Kromek Regulatory News (KMK)

30 July 2015

Kromek Group plc

("Kromek" or the "Company")

Firm Placing and Open Offer to raise up to £11.0million

Kromek, a radiation detection technology company focusing on the medical, security and nuclear markets, is pleased to today announce a conditional Firm Placing and Open Offer to raise up to £11.0 million before costs. The Firm Placing has been undertaken with new and existing institutional investors in the Company and was over-subscribed.

Highlights

· Firm Placing of 36,000,000 Ordinary Shares at the Offer Price of 25 pence per Ordinary Share;

· Open Offer for an aggregate of 8,012,836 Offer Shares on the basis of 2 New Ordinary Shares for every 27 Existing Ordinary Shares, at 25 pence each; and

· Firm Placing and Open Offer, which is subject to shareholder approval, will raise gross proceeds of up to £11.0m.

Lawrence Kinet, Chairman of Kromek, stated: "Kromek has made good progress this year, in which we achieved a lot of important operational targets, increasing our customer base and strengthening our relationship with our OEM partners. This fundraise underpins our plans to realise the value of our technology and offers all shareholders the chance to participate. The Board recommends all shareholders to vote in favour of the proposals, which we believe will allow us to deliver increased value to our shareholders."

Enquiries

Capitalised terms used in this announcement have the meanings given to them in the circular.

Introduction

The Company has today raised up to £11.0 million (before expenses) via a conditional Firm Placing and Open Offer. The transaction consists of a conditional Firm Placing to raise £9.0 million by the issue of, and allotment by, the Company of 36,000,000 New Ordinary Shares at 25 pence per new Ordinary Share ("Offer Price"). In addition, in order to provide Shareholders who have not taken part in the Firm Placing with an opportunity to participate in the proposed issue of new Ordinary Shares, the Company is providing all Qualifying Shareholders with the opportunity to subscribe at the Offer Price for an aggregate of 8,012,836 New Ordinary Shares at the Offer Price (payable in full on acceptance), to raise up to a further £2.0 million. 

The Placing Shares will represent approximately 25 per cent. of the enlarged issued share capital of the Company. The Offer Price is at a discount of 29 per cent. to the closing middle market price of 35 pence per Existing Ordinary Share on 29 July 2015 (being the last practicable date before publication of this announcement).

The Open Offer provides Qualifying Shareholders with an opportunity to participate in the proposed issue of the New Ordinary Shares on a pre-emptive basis whilst providing the Company with additional capital to invest in the business of the Group. The Firm Placing and Open Offer are not underwritten.

The Firm Placing and Open Offer are conditional on, inter alia, the passing of the Resolutions at a General Meeting.

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. On the assumption that, inter alia, the Resolutions are passed, it is expected that admission of the New Ordinary Shares will become effective on or around 18 August 2015 or such later time and/or dates as Cenkos Securities and the Company may agree.

A circular will be sent to Shareholders today containing a Notice of General Meeting and will be availabile shortly on the Company's website (www.kromek.com).

Background to and reasons for the Firm Placing and Open Offer

As announced in the Company's audited full year results for the year ended 30 April 2015, which were announced immediately prior to this announcement, Kromek has experienced good revenue growth and achieved a number of its stated operational targets since its IPO in November 2013. Despite this progress however certain key revenue contracts have not been secured which has delayed the Group achieving profitability in line with management expectations at the IPO.

The Directors believe however it is increasingly evident that CZT-based detectors are set to replace the prevalent scintillator-based detectors. CZT is a semiconductor that directly converts x-ray or gamma-ray photons into electrons, at room temperature, creating a spectroscopic resolution that the Directors believe outperforms any commercially-available scintillator. This performance means CZT is an ideal detector solution for medical, industrial and homeland security applications and therefore represents a significant addressable opportunity to the Group. By way of an example the Directors believe the CT and Single Photon Emission Computed Tomography (''SPECT'') addressable opportunity stands at nearly $900 million over 8 years and $110 million p.a. respectively, whilst the portable advanced radiation detectors for nuclear safeguarding opportunity is over $1 billion.

The market positioning of Kromek leaves the Group strategically placed to benefit from the increased adoption of CZT within the identifiable markets. The net proceeds of the Transaction will therefore provide the Group with the necessary working capital to continue to invest in product development whilst also increasing its sales and marketing presence to maximize the opportunities available to the Group over the short to mid-term. The Directors also believe a strengthened balance sheet will assist the Group in building relationships and negotiating contracts with OEM and government bodies who are increasingly looking to invest in CZT projects as a new technology.

Use of proceeds

The Company intends to raise £9.0 million before expenses by the conditional Firm Placing and up to a further £2.0 million before expenses under the Open Offer. The estimate of expenses for the Transaction are expected to be up to £0.6 million dependent on the proceeds from the Open Offer.

The net proceeds will be used by the Company for the following purposes:

(i) to further develop products for its core markets;

(ii) to strengthen the Company's balance sheet, which the Directors believe will assist in establishing and expanding existing OEM relationships;

(iii) to fund committed R&D and expansion of the Company's sales and marketing team;

(iv) to fund capital expenditure and patent portfolio; and

(v) for general working capital purposes.

Current Trading and Prospects

The Company today announced its full year audited results for the year ended 30 April 2015 and has made them available on the Company's website (www.kromek.com). A copy of the Annual Report and Accounts will be sent to Shareholders shortly.

The Firm Placing and Open Offer

Details of the Firm Placing

The Company has conditionally raised £9.0 million before expenses by the conditional Firm Placing of 36,000,000 Firm Placing Shares at the Offer Price to the Firm Placees.

The Firm Placing is conditional, inter alia, upon:

(i) the passing of all of the Resolutions;

(ii) the Firm Placing and Open Offer Agreement becoming or being declared unconditional in all respects and not having been terminated in accordance with its terms prior to Admission; and

(iii) Admission becoming effective by no later than 8.00 a.m. on 18 August 2015 or such later time and/or date (being no later than 8.00 a.m. on 31 August 2015) as Cenkos Securities and the Company may agree.

If any of the conditions are not satisfied, the Firm Placing Shares will not be issued and all monies received from the Firm Placees will be returned to them (at the Firm Placees' risk and without interest) as soon as possible thereafter.

The Firm Placing Shares are not subject to clawback.

The Firm Placing Shares (and the Offer Shares) will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the Admission of the Firm Placing Shares to trading on AIM. On the assumption that, inter alia, the Resolutions are passed, it is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 18 August 2015 at which time it is also expected that the Firm Placing Shares will be enabled for settlement in CREST.

Details of the Open Offer

The Company is proposing to raise up to £2.0 million before expenses. A total of 8,012,836 New Ordinary Shares are available to Qualifying Shareholders pursuant to the Open Offer at the Offer Price, payable in full on acceptance. Any Offer Shares not subscribed for by Qualifying Shareholders will be available to Qualifying Shareholders under the Excess Application Facility. The balance of any Offer Shares not subscribed for under the Excess Application Facility will not be available to Firm Placees under the Firm Placing.

Qualifying Shareholders may apply for Offer Shares under the Open Offer at the Offer Price on the following basis:

2 Offer Share for every 27 Existing Ordinary Shares

and so in proportion for any number of Existing Ordinary Shares held on the Record Date.

Entitlements of Qualifying Shareholders will be rounded down to the nearest whole number of Offer Shares. Fractional entitlements which would otherwise arise will not be issued to the Qualifying Shareholders but will be made available under the Excess Application Facility. The Excess Application Facility enables Qualifying Shareholders to apply for Excess Shares in excess of their Open Offer Entitlement. Not all Shareholders will be Qualifying Shareholders. Shareholders who are located in, or are citizens of, or have a registered office in certain overseas jurisdictions will not qualify to participate in the Open Offer. The attention of Overseas Shareholders is drawn to paragraph 6 of Part 3 of the Circular which will be sent to Shareholder today.

Valid applications by Qualifying Shareholders will be satisfied in full up to their Open Offer Entitlements as shown on the Application Form. Applicants can apply for less or more than their entitlements under the Open Offer but the Company cannot guarantee that any application for Excess Shares under the Excess Application Facility will be satisfied as this will depend in part on the extent to which other Qualifying Shareholders apply for less than or more than their own Open Offer Entitlements. The Company may satisfy valid applications for Excess Shares of applicants in whole or in part but reserves the right not to satisfy any excess above any Open Offer Entitlement.

The Board may scale back applications made in excess of Open Offer Entitlements on such basis as it reasonably considers to be appropriate. Application has been made for the Open Offer Entitlements to be admitted to CREST. It is expected that such Open Offer Entitlements will be credited to CREST on 31 July 2015.

The Open Offer Entitlements will be enabled for settlement in CREST until 11.00 a.m. on 14 August 2015. Applications through the CREST system may only be made by the Qualifying CREST Shareholder originally entitled or by a person entitled by virtue of bona fide market claims. The Offer Shares must be paid in full on application.

The latest time and date for receipt of completed Application Forms or CREST applications and payment in respect of the Open Offer is 11.00 a.m. on 14 August 2015. If you have any questions relating to the circular, and the completion and return of the Application form, please contact the Registrar. Calls to the helpline number, set out in the Circular, are typically charged at your service provider's standard rate. Calls to the helpline from outside the UK will be charged at applicable international rates. Different charges may apply to calls from mobile telephones and calls may be recorded and randomly monitored for security and training purposes. Please note Capita Registrars cannot provide financial or taxation advice or comment on the merits of the Open Offer or as to whether applicants should take up their Open Offer Entitlement.

If you are in any doubt as to what action you should take, you should immediately seek your own personal financial advice from your stockbroker, bank manager, solicitor, accountant or other independent professional adviser duly authorised under the Financial Services and Markets Act 2000 (as amended) if you are resident in the United Kingdom or, if not, from another appropriate authorised independent financial adviser.

The Open Offer is not being made to certain Overseas Shareholders.

Qualifying Shareholders should note that the Open Offer is not a rights issue and therefore the Offer Shares which are not applied for by Qualifying Shareholders will not be sold in the market for the benefit of the Qualifying Shareholders who do not apply under the Open Offer. Qualifying non-CREST Shareholders should be aware that the Application Form is not a document of title and cannot be traded or otherwise transferred.

Further details of the Open Offer and the terms and conditions on which it is being made, including the procedure for application and payment, are contained in the Circular and in the accompanying Application Form sent to Shareholders today.

The Open Offer is conditional on the Firm Placing becoming or being declared unconditional in all respects and not being terminated before Admission (as the case may be). The principal conditions to the Firm Placing are:

(a) the passing of all of the Resolutions at the General Meeting;

(b) the Firm Placing and Open Offer Agreement having become unconditional; and

(c) Admission becoming effective by no later than 8.00 a.m. on 18 August 2015 or such later time and/or date (being no later than 8.00 a.m. on 31 August 2015) as Cenkos Securities and the Company may agree.

Accordingly, if these conditions are not satisfied or waived (where capable of waiver), the Open Offer will not proceed and the Offer Shares will not be issued and all monies received by Capita will be returned to the applicants (at the applicants' risk and without interest) as soon as possible thereafter. Any Open Offer Entitlements admitted to CREST will thereafter be disabled.

The Offer Shares (and the Firm Placing Shares) will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid after the date of their issue.

The Existing Ordinary Shares are admitted to trading on AIM. Application will be made to the London Stock Exchange for the admission of the Offer Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 18 August 2015 at which time it is also expected that the Offer Shares will be enabled for settlement in CREST. Further information on settlement and dealings in the Open Offer Shares is set out in Part 3 of the Circular.

Firm Placing and Open Offer Agreement

Pursuant to the Firm Placing and Open Offer Agreement, Cenkos Securities have agreed to use their reasonable endeavours as agent of the Company to procure subscribers for the Firm Placing Shares at the Offer Price.

The Firm Placing and Open Offer Agreement provides, inter alia, for payment by the Company to Cenkos Securities of a corporate finance fee and commissions based on certain percentages relating to the number of Firm Placing Shares placed by Cenkos Securities and the Offer Shares, multiplied by the Offer Price.

The Company will bear all other expenses of and incidental to the Firm Placing and Open Offer, including printing costs, Registrar's and Receiving Agent's fees, all legal and accounting fees of the Company and of Cenkos Securities, all stamp duty and other taxes and duties payable.

The Firm Placing and Open Offer Agreement contains certain warranties and indemnities from the Company in favour of Cenkos Securities and is conditional, inter alia, upon:

(a) Shareholder approval of the Resolutions at the General Meeting;

(b) the Firm Placing and Open Offer Agreement having become unconditional in all respects (save for the condition relating to Admission) and not having been terminated in accordance with its terms; and

(c) Admission becoming effective not later than 8.00 a.m. on 18 August 2015 or such later time and/or date as the Company and Cenkos Securities may agree, being not later than 31 August 2015.

Cenkos Securities may terminate the Firm Placing and Open Offer Agreement in certain circumstances, if, inter alia, the Company is in material breach of any of its obligations under the Firm Placing and Open Offer Agreement; if there is a material adverse change in the condition, earnings, business, operations or solvency of the Company; or if there is a material adverse change in the financial, political, economic or stock market conditions, which in their respective reasonable opinion makes it impractical or inadvisable to proceed with the Firm Placing and Open Offer.

Director Subscription

Certain Directors have indicated their intentions in respect of taking up some of their entitlement to subscribe for New Ordinary Shares under the Open Offer. Details of the Director intentions are set out below:

Transaction Considerations

As set out in the Recommendation section below, the Directors believe the Transaction to be in the best interests of the Company and its Shareholders as a whole. In making this statement the Directors have spent time, and have taken appropriate advice, in considering the Transaction and the method by which to raise the net proceeds. The Directors concluded that a Firm Placing accompanied by an Open Offer was the most appropriate structure to raise funding for the following reasons:

- the Firm Placing enables the Company to attract a number of new investors to its shareholder register, which the Directors expect will improve liquidity going forward, and also to provide an element of funding certainty within the Transaction; and

- the Open Offer of up to £2.0 million enables all Shareholders to participate in the Transaction on the same terms as institutional and new investors but without the time and costs associated with a full pre-emptive offer. A full pre-emptive offer, either via a rights issue or open offer, above €5.0 million would have required the Company to have produced a prospectus which would have taken significant time and cost.

The Offer Price represents a discount of 29 per cent. to the closing mid-market price of the Ordinary Shares on the 29 July 2015, being the latest practicable date immediately prior to this announcement. The Directors can confirm the Offer Price, and therefore potential dilution for Shareholders, has been a key consideration in setting the amount raised as part of the Transaction and the decision to undertake an Open Offer. The Offer Price was established as part of a book building process undertaken by the Company's advisors and also following consultation with certain substantial Shareholders and incoming investors.

Board Update

On 17 April 2015, Lawrence Kinet was appointed Interim Chairman of the Company. Since this date, the Company has been assessing suitable candidates to join the Board either in a Non-Executive and/or Chairman capacity. The process remains ongoing and further updates will be made as appropriate, with major Shareholders consulted ahead of any appointment being made.

As of 29 July 2015, Mr Kinet assumed the title of Chairman of the Company to provide stability and oversight to the executive management team and to assist in the recruitment process. The Company also intends in due course to undertake a wider review of its Board to maximise its effectiveness and to comply with appropriate corporate governance standards.

General Meeting

The Directors do not currently have authority to allot all of the New Ordinary Shares and, accordingly, the Board is seeking the approval of Shareholders to allot the New Ordinary Shares at the General Meeting.

A notice convening the General Meeting, which is to be held at NETPark, Thomas Wright Way, Sedgefield, TS21 3TD at 10.00 a.m. on 17 August 2015, is set out in a circular sent to Shareholders today and which will be available on the Company's website (www.kromek.com).

Recommendation

The Directors believe that the Firm Placing and Open Offer and the passing of the Resolutions are in the best interests of the Company and Shareholders, taken as a whole.

Accordingly the Directors unanimously recommend Shareholders vote in favour of the Resolutions. The Firm Placing and Open Offer are conditional, inter alia, upon the passing of the Resolutions at the General Meeting. Shareholders should be aware that if the Resolutions are not approved at the General Meeting, the Firm Placing and Open Offer will not proceed.

Capitalised terms used in this announcement have the meanings given to them in the circular.