion to be listed on the TSX and to be admitted to trading on the AIM market of the London Stock Exchange ("AIM").

Related Party Transaction

Pursuant to the rules of the TSX, the Company is required to receive approval by a "majority of the minority" of shareholders for the issuance of the Common Shares pursuant to the Conversion as the Conversion will result in greater than 25% of the Company's current issued and outstanding Common Shares being issued.

In addition, pursuant to Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101") the Company believes the Conversion will be a "related party transaction". As such, pursuant to MI 61-101, the Company is required to obtain minority approval, and in connection therewith, obtain a Formal Valuation (as defined in MI 61-101). Pursuant to section 5.5(g) of MI 61-101, the Company is relying on the financial hardship exemption from the requirement to obtain a Formal Valuation on the Conversion. In reliance on section 5.5(g) of MI 61-101, the Company acknowledges that: (i) it is in serious financial difficulty, (ii) the Conversion is designed to improve the financial position of the Company, (iii) the Company is not currently bankrupt or insolvent, and (iv) the Company has one or more independent directors, who, acting in good faith, have unanimously agreed that items (i) and (ii) above apply and that the terms of the Conversion are reasonable in the circumstances to the Company.

In order to approve the ordinary resolution, a majority of the votes cast at the Meeting by disinterested Shareholders must be voted in favour of the resolution. For the purposes of this resolution, disinterested Shareholders include all Shareholders other than TAO or its associates or affiliates. The number of votes attached to Common Shares held by TAO which will be excluded in determining whether minority approval has been obtained is 1,083,333,334 which means that the majority of the remaining 354,421,477 Common Shares (being a 12.3% +1 of the voting shares of the Company) must vote FOR the resolution for it to pass.

If Shareholders do not approve the Conversion, the Company's ability to maintain its listing on the TSX will be in serious jeopardy. The Company cautions Shareholders that the TSX will not make a determination regarding the Company's ongoing listing until after the Meeting, and there can be no assurance that they will allow the Company to remain listed on the facilities of the TSX.

Furthermore, the Directors note that if Shareholders do not approve the Conversion, the Company would not be in a position to meet a request for repayment of the Loan if demanded by TAO.

The independent members of the Board have approved the Conversion and related transactions, and unanimously recommend that Shareholders vote in favour of the proposed resolution to approve the Conversion.

TAO is a related party for the purposes of the AIM Rules for Companies ("AIM Rules") and the entry into the agreement as set out above with Tao therefore constitutes a related party transaction for the purpose of the AIM Rules.

The Company's independent directors consider, having consulted with finnCap Ltd, the Company's nominated adviser, that the terms of the Conversion being entered are fair and reasonable insofar as the Company's shareholders are concerned.

The Consolidation

At the Meeting, Shareholders will be asked to consider and, if thought fit, approve an amendment to the articles of the Company to effect the consolidation of the Common Shares on a basis to be agreed on by the Board, but expected to be between a 100 and up to 300 for one (1) basis.

Pursuant to the Consolidation, and prior to the issue of new Common Shares pursuant to the Conversion, if completed, between 100 to 300 Common Shares will be consolidated into one (1) Common Share in the capital of the Company. The Company currently has 1,437,754,811 Common Shares issued and outstanding. If the Common Shares are consolidated on a 100 for one (1) basis, the Company will have 143,775,481 Common Shares issued and outstanding and if the Common Shares are consolidated on a 300 for one (1) basis, the Company will have 4,792,516 Common Shares issued and outstanding.

The Board believes that the anticipated higher share price resulting from the consolidation may assist in generating investor interest and will alleviate the TSX's concerns regarding the market price of the Common Shares as expressed in the TSX's listing review received by the Company and announced on 30 January 2012.

There can be no assurance that any increase in the market price per Common Share will result from the consolidation and there is no assurance that a higher share price will generate increased investor interest.

Disclosures required pursuant to Schedule 2(g) of the AIM Rules for Companies:

Mr Peter Brown and Mr Paul Newall

Name: Peter Brown (aged 43) Paul Newall (aged 55)
Current directorships: None. None.
Former directorships held in the last 5 years: Rolls-Royce Power Engineering Ltd
Rolls-Laval Ltd
Rolls Wood Ltd
Rolls Royce Industrial Power Engineering (Overseas Projects) Limited
JRM Websites Limited

There are no further matters to be disclosed pursuant to Schedule 2(g) of the AIM Rules for Companies.

A copy of the Circular posted to Shareholders today is available on the Company's website, www.turbopowersystems.com

Notes to Editors

About Turbo Power Systems

Company Website: www.turbopowersystems.com

Turbo Power Systems Inc (TSX:TPS) (AIM:TPS) is a leading UK based designer and manufacturer of innovative power solutions. TPS's products are all based on its core technologies of power electronics and high speed motors and generators and are sold into a number of market sectors including aerospace, rail, and various industrial sectors. The Company's products provide improved efficiency and reduced energy consumption compared to existing technologies.

Turbo Power System's existing third party customers include blue chip companies such as Bombardier Transportation, McQuay International and Eaton Aerospace. The Company also has commercial contracts with its ultimate parent company, Vale Soluções em Energia S.A. ("VSE"), the Brazilian energy solutions company, and with Tao Sustainable Power Solutions (UK) Ltd ("TAO UK"), which is a VSE wholly owned subsidiary and TPS's parent undertaking.

Contact Information

  • Turbo Power Systems Inc
    Peter Brown
    Chief Executive Officer
    +44 (0)20 8564 4460

    Kreab Gavin Anderson (financial public relations)
    Robert Speed / Georgia Lewis
    +44 (0)20 7074 1800

    finnCap (NOMAD, broker and financial advisor)
    Marc Young/ Henrik Persson
    +44 (0)20 7220 0500