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The Second Cup reaches shareholding deal with creditors

Coffee and croissantThe Second Cup has announced today that SPE Finance LLC (SPE), an affiliate of Serruya Private Equity, and its four shareholders have agreed to exchange SPE's US$6.35 million secured term loan for common shares of Second Cup.

In December 2016, Second Cup entered into the four-year, secured term loan with SPE. The transaction will result in annual cost savings for Second Cup of approximately $760,000.

The Company will issue a total of 4,210,528 common shares to the four shareholders of SPE in full satisfaction of the term loan. Second Cup will also cancel 300,000 of the 600,000 common share purchase warrants issued to SPE in connection with the term loan, and SPE will distribute the remaining 300,000 warrants to its four shareholders pro rata.

Following completion of the debt exchange, each of the four SPE shareholders will hold approximately 6.9 per cent of the outstanding common shares of Second Cup (including common shares currently held by it), or approximately 7.2 per cet assuming the exercise of the warrants to be distributed to it.

Approval of the Company's shareholders is required for the Debt Exchange Transaction under the rules of the Toronto Stock Exchange (TSX) as the TSX has determined that the transaction will have a material effect on control of the Company.

The Debt Exchange Transaction is expected to close on or after August 10, 2017.

"This is a tremendous boost for Second Cup and a strong expression of confidence by the Serruya family, who will now be fully aligned as shareholders," said Michael Bregman, Chairman of the Board, Second Cup. "The issuance of shares at a 24.2 per cent premium to current market price, is a reflection of the considerable potential at Second Cup. Over the past few months, we have benefitted from our relationship with the Serruyas as value added investors. This marks an important step forward in our relationship. After completing this transaction, Second Cup will be debt free with approximately $3 million in cash and close to $1 million in reduced annual expenses. This provides Second Cup with a much improved financial foundation upon which to build for the future."

"We have great confidence in Second Cup and its leadership," said Michael Serruya, Managing Director at SPE. "By converting our debt to equity, we are fully aligned to participate in future value creation. Already we are seeing signs of progress as we work together with Second Cup. One example is the introduction of our Pinkberry brand in four Second Cup stores. Early results suggest this may be one of many opportunities to generate future growth."

The two nominees of the SPE shareholders will be appointed as Directors of the Board of Second Cup upon closing of the debt exchange transaction.

Second Cup is also pleased to announce that Paul W. Phelan will be appointed to the board of directors of the Company upon closing of the debt exchange transaction. Mr. Phelan will sit on the board as the nominee of PDPJJHP Ontario Limited, a holding company controlled by members of the Phelan family, the Company's second-largest shareholder upon completion of the debt exchange.

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