REG - East Imperial PLC - Funding Update – issue of £2.2m Convertible Loan

East ImperialAnnouncement

17/07/2023 07:00

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RNS Number : 1466G  East Imperial PLC  17 July 2023

17 July 2023

 

East Imperial plc (the "Company")

 

Funding Update - proposed issue of £2.2 million 10% Secured Convertible Loan
Notes

 

East Imperial, the global purveyor of ultra-premium beverages, is pleased to
announce that it is proposing to raise in aggregate £2.2 million (before
expenses) by the issue of 10% Secured Convertible Loan Notes ("2025
Convertible Loan Notes") to strategic investor Wen Hua International ("WHI"),
the Company's current Chinese Mainland and Macau distribution partner (the
"Proposed Transaction"). The 2025 Convertible Loan Notes will be unlisted and
no offer or invitation is being made to shareholders more generally to
purchase, acquire or subscribe for any of the 2025 Convertible Loan Notes in
conjunction with the Proposed Transaction.

 

Highlights

 

·    Proposed issue of £2.2 million of 10% Secured Convertible Loan
Notes to strategic investor WHI in two tranches of £1,466,666.67 and
£733,333.33 respectively.

 

·    The net proceeds of the issue of the 2025 Convertible Loan Notes will
provide much needed additional working capital to support the Company's plans
for continued expansion.

 

·    The 2025 Convertible Loan Notes will be secured by way of a debenture
which contains fixed and floating charges over the assets of the Company;
security to be granted over the Company's wholly owned Singapore incorporated
subsidiary; and a charge to be granted over up to 75 per cent. of the ordinary
shares of £0.01 each in the capital of the Company ("Ordinary Shares") held
by the Company's chief executive officer, Tony Burt.

 

·    No application will be made for the admission of the 2025 Convertible
Loan Notes to trading on any recognised securities exchange.

 

·    The holders will have the right to convert the 2025 Convertible Loan
Notes, including the rolled-up 10% interest thereon, into Ordinary Shares at a
price  equal to a 20% discount to the 60 day VWAP of the Ordinary Shares as
at the date of the conversion notice, subject to a minimum price per Ordinary
Share of £0.01 (being the nominal value of the Ordinary Shares) (the
"Conversion Price"), at any time after the expiry of the 12 month period
commencing on the date of the instrument constituting the 2025 Convertible
Loan Notes ("Convertible Loan Note Instrument") until the redemption of the
2025 Convertible Loan Notes in accordance with the terms of the Convertible
Loan Note Instrument. The maturity date of the 2025 Convertible Loan Notes is
the first Business Day falling twenty-four months after the date of issue of
the relevant 2025 Convertible Loan Notes.

 

·    The minimum Conversion Price of £0.01 represents a premium of
approximately 15 per cent. to the closing middle market price of £0.0085 per
Ordinary Share on 14 July 2023, being the latest practicable trading day
prior to the publication of this Announcement.

 

·    The maximum number of new Ordinary Shares capable of being issued in
respect of the 2025 Convertible Loan Notes if all of the 2025 Convertible Loan
Notes are converted and all of the rolled-up interest thereon is converted at
the minimum Conversion Price of £0.01 is 264,000,000 Ordinary Shares, which
would represent approximately 43.8 per cent. of the issued share capital of
the Company.

 

·    The Directors are strongly of the belief that the issue of the 2025
Convertible Loan Notes is the best available option for securing further
investment in the near term, and the funds from the Proposed Transaction will
enable the Company to meet its ongoing working capital and capital expenditure
requirements.

 

·    The Proposed Transaction is conditional on the passing of the
resolutions by Shareholders at the general meeting of the Company ("General
Meeting") ("Resolutions") as proposed in a circular, which will shortly be
despatched to Shareholders ("Circular") including a special resolution which
will give the Directors the required authority to disapply statutory
pre-emption rights in respect of the potential future issue of new Ordinary
Shares upon conversion of the 2025 Convertible Loan Notes.

 

 

Tony Burt, CEO of East Imperial, said:

"I'm extremely pleased to add such an important cornerstone investor to our
investor group, who brings with them unparalleled experience and knowledge in
a key strategic region for East Imperial.

I'm delighted they share our vision for East Imperial as the world's only true
ultra-premium choice of mixer and want to genuinely support and be a part of
our continued success.  We continue to have a huge opportunity ahead of us,
and I'm confident we will deliver significant progress this year and beyond.

We will use the funds raised to capitalise on the future opportunities ahead
of us, particularly to accelerate our growth in the strategically important US
and explore further opportunities with WHI in Asian markets with greater sales
resources and some new exciting product innovations."

 

Jason Ieong, CEO of WHI, said:
 

 

"Being a leading distributor of Imported Spirits & Wines in China, we are
excited to extend our business relationship with East Imperial, the global
purveyor of ultra-premium beverages.  With our support, we believe East
Imperial will be able to fast-track its global development in all strategic
markets and capitalize the premiumization trend in the beverage category
globally."

 

1. Introduction

 

On 2 May 2023, the Company issued its audited full year results, which
included a statement that the cash flow forecasts prepared rely on successful
funding in the form of a debt raise in Q2 2023 to continue expansion and
settle current liabilities as they fall due.

 

The Company announces today that it is proposing to raise in aggregate £2.2
million (before expenses) by way of the issue of 2025 Convertible Loan Notes
to WHI, in two tranches of £1,466,666.67 and £733,333.33 respectively. The
2025 Convertible Loan Notes will be unlisted and no offer or invitation is
being made to Shareholders more generally to purchase, acquire, or subscribe
for any of the 2025 Convertible Loan Notes in conjunction with the issue.

 

The Directors strongly believe that the issue of the 2025 Convertible Loan
Notes is the best available option for securing further investment in the near
term, and the funds from the Proposed Transaction will enable the Company to
meet its ongoing working capital and capital expenditure requirements.

 

The issue of the 2025 Convertible Loan Notes is conditional on the passing of
the Resolutions by Shareholders at the General Meeting, including a special
resolution which will give the Directors the required authority to disapply
statutory pre-emption rights in respect of the potential future issue of new
Ordinary Shares upon conversion of the 2025 Convertible Loan Notes.

 

The purpose of the impending Circular is to outline the reasons for, and
provide further information on, the Proposed Transaction and to explain why
the Directors believe this to be in the best interests of the Company and its
Shareholders as a whole.

 

In the Circular, you will find a notice of the General Meeting at which the
Resolutions will be proposed to approve the issue of the 2025 Convertible Loan
Notes. The General Meeting is expected to be convened for 11.00 a.m. on 4
August 2023 at the offices of Shakespeare Martineau LLP at 6th Floor, 60
Gracechurch Street, London, EC3V 0HR.

 

The Directors are strongly of the belief that the Proposed Transaction is in
the best interests of the Company and its Shareholders as a whole. The
Directors also stress that it is very important that Shareholders vote in
favour of the Resolutions proposed at the General Meeting, as those Directors
who hold Ordinary Shares intend to do. The Directors believe that if the
Resolutions are not passed at the General Meeting and the issue of the 2025
Convertible Loan Notes does not proceed, then in the absence of available
alternative sources of funding, it is likely that the Directors will have to
consider options including ceasing to trade or selling the business.

 

2. Conditional Loan Note Subscription Agreement

 

The Company and WHI, through its wholly owned Hong-Kong based subsidiary, INL
Investment Limited, has today entered into a Conditional Loan Note
Subscription Agreement ("Subscription Agreement") pursuant to which WHI has
agreed to invest £2,200,000 in two tranches of £1,466,666.67 ("Tranche 1")
and £733,333.33 ("Tranche 2") respectively, conditional on the passing of the
Resolutions by Shareholders at the General Meeting by 31 August 2023 (or such
later date as agreed by the Company and WHI). If the Resolutions are duly
passed, completion of Tranche 1 will take place immediately following the
General Meeting, and (subject to delivery of the Singapore Share Charge and
the TB Share Charge to WHI in accordance with the Subscription Agreement),
completion of Tranche 2 will take place on the first Business Day falling
three (3) calendar months following First Completion.

 

The Subscription Agreement contains customary warranties given by WHI. Under
the terms of the Subscription Agreement, following completion of the Tranche 1
investment ("First Completion"), WHI may in its absolute discretion appoint
one director to the board of Directors of the Company and remove any such
director and appoint a replacement, provided that WHI shall cease to be
entitled to appoint a director if (i) WHI does not validly elect to convert at
least 20% in nominal value of the 2025 Convertible Loan Notes (taking Tranche
1 and Tranche 2 together) in accordance with the terms of the Convertible Loan
Note Instrument prior to the Redemption Date of Tranche 2 (being the first
business day falling twenty-four months after the date of issue of the Tranche
2 notes, the "Tranche 2 Redemption Date")) or (ii) WHI validly elects to
convert at least 20% in nominal value of the 2025 Convertible Loan Notes
(taking Tranche 1 and Tranche 2 together) in accordance with the terms of the
Convertible Loan Note Instrument prior to the Tranche 2 Redemption Date but
subsequently ceases to hold at least 7% of the fully diluted share capital of
the Company, following the Tranche 2 Redemption Date.

 

The Subscription Agreement also contains certain covenants in favour of WHI in
respect of (i) the Company incurring financial indebtedness in excess of
£50,000 without the prior written consent of WHI, excluding the 2025
Convertible Loan Notes, (ii) amalgamation, demerger, merger or corporate
reconstruction of the Company, excluding a change of control or other
acquisition of interests in the Company by WHI or third parties, without the
prior written consent of WHI, (iii) issuing shares or share capital (or any
instrument convertible into shares or share capital) to any person, other than
pursuant to options or warrants which are outstanding at the First Completion
or pursuant to a bona fide employee share or share option scheme, without the
prior written consent of WHI, other than in respect of repaying all or any
amounts due under the 2025 Convertible Loan Notes, (iv) the appointment of new
Directors of the Company without the prior written consent of WHI, other than
to replace an existing Director, (v) any substantial change to the general
nature or scope of its business as carried out on at the date of First
Completion and (vi) entry into a material acquisition or corporate joint
venture transaction, excluding for the avoidance of doubt the acquisition of
trading stock in the ordinary course of business and distribution or
equivalent commercial agreements in the ordinary course of business, without
the prior written consent of WHI. The Company will also be responsible for
paying WHI a capped amount of £15,000 plus VAT (if applicable) in respect of
certain costs and expenses incurred by WHI in connection with the negotiation,
preparation and implementation of the Subscription Agreement and the 2025
Convertible Loan Notes.

 

Under the terms of the Subscription Agreement, WHI has undertaken to ensure
that the Company is run independently of WHI for the benefit of all
Shareholders and that all arrangements between WHI and the Company will be on
an arm's length basis and on normal commercial terms.

 

3. The Secured 2025 Convertible Loan Notes

 

On First Completion, the Company will enter into the Convertible Loan Note
Instrument pursuant to which the Company will create 2025 Convertible Loan
Notes of an aggregate principal amount of £2.2 million. The issue of the 2025
Convertible Loan Notes is conditional only upon the passing of the Resolutions
at the proposed General Meeting.

 

Interest shall be payable on the outstanding 2025 Convertible Loan Notes at a
rate of 10% per annum on the date of redemption or conversion of the 2025
Convertible Loan Notes. The maturity date of the 2025 Convertible Loan Notes
is the first Business Day falling twenty-four months after the date of issue
of the relevant 2025 Convertible Loan Notes.

 

The Company's obligations under the 2025 Convertible Loan Notes will initially
be secured by a debenture which contains fixed and floating charges over the
assets of the Company (the "Debenture").

 

On the earlier of (i) First Completion and (ii) the Business Day falling
within 45 days following the date of the Subscription Agreement, the Company's
obligations under the 2025 Convertible Loan Notes will also be secured by (1)
a share charge to be granted over the entire issued share capital of East
Imperial Pte. Ltd, the Company's wholly owned Singapore incorporated
subsidiary (the "Singapore Share Charge") and (2) a share charge (the "TB
Share Charge") to be granted over: (a) on the date of creation of such TB
Share Charge, 75% of the Ordinary Shares registered in the name of Anthony
Burt (or a nominee thereof); (b) following the first business day occurring
after First Completion when the 10 day VWAP per Ordinary Share is equal to or
greater than £0.05 but less than £0.075, 50% of the Ordinary Shares
registered in the name of Anthony Burt (or a nominee thereof); (c) following
the first business day occurring after First Completion when the 10 day VWAP
per Ordinary Share is equal to or greater than £0.075 but less than £0.10,
25% of the Ordinary Shares registered in the name of Anthony Burt (or a
nominee thereof); and (d) following the first business day occurring after
First Completion when the 10 day VWAP per Ordinary Share is equal to or
greater than £0.10, 0% of the Ordinary Shares registered in the name of
Anthony Burt (or a nominee thereof) (at which time the TB Share Charge shall
terminate and be released in accordance with its terms).

 

No application will be made for the admission of the 2025 Convertible Loan
Notes to trading on any recognised securities exchange.

 

The Convertible Loan Note Instrument gives the holders of the 2025 Convertible
Loan Notes the right to convert the 2025 Convertible Loan Notes they hold into
Ordinary Shares at a price per Ordinary Share equal to a 20% discount to the
60 day VWAP of the Ordinary Shares as at the date of the conversion notice,
subject to a minimum price per Ordinary Share of £0.01 (being the nominal
value of the Ordinary Shares) (the "Conversion Price"), at any time after the
expiry of the 12 month period commencing on the date of the Convertible Loan
Note Instrument until the redemption of the 2025 Convertible Loan Notes in
accordance with the terms of the Convertible Loan Note Instrument.

 

The minimum Conversion Price of £0.01 represents a premium of approximately
15 per cent. to the closing middle market price of £0.0085 per Ordinary Share
on 14 July 2023, being the latest practicable trading day prior to the
publication of this Announcement.

 

The Proposed Transaction is conditional on the passing of the Resolutions by
Shareholders at the General Meeting, including a special resolution which will
give the Directors the required authority to disapply statutory pre-emption
rights in respect of the potential future issue of new Ordinary Shares upon
conversion of the 2025 Convertible Loan Notes.

 

Upon the passing of the proposed Resolutions, the Company shall issue Tranche
1 of the 2025 Convertible Loan Notes to WHI and execute and deliver a
certificate in respect of Tranche 1 of the 2025 Convertible Loan Notes.

 

Following publication of the Circular, a copy of the draft Convertible Loan
Note Instrument and Debenture will be available for inspection at the
Company's registered office until the time and date of the General Meeting.

 

4.  Potential Dilutive Effect Resulting From The Proposed Transaction

 

The maximum number of new Ordinary Shares capable of being issued in respect
of the 2025 Convertible Loan Notes if all of the 2025 Convertible Loan Notes
are converted and all of the rolled-up interest thereon is converted at the
minimum Conversion Price of £0.01 is 264,000,000 Ordinary Shares, which would
represent approximately 43.8 per cent. of the issued share capital of the
Company.

 

5.  General Meeting

 

The Directors do not currently have sufficient authority under section
551(1)(b) of the Companies Act 2006 to issue the 2025 Convertible Loan Notes.
The 2025 Convertible Loan Notes will not be issued therefore until the
Resolutions are passed at the General Meeting. The Company will shortly
dispatch the Circular to Shareholders convening a General Meeting of the
Company at which the Resolutions summarised below will be proposed:

 

(A)       Resolution 1, which will be proposed as an Ordinary Resolution
(this means that, for the Resolution to be passed, more than 50 per cent. of
the votes cast must be in favour of the Resolution), is to authorise the
Directors to allot the 2025 Convertible Loan Notes

 

(B)       Resolution 2, which will be proposed as a Special Resolution
(this means that, for the Resolution to be passed, at least 75 per cent. of
the votes cast must be in favour of the Resolution), is to disapply statutory
pre-emption rights in respect of the allotment of the equity securities under
Resolution 1.

 

Resolution 2 is conditional on Resolution 1 being passed so that, if
Resolution 1 is not passed, neither of the Resolutions will become effective
and the issue of 2025 Convertible Loan Notes will not be implemented.

 

6.  Importance of Approving the Proposed Transaction

 

IT IS VERY IMPORTANT that Shareholders vote in favour of the Resolutions at
the General Meeting. The Directors believe that if the Resolutions are not
passed at the General Meeting and so the issue of the 2025 Convertible Loan
Notes does not proceed and in the absence of available alternative sources of
funding, is likely that the Directors will have to consider options including
ceasing to trade or selling the business.

 

7.  Recommendation

 

The Directors strongly believe that the issue of the 2025 Convertible Loan
Notes is in the best interests of the Company and its Shareholders as a whole.
Accordingly, the Directors recommend that Shareholders vote in favour of the
Resolutions to be proposed at the General Meeting as those Directors (and
their associates) intend to do in respect of their entire beneficial holdings
of Ordinary Shares.

 

Enquiries

 

East Imperial Plc

Antony Burt / Andrew Robertson - investors@eastimperial.com
(mailto:investors@eastimperial.com)

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
THE UK VERSION OF REGULATION (EU) NO 596/2014 WHICH IS PART OF UK LAW BY
VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL) ACT 2018, AS AMENDED. UPON THE
PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS
INSIDE INFORMATION IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

 

About East Imperial

Founded in New Zealand and Singapore in 2012, East Imperial produces a range
of ultra-premium mixers that sell throughout APAC, the US and EMEA. Guided by
a clear strategy to capitalise on the growing demand for premiumisation across
the beverage industry, East Imperial has sold over 25 million bottles in over
20 countries since its founding, with popular products including Old World
Tonic, Grapefruit Tonic, Yuzu Tonic and Mombasa Ginger Beer. In 2023, East
Imperial won 8 medals at the coveted Tonic & Mixers Masters Competition in
London. The company was founded on the philosophy of creating exquisite
products defined by heritage, tradition and authenticity. All products are
made from the highest quality, all-natural ingredients, reflecting East
Imperial's commitment to providing a sustainable product and minimising
environmental impacts at every stage of the manufacturing process. For more
information about East Imperial and its ultra-premium mixers, visit
eastimperial.co.uk.

 

 

About WHI

Wen Hua International (WHI) is a subsidiary of Wen Hua Hang Wine & Spirits
Co Ltd, which was originally founded in 2004, and is located in Zhongshan,
Guangdong province. Wen Hua Hang is an exclusive first-tier wholesaler in
South China, covering Guangdong, Hainan and Guangxi provinces for Pernod
Ricard.

 

 

Forward-Looking Statements

This announcement includes statements that are, or may be deemed to be,
"forward-looking statements" which reflect the Directors' current views,
interpretations, beliefs or expectations with respect to the financial
performance, business strategy and plans and objectives of management for
future operations of the Company and its group. These statements include
forward-looking statements with respect to the Company and its group and the
sector and industry in which the business currently operates. Statements which
include the words "believes", "estimates", "plans", "projects", "anticipates",
"expects", "intends", "may", "aims", "targets", "will", "should" or, "future",
"opportunity", "potential" or, in each case, their negatives, and similar
statements of a future or forward- looking nature identify forward-looking
statements. These forward-looking statements include matters that are not
historical facts. They appear in a number of places throughout this
announcement. Forward-looking statements may and often do differ materially
from actual results. Any forward-looking statements in this announcement are
based on certain factors and assumptions, including the Directors' current
view with respect to future events and are subject to risks relating to future
events and other risks, uncertainties and assumptions relating to the
Company's operations, results of operations, growth strategy and liquidity.
While the Directors consider these assumptions to be reasonable based upon
information currently available, they may prove to be incorrect. Save as
required by law, the Company undertakes no obligation to publicly release the
results of any revisions to any forward-looking statements in this
announcement that may occur due to any change in the Directors' expectations
or to reflect events or circumstances after the date of this announcement.

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