FCRM.L Regulatory News (FCRM)

5 December 2022 

FULCRUM UTILITY SERVICES LIMITED

("Fulcrum" or "the Group" or "the Company")

Convertible Loan Facility Agreement

Further to the Company's Trading Update on 24 October 2022 (RNS: 7933D) which notified that the Company was in discussions with its substantial shareholders with regards to ensuring that the Group remains adequately funded, the Company confirms that it has entered into an arrangement (the "Facility Agreement") with Bayford & Co Ltd ("Bayford") and funds managed by the Harwood Capital Management Limited Group ("Harwood") (together the "Lenders") in respect of the provision of funding of up to £6 million (the "Facility") by way of a convertible loan. 

The entry into the Facility Agreement, by Bayford and Harwood, each being a substantial shareholder of the Company, constitutes a related party transaction with each Lender under rule 13 of the AIM Rules. Accordingly, the directors who are independent of the Facility, being Jennifer Babington and Dominic Lavelle, (the "Independent Directors") consider, having consulted with Cenkos Securities plc, acting in its capacity as the Company's nominated adviser and broker, that entering into the Facility Agreement is fair and reasonable insofar as the Company's shareholders are concerned.

The key terms of the Facility Agreement are:

· Up to £6 million as principal (being £4 million from Bayford and £2 million from Harwood on a pro rata basis);

· Repayable on or before 1 November 2023 ("Repayment Date") or such later date as may be agreed by the Lenders;

· Convertible into Ordinary Shares at the discretion of the Lenders from 1 April 2023 or earlier in the Event of Default which is continuing ("Conversion");

· If converted, the conversion price will be the lower of the volume weighted average market value of the Company's Ordinary Shares in the 5 trading days immediately preceding the date of the conversion notice or 0.5p per Ordinary Share of the Company (the "Conversion Price");

· At or around the point of Conversion, the Company's shareholders will be entitled to participate in an open offer or similar arrangement, at the same price as the Conversion Price;

· Interest will be accrued from the date monies are drawn down under the Facility at a rate of 20 per cent. per annum, repayable at the end of the term or on prepayment of the Facility;

· A prepayment fee of 20 per cent. of the amount of the Facility prepaid early and a non-utilisation fee of 6 per cent. per annum.

The cash provided by the Facility will be drawn in tranches as required by the Company.

Important matters to note for minority shareholders

The proceeds from the December 2021 fundraise were to support the Company's stated growth strategy of entering the smart meter infrastructure market as a Meter Asset Manager ("MAP"), as well as for general working capital purposes. The considerable and unprecedented volatility in the energy markets, and wider market issues of supply chain pressure and cost inflation in materials, have weighed heavily on the profitability of the Group's core activities. Accordingly, the Group's priorities shifted during the year from entering the smart meter infrastructure market as a MAP, to focusing on protecting and improving margins in the Group's core business and the proceeds of the fundraise have been utilised to repay the existing debt facility in full and for working capital purposes to support the business through trading losses in the current difficult market conditions.

The Facility is expected to support the Group to initiate a review of the various strategic options available to it to maximise value for all shareholders ("Review") and to ensure the Group continues to have adequate working capital. 

The exercise of equity conversion rights by either Lender under the Facility may result in that Lender acquiring Ordinary Shares carrying more than 30 per cent. of the voting rights in Fulcrum, and in certain circumstances more than 50 per cent.

Although Fulcrum is not a company that is subject to the UK Takeover Code, the Company's Articles of Association (the "Articles") contain certain protections equivalent to that afforded to shareholders under Rule 9 of the City Code on Takeovers and Mergers. As a condition of the Facility, the Independent Directors of Fulcrum have agreed to exercise their discretion, pursuant to the Articles, to waive any requirement for a mandatory offer for the remaining Ordinary Shares in the Company which may otherwise apply upon the exercise of equity conversion rights under the Facility. For these purposes, the Independent Directors have not made any determination that the Lenders are acting in concert and each Lender has been granted a separate waiver. The Relationship Agreements that exist between the Company and each of the Lenders will remain in place.

In order to enable minority shareholders to participate in the raising of funds for the Company on similar terms to the Lenders, the Facility Agreement contains an entitlement for minority shareholders, at or around the point of Conversion, to participate in an open offer or similar arrangement at the Conversion Price, with a right to subscribe for additional shares in the capital of the Company pro rata to their existing shareholdings at that time. This offer is expected to be undertaken shortly following exercise by the Lenders of their Conversion right.

The issue of shares to the Lenders, resulting from Conversion, is also subject to shareholders approving certain resolutions (the "Resolutions"). A shareholder circular convening a general meeting for the purposes of seeking approval of the Resolutions will be sent to shareholders in due course. Shareholders should be aware that it is a term of the Facility Agreement that these Resolutions are approved by the requisite majority and the FacilitieAgreement may be terminated if they are not so approved. The termination of the Facility Agreement would likely result in little or no value for Shareholders. Accordingly, it is important that Shareholders vote in favour of all of the Resolutions so that Conversion may proceed and all funding options are available to the Board.

Jennifer Babington, Chair, commented:

"Clearly the situation that the Company has found itself in is disappointing. Whilst it was known that the Company had legacy operational issues, these were deeper and more longstanding than anticipated. This, set against a turbulent energy market and difficult economic backdrop, have created deeply challenging and unprecedented conditions for the Group that could not have been predicted at the time of the fundraise in December last year. 

The Facility is, however, I believe a positive demonstration of our major shareholders' continued belief and commitment in Fulcrum and an endorsement of the future potential of the business."

This announcement contains inside information for the purposes of the UK version of the Market Abuse Regulation (EU No. 596/2014) as it forms part of United Kingdom domestic law by virtue of the European Union (Withdrawal) Act 2018 ("UK MAR"). Upon the publication of this announcement, this inside information is now considered to be in the public domain.

The identity and percentage holdings of the Company's major shareholders:

*Bayford Group and its connected parties (controlled by Jonathan Turner)

Enquiries:

Notes to Editors:

Fulcrum is a multi-utility infrastructure and services provider. The Group operates nationally with its head office in Sheffield, UK. It designs, builds, owns, and maintains utility infrastructure. https://investors.fulcrum.co.uk/