CFSS BOARD MINUTES
Minutes of the Special Joint CFC and CFSS Board meeting
Held Thursday 19th October 2006. 6.00pm
Venue: CFC Boardroom
Present
For CFC Board: B.Hubbard, M.Warner, A.Walters.
For CFSS Board: P.Tooley, P.Taylor, J. Croot, D.Bowler, P.Willett, P.Whiteley, M.Cook, A.Fantom, C.Young, I.Browes, R.Pearson, A.Haywood.
Apologies: none
CFSS Secretary: R Busby
1. Purpose of the Meeting
1.1 The meeting was called to allow the CFC Board to place before the CFSS Board proposals for changes to the ownership structure, funding arrangements, and future management of the Football Club.
1.2 It was agreed that the format of the meeting would be~
• BH and AW to outline the proposal
• Questions and Debate
1.3 It was also agreed that no decisions on the proposal would he made at this meeting.
2. The CFC Board Proposal
2.1 After thanking the CFSS Board for their attendance RH read from a
prepared statement.
2.2 BH made dear that the statement represented the views of the whole CFC Board.
2.3 In 2001 the creation of CFSS had saved the Club from closure following the predations of Darren Brown. CFSS by virtue of the rules established when it was created, became, and remains today the majority shareholder.
2.4 as part of the process of Administration the CFC Board was formed, made investments in. and loans to the Club, and by agreement with CFSS formally took over day-to-day management of the Club, allowing it to recover and become financially stable.
2.5 whilst there have been tensions from time to time, the two boards have worked successfully together.
2.6 At the 3rd anniversary of the original agreement between the two Boards. BH confided that there had been uncertainty on the part of the CFC board as to the sustainability of the arrangements, but, in the absence of any alternative to those arrangements: they were continued.
2.7 This uncertainty was based on:
• the recognition that CFSS was not in a position to take over the day to day management of the Club,
• the subscribed membership of CFSS was declining,
• the level of financial investment of the CFC Board members was increasing, and,
• with plans for ground relocation developing, the realisation that the ability of the Club to attract the necessary funding would he compromised by the ownership arrangements.
2.8 looking back, BH said that it would have been better to have dealt with these matters at that time, but the reality has to be faced now and the basis of the CRC proposal is that somebody, be it the CFC Board the CFSS Board or some other body, must now have full ownership and operational management of the Club in order to attract the funding needed to allow the ground relocation to take place.
2.9 bearing in mind that it continues to be the case that CFSS is not in a position to take on this role, and no other party is available the CFC Board propose that CFSS must now give up its control over the Club and have taken financial and legal advice as to how this may be achieved.
2.10 The basis of the proposal is that CFSS must now, or in the very near future give up its majority shareholding and allow the CFC Board to take full control of the Chub. BH then asked AW to outline how the financial arrangements would be achieved.
2.11 AW explained that in order to successfully achieve the ground relocation a funding shortfall of approximately £3m has to be addressed.
2.12 to make the Club an attractive proposition to investors and to achieve the type of balance sheet which would satisfy conditions for raising loans the crucial issue is to increase the share capital invested in the club.
2.13 The appropriate measures to achieve this would be:
• the issue of preference shares (in units of a minimum of £5,000).
• conversion of the real value of the investment made by CFSS into preference shares (currently estimated at approx £250,000)
• the conversion of the CFC Board members debentures into preference shares (£862,000)
• injection of new loans to the value of £250,000 by the current CRC Board Members.
2.14 BH then continued. In discussion with the Club's legal adviser it had been agreed that this dilution of the CFSS shareholding had to be achieved without the CFSS members suffering. It is suggested that an appropriate model for this would be to issue preference shares to the CFSS membership on the basis of their subscription status.
2.15 Whilst the exact formula for distribution is a matter for the CFSS Board an example distribution might be 400 shares for a life member, and 100 shares for an annual subscription. These figures are based on current
membership of just over 1000 members and a valuation of the real value of the CFSS investment at £250,000. These figures do need confirmation but are held to be reasonably close to the actual position.
2.16 BH stated that this would retain and enhance the status of the Club as a 'fan-owned club", and increase the democracy in the ownership of the Club, by, as it were, removing the "block vote" effect that CFSS holds under the current structure.
2 17 BH then closed the formal statement and invited questions.
3. Question and Answer Session
3.1 PJT requested clarification as to the maturity period and reward structure of the preference shares.
AW responded that two time periods are proposed~
a) 5 years, minimum investment £5k, fixed interest rate of 6%
b) 10 years, minimum investment £10k, fixed interest rate of 7%
As a further incentive, investments exceeding £25k would also attract a free premium seat season ticket.
The reason for setting two periods is to avoid a scenario whereby repayment of all the shares could occur at the same time. There is also a likelihood that if the 5yr. performance is reasonable, investors will choose to reinvest, or even increase their investment.
3.2 RP asked why preference shares are preferable to the current debenture loans arrangement.
AW responded that debenture cans have a 6-month repayment notice condition and that in terms of the presentation of balance sheets, loans appear as current liabilities, whereas invested share capital represent assets, giving potential investors confidence in the Club.
3.3 lB asked whether the current "ordinary" share issue would be retained, and for a description of the differences between ordinary and preference shares
RH responded that ordinary shares would he continued and gave a simplified example of the effect on investors in the event that the Club was sold in the future. Assuming ordinary shares to the value of £2M, and preference shares to the value of £1M were held, and the Club was valued at sale at £5M, the preference shareholders would receive £1 per share, whereas the ordinary shareholders would receive £2 per share. The voting rights are identical, one share- one vote.
3.4 RP referred back to BH's statement that financial advice had been taken and queried whether any pledges" of new investment had yet been made.
BH said, no, not yet, but there are optimistic signs that this new ownership structure would attract new investors.
AW added that a change of this nature would open the way to greater investor interest and that it could result in changes to the CFC Board membership because larger investors would have to he listened to if they wished to have a seat on the Board as part of their proposed investment conditions.
BH felt it was important to stress at this point that he considers himself and the other members of the Board as committed CFC fans, with the best interests of the Club as their first priority and that any such approaches would be viewed with the long term continued development and success of the Club as the primary objective. For example, the CFC Board would ensure that there will be a protective covenant placed on the land on which the new ground will be built, such that any future investors would be prevented from buying the Club in order to realise profits by selling the ground for retail or housing development. Discussions with Wilson Bowden have already established that this is also their wish, and whatever the outcome of the current Club ownership discussions, any move to a new ground at the Dema site would include such a covenant.
PJT sought clarification on the nature of the variability of the conditions of such a covenant, stating that it is possible to establish conditions such that a future move could be achieved, in the event that the success of the Club merits a move, but so as not to be unable to sell the ground to fund a purchase elsewhere.
BH agreed and said that discussion on this had taken place and that covenants that achieve this can be established.
3.5 RP asked whether the estimated £3M shortfall, took account of the proposed additional £250,000 investment by the CEC board members. AW said the actual shortfall is estimated at £3.25M hence the amount of additional funding required is £3M after the proposed changes have been effected.
3.6 PW asked if the £3M included consideration of the fund raising potential of the decommissioning of Saltergate.
AW explained that whilst there are indications that between £500k and £1M could be raised by "end of an era" sales and promotions, and new stadium naming sponsorship, there are no guarantees on this and such income has not been include in the shortfall estimates.
3.7 JC asked about the extent of financial planning for contingency funding during and in the early period after the move: and whether that was included in the shortfall calculations.
BH said that the end of era and stadium sponsorship income had not been included for just that reason.
BH went on to say that to understand the implications of a stadium relocation required a new way of thinking about the club and its potential income streams. We have perhaps undersold the Club in the past and learned to accept the relatively poor facilities we have presently. We have had to think "cheap", because of the financial and situational limitations of the current ground and cash flow constraints. We now had to think of offering vastly improved facilities, the best banqueting and conferencing facilities for miles around, the fact that in every 365 days only 25 days of football matches take place, that the new stadium will be a much bigger scale of operation, employing more people and hosting a much wider range of events.
3.8 RP asked for more detail about the financing of the move itself; given that whilst the new ground is being built, the developer would expect payment, and we have to continue to function at Saltergate. BH said that discussions with the developer on the cash flow implications during the transition period had taken place. A staged payment regime is being discussed with payment schedules to reflect actual spend by the developer. Income flows in the form of FA grants etc and a further Borough Council loan have also been taken into account.
3.9 RP asked if any penalty clauses were proposed.
BH said that the contract would be on a fixed price basis, the price is not expected to change assuming the projected dates don't change and that because the same company will also develop the Saltergate site this will ensure a mutually acceptable and viable financial management plan can be agreed
3.10 At this point BH asked if the plan was clear and whether the CFSS Board members understood why a decision on the CFC Board proposal is important now.
PJT thanked the CFC Board for the clear presentation and said the CFSS could now discuss the options but wished to have opportunity to make clear CFSS concerns. Above all CFSS wishes to prevent another Darren Brown from stepping in, albeit that it may be a long way into the future.
3.11 BH said we should remember that there has only been one "Barren Brown" in the 135-year history of the Club, and that even that situation could have been prevented. The CFC Board does appreciate the position of CFSS and in particular in relation to the Club's 'flagship' status within the Supporter's Direct movement
3.12 PJT said we all agree that that the long-term future of the Club is the paramount consideration.
BH agreed, but said for the last five years we (the CFC Board) have had to think about today and tomorrow to recover and sustain the Club, and now we have reached a position where we don't want to put a stop to the ground relocation but that we can't do it without CFSS recognising the situation we are in and helping us to sort it out.
3.13 BH asked if the CFSS Board would give the CFSS members the opportunity to vote on the matter at the imminent ACM. If not, or if the vote were negative the CFC Board would perhaps have to appeal directly to the supporters. After all CFSS membership has declined from over 3000 at its peak to only around 1000 members now and is no longer the largest representative group. The CFC Board needs a decision soon, ideally by early November. (At this point BH made clear that there is no current intention to speak to anyone other than CFSS and that the content of this meeting remains confidential. Nothing said in the meeting or recorded in the minutes is to be shared other than with members of the CFC and CFSS boards.)
3.14 PRT said that he agreed that a decision has to be made. Throughout the last five years both Boards have had to live with compromises to recover, sustain and develop the Club. We all want the best for the Club and we may not share identical views about how that can be achieved, but we must all agree that we have never had a better opportunity to secure a new ground and we must work together to find a solution. Whilst CFSS holds over 575,000 shares this does not reflect the real value of investment by CFSS and this must be taken into account in addressing the funding problem
BH agreed, saying that shares paid for by CFSS should be redistributed to its members to ensure that they remain investors in the club with the opportunity to influence its future. However that right should only exist for current members and the exact distribution formula remains a decision for CFSS itself
3.15AH asked if CFSS were to reject the CFC board proposal what right happen. Would the new ground move be off?
BH said in the history of the CFC Board there had never been a harder decision to make. The current CFC Board do not want to withdraw their investment and walk away, but if CFSS do reject the proposal then CFSS must have contingency in place to deal with that possibility.
3.16DB then asked if the two CFSS Board members present who also serve on the CRC Board would explain their views on the proposal and whether or not they had any recommendations to make to the CFSS Board.
PJT interjected that they must have the right not to respond to that request in this forum if they so wished
PRT felt able to respond and said that his involvement over the last 5 years was based on three objectives:
• Save the Club
• Stabilise and develop the Club
• Relocate to a much needed new ground to ensure the long term survival and success of the Club
Throughout this time it had been important to seek the best solutions available and to forget about the personalities and structures. PRT now saw that the current arrangements may prevent another Barren Brown from coming in but they also prevent significant investment in the Club which in turn may lead to loss of the opportunity to relocate to a new stadium.
3.17JC also felt able to respond and endorsed much of what PRT said, adding that we must remember that the CRC Board have been a safe pair of hands for the past five years, and that there is no doubt in his mind that the CFC Board does have the best interest of the Club as its primary aim
3.18RW asked if the requested timing for a decision by the CFC board could be achieved, given that "early November" is close and that sufficient notice (21 days) has to be given to call a CFSS AGM.
BH accepted that it make take a little longer but stressed that a decision must he made very soon.
3.19IB asked what form a vote might take, a paper vote, or a decision at the
AGM?
BH asked if the CFSS Board would make a recommendation to the CFSS membership.
PJT said there would have to full information and a proper debate and asked if a CFC Board Member (or Members) would attend and present the case and answer questions?
MW said the CFSS Board includes two CFC Board members.
CY said without a viable alternative it's the job of the CFSS Board to sell the proposal to the CFSS members.
3.20AF asked for a little further clarification on the financing of the £3M debt. AW explained that the Business Plan shows that by franchising the banqueting, catering and concourse services sufficient income can be derived to cover well over half the anticipated debt charges and that other income streams will more than cover the rest.
JC added that it is also likely that it will be much easier to raise loans if potential funding institutions know that we are contracting with professional companies to supply catering facilities etc.
3.21DB asked if the CFSS board would vet the CFC Board proposal against the four criteria agreed at a recent CFSS Board Meeting, viz
a) long term security of the ground
b) control or influence over sale of the club into the indefinite future
c) representation on the CFC Board
d) promotion and development of the Clubs community initiatives.
It was agreed that these criteria would be addressed.
3.22 PJT proposed that the CFSS Board meet on Wednesday October 25th to discuss the proposal and thanked BH, AW and MW for the clear and concise presentation they had made and undertook to feedback to them the decisions of the CFSS Board.
3.23BH thanked all for their attendance and declared the meeting closed at
7.30pm
Next Meeting of the CPSS Board: Wednesday October 25th 2006, 730pm.
Venue: CFC Boardroom
