9 Mar 2016 07:00
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED IN IT ARE NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL APPLICABLE SECURITIES LAWS OR REGULATIONS
Aggregated Micro Power Holdings plc
("AMP", the "Company" or the "Group")
Proposed Fundraising & Acquisition of Forest Fuels
and
Notice of General Meeting
Aggregated Micro Power Holdings plc (AIM: AMPH), the renewable energy developer focused on biomass energy generation, is pleased to announce the conditional acquisition of the entire issued share capital of Forest Fuels Holdings Ltd ("Forest Fuels") (the "Acquisition"), a conditional placing of ordinary shares of 0.5 pence each ("Ordinary Shares") to raise gross proceeds of £1.72 million (the "Placing") and a conditional initial subscription of £4.07 million nominal of convertible loan notes (the "Convertible Notes") at par (the Placing and the Convertible Notes together, the "Fundraising").
Highlights
- Proposed acquisition of Forest Fuels, a leading and profitable premium grade wood fuel supplier, for an initial consideration of £2.815 million, plus up to 2,500,000 Ordinary Shares in performance-related deferred consideration;
- In their filed statutory unaudited consolidated accounts for the year to 31 March 2015, Forest Fuels delivered turnover of £7.3 million and profit before tax of £160,558, and as at 31 March 2015, Forest Fuels had a net asset value of £458,537;
- Placing of 3,190,000 new Ordinary Shares at a price of 54 pence per Ordinary Share (the "Placing Price"), raising gross proceeds of £1.72 million;
- Initial Issue of 5 year Convertible Notes (with a conversion price of 70p) to raise gross proceeds of £4.07 million, including the effective conversion of a £740,231 existing director loan into Convertible Notes and subscriptions for Convertible Notes by two of the Sellers of Forest Fuels for an aggregate nominal amount of £500,000;
- Shareholder approval to be sought to issue up to in aggregate £20 million nominal of Convertible Notes;
- The proceeds of the Fundraising will be used as follows:
- cash consideration for the Acquisition; and
- growth working capital and operating costs for the combined business
- Fundraising conditional upon (among other things) shareholder approval. The Acquisition is conditional upon receipt of funds of not less than £2.83 million from the issue of Convertible Notes; and
- Circular to shareholders to be despatched later today
About Forest Fuels
Forest Fuels was founded in 2006 and has since become one of the UK's largest suppliers and distributors of high quality wood fuel products. Forest Fuels, through a network of 20 depots and 4 regional offices, supplies wood chip and wood pellet to more than 1,000 customers,
Strategic Rationale for the Acquisition
- Provides AMP with an established wood chip sales and marketing team
- Improved fuel supply to AMPIL's biomass boiler installations
- Increased wood purchasing power, lowering costs and improving contract terms
- National network of depots on which to roll out biomass boiler drying facilities
- Increased UK presence with project origination opportunities for biomass boiler and CHP ESCOs
Richard Burrell, Chief Executive of Aggregated Micro Power Holdings plc, said:
"This Acquisition marks a significant development for AMP and for our strategic ambitions. One of the UK's largest suppliers of premium grade wood fuel, Forest Fuels is a rapidly growing business in a rapidly growing sector. The current installed renewable heat capacity in the UK market is 3% with a Government target of 12% by 2020. The Acquisition will therefore accelerate AMP's growth by providing a market leading distribution capability in wood fuels operating from 20 regional depots and providing us with a platform for further roll-up opportunities. Forest Fuels has a growing customer base and currently serves over 1,000 customers nationwide. By combining the business development activities and offering both long term financing for biomass boilers and CHP systems together with wood fuels contracts to end customers, there will be significant opportunities to increase our development fee revenues and generate income from associated wood fuel contracts."
General Meeting
A circular will be sent to shareholders later today giving notice of a general meeting of AMP (the "Circular") to be held at 11.00 a.m. (London time) on 29 March 2016 at the Company's offices, 5 Clifford Street, London, W1S 2LG. A copy of the Circular will be available on the Company's website www.ampplc.co.uk.
Enquiries:
Aggregated Micro Power Holdings plc www.ampplc.co.uk
Richard Burrell, CEO Tel: 020 7382 7800
Neil Eckert, Executive Chairman
finnCap Ltd (NOMAD & Broker) Tel: 020 7220 0500
Ed Frisby/Simon Hicks (corporate finance)
Stephen Norcross (corporate broking)
Haggie Partners (Financial PR) Tel: 020 7562 4444
Peter Rigby/Brian Norris
IMPORTANT NOTICES
This announcement may include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including the terms "believes", "estimates", "plans", "projects", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this announcement and include statements regarding the Directors' current intentions, beliefs or expectations concerning, among other things, the Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the Company's markets. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual results and developments could differ materially from those expressed or implied by the forward-looking statements. 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. Whilst the Directors consider these assumptions to be reasonable based upon information currently available, they may prove to be incorrect. Save as required by law or by the AIM Rules for Companies, the Company undertakes no obligation to release publicly 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.
finnCap Ltd ("finnCap") which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for the Company and no one else in connection with the Placing and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Placing and will not be responsible to anyone other than the Company for providing the protections afforded to its clients or for providing advice in relation to the Placing or any matters referred to in this announcement.
Apart from the responsibilities and liabilities, if any, which may be imposed on finnCap by the Financial Services and Markets Act 2000 or the regulatory regime established thereunder, finnCap does not accept any responsibility whatsoever for the contents of this announcement, and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company or the Placing Shares or the Placing, and nothing in this announcement is or shall be relied upon as, a promise or representation in this respect whether as to the past or future. finnCap accordingly disclaims to the fullest extent permitted by law all and any 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.
The following text has been extracted from the Circular:
1. Introduction
The Company has today announced the proposed acquisition by the Company of the entire issued share capital of Forest Fuels for an initial consideration of £2.815 million and potential further deferred consideration as described in paragraph 2 below.
The Company has also announced: (i) a Placing to raise gross proceeds of £1.72 million by the issue of 3,190,000 Placing Shares at 54 pence per Placing Share and (ii) the proposed issue of up to £20 million nominal of Convertible Notes of which subscriptions for in aggregate £4.07 million nominal of Convertible Notes have been received as at today's date. The Initial CLN Issue includes the effective conversion of a £740,231 existing director loan into Initial Convertible Notes and subscriptions for Initial Convertible Notes by two of the Sellers for an aggregate nominal amount of £500,000.
The Share Acquisition is conditional upon the receipt of certain of the funds under the Initial CLN Issue. The Placing is conditional upon (amongst other things) the passing of the Resolutions at the General Meeting, the completion of the Share Acquisition and receipt of certain of the funds under the Initial CLN Issue. The issue of the Convertible Notes (including those Convertible Notes that form part of the Initial CLN Issue) is conditional upon (amongst other things) the passing of the Resolutions at the General Meeting.
1.1 Information on Forest Fuels
Forest Fuels is a leading biomass fuel supplier and distribution company founded in 2006 based in the UK. Forest Fuels specialises in producing and supplying high quality wood fuel products and providing excellent customer service to its customers. Forest Fuels currently supplies wood fuel, both wood chip and wood pellet, to more than 1,000 customers in the UK, focussing on long term contracts including 50 schools and 35 local authorities. It operates from a national network of 20 depots and four offices.
The Forest Fuels management team is highly experienced in the wood and logistics sector. Forest Fuels has worked on a significant number of boiler installations, developing an expertise of fuel storage and handling to become a trusted partner in a rapidly growing market.
In its filed statutory unaudited consolidated accounts for the year ended 31 March 2015, Forest Fuels reported revenues of £7,307,790 and profit before tax of £160,558. As at 31 March 2015, Forest Fuels had a net asset value of £458,537.
1.2 The Combined Group
Following the acquisition of Forest Fuels, AMP's strategy is to focus on selling wood chip and wood pellet to end customers throughout the UK and to create a market leading business in the sale of renewable heat and fuel. The Directors believe that the Combined Group's wood fuels customer base can be grown by a combination of organic growth and in-fill acquisitions in strategic locations. The Company is currently actively pursuing a number of other acquisition opportunities.
The Directors believe that the acquisition of Forest Fuels will accelerate AMP's growth by providing a market leading distribution capability in wood fuels operating from 20 regional depots. The Acquisition will in turn provide the existing Forest Fuels depots with infrastructure and access to cheaper forms of heat from which to produce force dried, high quality wood chip and will reduce the need to purchase timber and to season stock over the summer months, thus reducing working capital requirements.
Forest Fuels has a growing customer base and currently serves over 1,000 customers nationwide. The Directors believe that by combining the business development activities of AMP and Forest Fuels and offering both long term financing and wood fuel contracts to end customers, there will be significant opportunities to increase development fees and generate income from associated wood fuel contracts.
AMP continues to develop its small-scale biomass boiler projects which it has been successful in selling to Aggregated Micro Power Infrastructure Limited ("AMPIL"). Under the terms of its contract with AMPIL, AMP receives an upfront 10 per cent. development fee on each project and when AMPIL Loan Notes are repaid, AMP is entitled to receive 100 per cent. of the excess returns in the form of deferred development fees. The pipeline of potential developments is currently very strong and AMP expects to earn significantly higher development fees from AMPIL in 2016 compared to 2015. Since October 2015, AMP has reached financial close on £5.4 million of boiler installations (gross development value) and this rate of growth is expected to accelerate through 2016.
With its focus on consolidating the wood fuels market and in developing its portfolio of biomass boiler projects for AMPIL, the Combined Group will place less emphasis and resources on pursuing larger gasification developments. The Directors believe that this will de-risk the business model and is an appropriate step in light of the uncertain outlook for electricity subsidies and subsidies specifically connected with the use of heat from gasification.
The UK heating market for wood chip and wood pellet is estimated by the Company to amount to 992,000 tonnes per year based on Renewable Heat Incentive accredited installations with an estimated value of approximately £150 million. This market has grown more than fourfold in the last two years since the inception of the Renewable Heat Incentive and is expected to continue to grow rapidly with an increased focus on high quality forced dried chip and pellet fuels. The Renewable Heat Incentive for accredited installations is for a twenty year duration and the Directors expect good prospects for growth and stability in the market for such wood fuels over the coming years.
The Directors believe that the Combined Group's strengths in procurement, distribution, logistics, project development, funding and operations will broaden its market and geographical presence across the biomass value chain, enhancing margins and increasing development opportunities, particularly for biomass boiler and CHP systems.
1.3 The Placing
The net proceeds of the Placing (after commission and expenses of the Placing) will be used for growth working capital and the operating costs of the Combined Group.
As the allotment and issue of the Placing Shares will exceed the Directors' existing authorities to allot Ordinary Shares for cash on a non-pre-emptive basis, the Placing is conditional (among other things) on the passing of the Resolutions. Should Shareholder approval of the Resolutions not be obtained at the General Meeting, the Placing will not proceed. The Placing is also conditional on the completion of the Share Acquisition and receipt of funds from the Initial CLN Issue.
If issued, the Placing Shares are expected to be admitted to trading on AIM at 8.00 a.m. on 1 April 2016.
1.4 The Convertible Notes Issue
Although the Company wishes to seek shareholder authority which would enable it to issue up to £20 million nominal of Convertible Notes, the Initial CLN Issue (which has been fully subscribed) is for £4.07 million nominal. If any more Convertible Notes are issued, an appropriate announcement shall be made by the Company. Please note that for regulatory reasons no public offer of the Convertible Notes is being made and this circular does not constitute or form part of any offer to sell or issue or any invitation or solicitation of an offer to invest in or purchase any Convertible Notes.
The Initial CLN Issue includes the effective conversion of a £740,231 existing director loan into Initial Convertible Notes and subscriptions for Initial Convertible Notes by two of the Sellers for an aggregate nominal amount of £500,000.
The proceeds of the Initial CLN Issue will be used to fund the cash consideration due under the SPA and for general corporate purposes.
The issue of the Convertible Notes will exceed the Directors' existing authorities to grant conversion rights for cash on a non-pre-emptive basis. As a result, the Subscription Agreement for the Convertible Notes is conditional on the passing of the Resolutions. If the Resolutions are not passed, the Convertible Notes will not be issued to Noteholders and the Share Acquisition and the Placing will not be completed.
The purpose of this letter is to explain to Shareholders the background to, and reasons for, the Share Acquisition, the Placing and the issue of Convertible Notes and to request the support of Shareholders for the Resolutions. The Notice convening the General Meeting is set out at the end of this circular and a Form of Proxy is also enclosed for you to complete. This letter also includes an explanation of the Resolutions.
2. Key terms of the Share Acquisition
SPA
The SPA was entered into on 8 March 2016 between the Company and the Sellers. Under the terms of the SPA, the Purchaser has agreed to purchase and the Sellers have agreed to sell the entire issued share capital of Forest Fuels, conditional on the receipt of funds under the Initial CLN Issue amounting to not less than £2.83 million.
The aggregate consideration initially payable by the Company to the Sellers at Completion is £2.815 million and a bonus of £150,000 will also be paid to Forest Fuels staff and some customers following Completion.
The Sellers may also be entitled to further consideration under the terms of two earn-out arrangements (the "Earn-Outs"), under which, in aggregate, up to 2,500,000 Ordinary Shares may be issued to the Sellers. The key details of these Earn-Outs are as follows:
TSR consideration
- Up to 1,000,000 Ordinary Shares (in aggregate) may be required to be issued to the Sellers, depending upon the average total shareholder return ("TSR") of the Ordinary Shares in the Company (calculated as the internal rate of return where the value as at 20 June 2014 is £1, the future value is the weighted average share price of the Ordinary Shares over the 20 trading days prior to the end of each financial year and any dividends and returns of capital are taken into account).
- The number of any Ordinary Shares to be issued by reference to the TSR will be as follows:
o if the TSR for the holders of Ordinary Shares during the period from 30 June 2014 to 31 December 2017 (the "Relevant Period") is equal to or greater than 12 per cent. per annum on a compounding basis, 1,000,000 Ordinary Shares will be required to be issued to the Sellers;
o if the TSR is less than 8 per cent. per annum on a compounding basis during the Relevant Period, no Ordinary Shares will be required to be issued to the Sellers and such option will automatically lapse;
o if the TSR is between 8 per cent. per annum on a compounding basis and 12 per cent. per annum on a compounding basis during the Relevant Period, a number of Ordinary Shares (up to 1,000,000 Ordinary Shares) calculated by reference to a sliding scale of Ordinary Shares will be required to be issued to the Sellers.
EBITDA consideration
- Up to 1,500,000 Ordinary Shares (in aggregate) may be required to be issued to the Sellers, depending upon the average EBITDA of the Forest Fuels Group ("Average EBITDA") in the financial periods ending (i) 31 December 2016 and 31 December 2017 (the "First Relevant Financial Period") and (ii) 31 December 2017 and 31 December 2018 (the "Second Relevant Financial Period").
- The exact number of Ordinary Shares which may be issued by reference to the Average EBITDA will be as follows:
o If the Average EBITDA for the First Relevant Financial Period is equal to or exceeds £1,250,000 then 1,500,000 Ordinary Shares will be required to be issued to the Sellers in respect of that First Relevant Financial Period.
o If the Average EBITDA for the First Relevant Financial Period does not exceed £1,000,000 then no Ordinary Shares will be required to be issued to the Sellers in respect of that First Relevant Financial Period.
o If the Average EBITDA for the First Relevant Financial Period exceeds £1,000,000 but is less than £1,250,000 then a number of Ordinary Shares (up to 1,500,000 Ordinary Shares) calculated by reference to a sliding scale of Ordinary Shares will be required to be issued to the Sellers in respect of that First Relevant Financial Period.
o If the Average EBITDA for the Second Relevant Financial Period is equal to or exceeds £1,250,000 then 1,500,000 Ordinary Shares will be required to be issued to the Sellers in respect of that Second Relevant Financial Period (less any Ordinary Shares issued in respect of the First Relevant Financial Period).
o If the Average EBITDA for the Second Relevant Financial Period does not exceed £1,000,000 then no Ordinary Shares will be required to be issued to the Sellers in respect of that Second Relevant Financial Period.
o If the Average EBITDA for the Second Relevant Financial Period exceeds £1,000,000 but is less than £1,250,000 then a number of Ordinary Shares calculated by reference to the number Ordinary Shares issued in the First Relevant Financial Period and a sliding scale of Ordinary Shares shall be required to be issued to the Sellers in respect of that Second Relevant Financial Period.
The SPA includes warranties and a tax indemnity from the Sellers in favour of the Company which are subject to customary limitations on liability.
3. Terms of the Placing
3.1 Principal terms of the Placing
The Company is proposing to raise gross proceeds of approximately £1.72 million pursuant to the Placing through the issue of the Placing Shares.
The Placing will result in the issue of 3,190,000 Ordinary Shares (representing, in aggregate, approximately 11.0 per cent. of the Enlarged Share Capital (assuming full subscription under the Placing)). The Placing Shares will, when issued, rank in full for all dividends and other distributions declared, made or paid on the Ordinary Shares by reference to record dates falling after their date of issue and otherwise rank pari passu in all respects with the Existing Ordinary Shares. No temporary documents of title will be issued.
Following the issue of the Placing Shares, existing Shareholders will undergo a dilution of approximately 11 per cent. to their interests in the Company as a result of the Placing.
Under the Engagement Letter, the Company has appointed finnCap as its agent in connection with the Placing to use its reasonable endeavours to procure subscribers for the Placing Shares at the Placing Price. The Placing is not underwritten.
3.2 Other information relating to the Placing
Pursuant to the Engagement Letter, the Company has given certain warranties to finnCap regarding, among other things, the accuracy of information in this circular and an indemnity in favour of finnCap in respect of, among other things, losses arising directly or indirectly out of the Placing.
The Engagement Letter is conditional, among other things, on (a) Admission taking place in respect of the Placing Shares by no later than 8.00 a.m. on 1 April 2016 or such later date as may be agreed by the Company and finnCap, not being later than 29 April 2016; (b) the passing of the Resolutions at the General Meeting; (c) the Company complying with all of its obligations under the Engagement Letter; and (d) Completion. finnCap has entered into a fee sharing agreement with Welbeck pursuant to which Welbeck has agreed to pay some of the fees received by it to finnCap, as described in paragraph 4.9 below. finnCap is entitled, in certain limited circumstances, to terminate the Engagement Letter prior to Admission and to the payment of outstanding expenses on such termination.
Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings for normal settlement in the Placing Shares on AIM will commence at 8.00 a.m. on 1 April 2016.
4. Convertible Notes Issue
The Company wishes to be able to issue up to £20 million nominal of Convertible Notes. As at the date of this circular the Company has entered into a Subscription Agreement with a number of investors who have agreed to subscribe for in aggregate £4.07 million nominal of Convertible Notes conditional on the passing of the Resolutions (including the effective conversion of a £740,231 existing director loan into Initial Convertible Notes, and the subscriptions by two of the Sellers for £500,000 of Initial Convertible Notes). Subject to the Shareholder approval being obtained at the General Meeting, completion of the Initial CLN Issue is expected to occur on 30 March 2016.
4.1 Conversion Terms
On issue of the Convertible Notes, the Noteholders will have the right at any time during the five year term to convert any Convertible Notes they do not redeem into Ordinary Shares.
Any Convertible Notes issued by the Company before 31 March 2016 which include the Initial Convertible Notes will have a conversion price of 70 pence per share. Any Convertible Notes issued by the Company on or after 31 March 2016 will have a conversion price equal to the higher of:
· 70 pence per share; and
· a 30 per cent. premium on the Company's average closing mid market share price in the 30 trading days prior to the date of issue of the relevant Convertible Notes.
If all the Initial Convertible Notes were converted into Ordinary Shares, existing Shareholders would undergo a dilution of approximately 26 per cent. to their interests in the Company as a result of the conversion of the Initial Convertible Notes and the Placing.
4.2 Security
The payment of any monies owed to the Convertible Noteholders will be secured by a composite
guarantee and debenture over the business and assets of the Company and each of its subsidiary
undertakings.
4.3 Covenants
The Company has undertaken under the Convertible Note instrument to refrain from taking certain actions. These include:
· declaring or paying dividends in a 12 month period worth more than 3 pence per share in aggregate;
· granting security over the Combined Group's assets (subject to limited exceptions); and
· making certain acquisitions or disposals without notifying the Noteholders and seeking their consent.
4.4 Term
Unless converted or redeemed earlier in accordance with their terms, the Convertible Notes have a term of five years.
4.5 Interest
The Convertible Notes accrue interest at 8 per cent. per annum, which is payable to the Noteholders in quarterly instalments on 30 March, 30 June, 20 September and 31 December each year.
Interest ceases accruing once the Convertible Notes are redeemed or converted. However, if the Company fails to repay a Noteholder who has redeemed some or all of their Convertible Notes, a default interest rate of 12 per cent. per annum applies to those amounts.
4.6 Redemption
The Convertible Notes can be redeemed:
· at the election of the Company at the end of the first 24 months of the term (however, the Noteholder may elect to convert any Convertible Notes earmarked for redemption in this process);
· at the election of the Noteholders if an Event of Default (see below) occurs;
· automatically if a third party acquires 50 per cent. or more of the shares in the Company or the Company sells all, or substantially all. of its assets; and
· otherwise, at the end of the five year term.
An Event of Default includes:
· the delisting of the Company;
· the suspension of the Company's shares from trading (unless in connection with a reverse takeover under the AIM Rules for Companies);
· the Company failing to make a payment required under the Convertible Note instrument and not remedying that failure within 10 days;
· the Company otherwise failing to comply with the terms of the Convertible Notes or related documentation and not remedying that non-compliance within 30 days;
· the Company and its subsidiaries ceasing to carry on all or substantially all of their businesses;
· the Company or any of its subsidiaries being required to make a repayment of a value of £100,000 or more due to a default and the Company failing to make that payment within 10 days; and
· the Company or any of its subsidiaries entering into insolvency, an administrator being appointed or other steps being taken to wind up the Company or any of its subsidiaries.
When the Convertible Notes are redeemed, they will be redeemed at face value (along with any interest that may be owing).
4.7 Pre-emptive Rights
The Noteholders acquiring the Initial Convertible Notes have a right of pre-emption in the event the Company decides to issue further Convertible Notes as permitted under the Convertible Note instrument.
4.8 Listing
On or before 30 June 2016, the Company will apply to have the Convertible Notes listed on the Channel Islands Stock Exchange.
4.9 Welbeck
Welbeck has been responsible for identifying and introducing potential Noteholders to the Company. As a result, Welbeck is entitled to the following introduction fees in respect of finance received on or before 30 April 2016:
· an initial introduction fee which is the equivalent of 4 per cent. of the first £3 million (in aggregate) raised by:
o issuing Convertible Notes; and
o issuing Ordinary Shares (or other equity) to that person.
· A second initial introduction fee if more than £3 million is raised by the Company from the sources listed above, on the following basis:
o If the total amount raised is less than £5 million, the additional fee will be a percentage between 4 per cent. and 5 per cent. of that additional amount in excess of £3 million.
o The percentage is calculated on a straight line basis with the percentage fee increasing the closer the amount raised is to £5 million; and
o If the total amount raised is £5 million or more, the additional fee will be 5 per cent. of that additional amount.
The amount raised for the purposes of calculating the initial introduction fees excludes certain subscriptions for Convertible Notes.
If the Company seeks to issue further Convertible Notes on or after 31 March 2016,Welbeck will also be entitled to the following fees:
· For certain specified investors who have been identified by Welbeck and any other investor introduced by Welbeck to the Company that subscribes for Convertible Notes or Ordinary Shares or other equity in lieu of Convertible Notes, an amount equal to the 4 per cent. of the amount raised from those parties; and
· For any other investor who subscribes for Convertible Notes, 2 per cent. of the amount raised from those parties.
Monitoring Fees
Welbeck will charge the Company an ongoing monitoring fee (payable monthly in arrears) of £15,000 (excluding VAT) per annum if the total value of the Convertible Notes on issue is less than £12 million and £25,000 (excluding VAT) per annum otherwise.
Welbeck has also been appointed as the Noteholders' Agent and Security Trustee under the Convertible Note instrument.
5. Use of proceeds
The Placing and the issue of the Initial CLN Issue are expected to raise, in total, gross proceeds of approximately £4.55 million (before commission and the expenses of the Placing and the Initial CLN Issue and excluding effective conversion of existing £740,231 director loan into Convertible Notes, and the subscriptions for Initial Convertible Notes by two of the Sellers for an aggregate nominal amount of £500,000).
The net proceeds of the Placing (after commission and expenses) will be used for growth working capital and operating costs of the Combined Group.
The proceeds of the Initial CLN Issue will be used to fund the initial cash requirements under the SPA and general corporate purposes.
6. General Meeting
A notice convening the General Meeting, to be held at the offices of the Company at 5 Clifford Street, London W1S 2LG at 11.00 a.m. on 29 March 2016 is set out at the end of this circular. At the General Meeting, the following resolutions will be proposed:
1. an ordinary resolution, to grant authority to the Directors to allot Ordinary Shares in the capital of the Company or to grant rights to subscribe for or convert any security into Ordinary Shares in the capital of the Company pursuant to section 551 of the 2006 Act, up to an aggregate nominal amount of £158,808; and
2. conditional on the passing of resolution 1, a special resolution to disapply the statutory pre-emption rights contained in section 561(1) of the 2006 Act up to an aggregate nominal amount of £158,808.
The authority and disapplication referred to above will be in addition to the authority and disapplication granted to the Directors at the Annual General Meeting of the Company held in 2015, and will expire on 1 March 2017.
The Directors undertake that they shall only use the authority and disapplication referred to above in connection with the Placing and the issue of the Convertible Notes.
7. Action to be taken by Shareholders
Shareholders will find accompanying this circular a Form of Proxy for use at the General Meeting. Whether or not Shareholders intend to be present at the General Meeting, they are requested to complete, sign and return the Form of Proxy in accordance with the instructions printed on it to Capita Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent, BR3 4TU as soon as possible and, in any event, so as to arrive no later than 11.00 a.m. on 23 March 2016. Completion and return of the Form of Proxy will not affect a Shareholder's right to attend and vote in person at the General Meeting if they so wish. Further information regarding the appointment of proxies can be found on page 17 of this circular.
In the case of Shareholders who hold their Ordinary Shares in uncertificated form and receive these materials through their broker or other intermediary, the Shareholder should complete and send a letter of direction in accordance with the instructions provided by their broker or other intermediary.
In order for the Placing and the Initial CLN Issue to proceed, Shareholders will need to approve Resolutions 1 and 2 set out in the Notice of General Meeting. If Resolutions 1 and 2 are not passed, the Placing and the Initial CLN Issue may not proceed and the Company will therefore be unable to complete the Share Acquisition.
Accordingly it is important that Shareholders vote in favour of Resolutions 1 and 2.
8. Related Party Transactions
In addition to the effective conversion of the £740,231 loan from Neil Eckert into Convertible Notes, Mr Eckert is also subscribing for £54,769 nominal of Convertible Notes in the Initial CLN Issue. The issue of, in aggregate £795,000 nominal of Convertible Notes to Neil Eckert is considered a related party transaction under the AIM Rules for Companies on the basis that Neil Eckert is a Director and substantial shareholder in the Company.
Sir Laurie Magnus and Sir Brian Williamson, Directors of the Company, are subscribing for £31,250 and £20,000 nominal of Convertible Notes respectively. The issue of these Convertible Notes to Sir Laurie Magnus and Sir Brian Williamson is considered a related party transaction under the AIM Rules for Companies on the basis that they are Directors of the Company.
The independent directors (being Richard Burrell, Mark Tarry and the RT Honourable Sir Nicholas Soames) consider, having consulted with finnCap, that the issue of Convertible Notes to Neil Eckert, Sir Laurie Magnus and Sir Brian Williamson is fair and reasonable insofar as shareholders of the Company are concerned.
9. Directors' Recommendation
The Directors consider the Share Acquisition, the Placing and the issue of the Convertible Notes to be in the best interests of the Company and its Shareholders as a whole.
Accordingly, the Directors unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as the Directors intend to do in respect of 10,989,000 Existing Ordinary Shares which in aggregate they beneficially own or control, representing approximately 42.8 per cent. of the existing issued ordinary share capital of the Company.