NKTN.L Regulatory News (NKTN)

29 December 2016

NEKTAN PLC

("Nektan", the "Company" or the "Group")

Confirms successful subscription, proposed offer for subscription and notice of AGM

Nektan plc (AIM: NKTN), a leading international B2B gaming solutions and services provider, is pleased to announce that, following the announcement of a proposed subscription made earlier today, the Company has raised approximately £2.275 million from new and existing shareholders including certain directors (the "Subscription"). The Subscription is subject to the passing of the resolutions at the Company's Annual General Meeting on 27 January 2017.

The board also considered it important that all shareholders have the opportunity to participate in the fundraising on the same terms and so, as announced earlier today, the Company will make an offer to subscribe for shares to Qualifying Shareholders on the register at the Record Date (the "Offer").

Proposed equity fundraising:

· The Company has received commitments to raise £2.275m gross through the proposed issuance of 8,272,726 new Ordinary Shares to provide near term working capital.

· In addition, the board are making an offer to qualifying shareholders to subscribe for up to 1,818,182 new ordinary shares with a value of up to £500,000.

· Both the Subscription and the Offer will be priced at 27.5 pence (a discount of 15 per cent. to the mid-market share price at the close on 28 December 2016) and will include a warrant that will reprice the investors' investment price to the issue price of any lower fundraising in the next six months.

· The funds being raised from the Subscription will provide near term working capital but it is expected that long term funding will be required by the Company and, without undertaking alternative corporate transactions, the Company will need to undertake an additional fundraising.

Annual General Meeting

The Ordinary Shares to be issued in the Subscription and the Offer are both subject to the passing of certain resolutions at the Annual General Meeting. Shareholder approval in respect of the fundraising, inter alia, will be sought at the Annual General Meeting, which is being convened at 11.00 am on 27 January 2017 at K&L Gates LLP, One New Change EC4M 9AF. Provided that the Resolutions are passed and the Subscription has otherwise become unconditional, completion of the Subscription is expected to take place on 30 January 2017. A circular and notice to Shareholders convening the Annual General Meeting, together with proxy form and application form for the Offer is expected to be posted on 4 January 2017. The Audited Report and Accounts of the Company will be available on the Company's website www.nektan.com from 30 January 2016.

Leigh Nissim, Chief Executive Officer, said:

"We are pleased with the strong support that this issue has received from existing shareholders and new investors. This fundraising will enable the Company to build upon its strong growth momentum and support the continuing significant progress of the business."

For further information on the Group, please contact:

Further information on Nektan can be found on the Group's website at www.nektan.com

This announcement contains inside information for the purposes of Article 7 of Regulation (EU) No 596/2014.

About Nektan:

Nektan is a leading international B2B mobile gaming solutions and services provider, operating in the regulated, interactive real money gaming (RMG) gaming space, delivering original and innovative solutions to commercial organisations that have established online audiences.

Nektan's full end-to-end technology platform, Evolve, simplifies and supports the route to mobile and desktop gaming revenues, managing the full customer experience and back-office operations, allowing commercial partners to focus on marketing the product to their consumers.

Nektan's US subsidiary, Respin LLC, provides US land-based casinos with in-venue mobile gaming solutions which allow operators to add mobile technology and content to their existing offerings, with products accessible to players across both cabinets and mobile devices inside the casinos. Respin has a strong intellectual property portfolio including game patents for Rapid Games™ (on-property mobile entertainment), and other captivating concepts and brands.

Nektan is headquartered in Gibraltar, regulated by the Gibraltar Licensing Authority and the UK Gambling Commission, as well as in the Irish market and maintains sales and customer support operations in its two primary geographical targets, Europe and North America. The proprietary Evolve technology is developed and maintained by a talented and experienced team of employees from Nektan's Indian office.

Nektan plc was admitted to the AIM market of the London Stock Exchange in November 2014.

EXPECTED TIMETABLE OF PRINCIPAL EVENTS

Posting of Circular and Application Form to Qualifying Shareholders 4 January 2017

Latest time and date for acceptance of the Offer and receipt of a completed Application Form and payment in full for Ordinary Shares under the Offer or settlement of relevant CREST instruction (as appropriate) 1.00 pm on 20 January 2017

AGM 11.00 am on 27 January 2017

Admission and commencement of dealings in the New Ordinary Shares on AIM 8.00 am on 30 January 2017

Issue of Warrants 30 January 2017

Expected date for crediting of New Ordinary Shares in uncertificated form to CREST stock accounts 30 January 2017

Despatch of share certificates in respect of New Ordinary Shares to be held in certificated form and definitive certificates for Warrants 6 February 2017

If any of the details contained in the timetable above should change, the revised times and dates will be notified by means of an announcement through a Regulatory Information Service.

All references are to London time unless stated otherwise.

CAPITAL RAISING STATISTICS

1. Introduction

The Company has received commitments to subscribe for 8,272,727 Subscription Shares at an issue price of 27.5 pence per share, raising approximately £2.275 million. In addition, the Company intends to offer up to 1,818,182 Offer Shares, being an aggregate amount of £500,000, for subscription by Qualifying Shareholders, at the Offer Price. The Company will grant to each subscriber of New Ordinary Shares a pro rata number of anti-dilution limited exercise Warrants to subscribe for Ordinary Shares (exercisable at a price of 1 pence per Ordinary Share) for each New Ordinary Share subscribed under the Subscription and/or Offer (rounded down to the nearest whole number of Warrants).

2. Background to the fundraising

As announced in the Group's preliminary results statement on 29 December 2016, during FY 2016 the Company experienced strong growth in its key indicators of net gaming revenues and total cash bets. Management actions also saw costs in the Group reduce substantially. The Company has indicated that trading post year end has shown an acceleration of growth with Q1 FY 2017 NGR increasing to £2.1 million (£1.9 million in Q4 FY 2016) and total cash wagering increasing to £65.9 million (£51.2 million Q4 FY 2016). However, a number of factors have contributed to it taking longer to reach EDITDA break even than anticipated at the time of the fundraising in March of this year and the business has continued to be loss making.

The sale by the Company in August of three gaming brands for £1.95 million and the recent marked improvement in trading have ensured the Company has remained funded during the period following the year end. However, as previously notified, the Group has significant payments to its partners as well as experiencing significant periodic cash outflows relating to, inter alia, quarterly payments of gaming revenue taxes. The Directors have therefore been continuing to assess the Group's financing options. These have included seeking new investors, debt finance or other financial support from key stakeholders for the Group; seeking a strategic partner; or seeking to realise value from its trading assets. 

Having considered the funding options, and taking the continuing short term cash requirements of the Company into consideration, the Board decided to undertake a subscription from investors that include many of the key stakeholders in the business including certain Directors. The board also considered it important that all shareholders have the opportunity to participate in the fundraising on the same terms and so the Company will make an offer to subscribe for shares to Qualifying Shareholders on the register at the Record Date. As set out in the announcement of 29 December 2016, the Board has also reduced the Company's cash outflows by reaching an agreement with the holders of the Series A Fixed Rate Convertible Loan Notes to be able, at the Company's request, to defer the interest until 2020.

The Subscriptions and the Offer are therefore intended to address the near term working capital requirements and to generally strengthen the balance sheet. However, the funds being raised from the Subscription and Offer are not expected to provide the long term funding required by the Company and, without undertaking alternative corporate transactions, the Board considers it likely the Company will need to undertake an additional fundraising.

3. Subscription

The Company proposes to issue, conditional on the passing of the Resolutions at the AGM, up to 8,272,726 Subscription Shares, and up to 212,000,000 Warrants pro rata to their subscription amounts, raising approximately £2.275 million.

4. The Offer

The Directors consider it important that Qualifying Shareholders have an opportunity to participate in the fundraising at the same price as the Subscription. Shareholders should note however, the statements made by the Directors as regards the Company's continuing capital requirements and, in particular, as regards the sufficiency of working capital.

Qualifying Shareholders will be invited to subscribe for Offer Shares with an aggregate value of £500,000. The Board have discretion to scale back requests to participate in the Offer should they in total exceed the £500,000 allocated to satisfy demand from Qualifying Shareholders.

Qualifying Shareholders will be entitled therefore in aggregate to subscribe for up to 1,818,182 Offer Shares, subject to a minimum aggregate Subscription amount of £10,000 for each participating Qualifying Shareholder. The Directors will have the discretion to scale back applications to the extent that aggregate applications exceed 1,818,182 Ordinary Shares. In addition, Qualifying Shareholders would receive their pro rata entitlement of up to 48,000,000 limited exercise Warrants.

5. CLNs

On 28 April 2015, the Company executed a loan note instrument which constituted up to £10,000,000 of Series A CLNs and a loan note instrument which constituted up to £1,100,000 of Series B CLNs each with an issue price of 209 pence. The Series A CLNs mature on 29 April 2020 and have a coupon rate of 10 percent attached to them. They are convertible into Ordinary Shares at any time prior to the maturity date, at the option of the holder of the CLNs on 30 days' notice and in aggregate amounts of no less than £20,000, at a price per CLN which is 125 percent of the price at which Ordinary Shares were last issued by the Company prior to the request for conversion of the CLNs into Ordinary Shares, subject to a maximum price of 209 pence each (the "Conversion Price").

There are 4,784,689 Series A CLNs which currently convert into 9,876,543 Ordinary Shares at a Conversion Price of 101.25 pence. There are also 526,315 Series B CLNs which currently convert into 1,086,420 Ordinary Shares at a Conversion Price of 101.25 pence. The issuance of New Ordinary Shares at the Subscription Price will rebase the Conversion Price for the CLNs to 34.375 pence (the "New Conversion Price") which would result, on conversion of the Series A CLNs and Series B CLNs, in the issue of 32,290,909 Ordinary Shares.

The Company is amending the terms of the Series A CLNs so that: (a) the Company has the right to defer the interest on the Series A CLNs until 2020, with the Company having the option quarterly to restart interest payments. If the Company exercises its right to defer interest, the Series A CLN holders will be granted a warrant to buy Ordinary Shares at the lowest prevailing equity issue price per share up to the value of the interest so deferred prior to the redemption date (the "CLN Deferred Interest Warrants"); (b) Ordinary Shares issued pursuant to the exercise of CLN Deferred Interest Warrants will not rebase the Conversion Price; and (c) the Company will be able to opt to repay the Series A CLNs on any date after 30 April 2019 and prior to the end of the term.

For the avoidance of doubt, the New Conversion Price is not fixed and will increase or decrease depending on the future issue price of Ordinary Shares, save that the exercise of warrants granted to defer interest or to provide anti-dilution protection under the Subscription and Offer will not rebase the Conversion Price.

6. Dilution

The issue of the Subscription Shares and the Offer Shares would, assuming that all Series A CLNs and Series B CLNs are converted at the New Conversion Price, mean that Qualifying Shareholders who do not participate in the Subscription or Offer will be subject to a dilution of 89.6 percent to their interests in the Company.

7. Use of proceeds and working capital

The funds raised by the Subscription of £2.275 million (not including any funds to be raised under the Offer) will be used by the Company to support the near term working capital requirements of its operations.

The Company's business model sees it receive net gaming revenues in cash on a monthly basis, and, as stated in the preliminary results announcement on 29 December 2016, these have been growing significantly in line with its business activities since year end. In addition, the Directors have taken, and are continuing to take, action to significantly reduce the Company's fixed cost base including deferral of the majority of the convertible loan note interest. Nevertheless, the Group has significant payments to its partners as well as experiencing significant periodic cash outflows relating to, inter alia, quarterly payments of gaming revenue taxes and it also has further scheduled investments into Respin within the next 12 months. These and a number of other factors have contributed to it continuing to be loss making.

In addition to the receipt of the net proceeds of the Subscriptions and any proceeds from the Offer, the Directors will need to seek additional capital from corporate actions or, if required, a further possible fundraise. Subject to receipt of such additional funding and provided the Company continues to perform in line with the Directors' expectations, the Directors expect to be able to manage the Company's working capital during these key periods.

However, should funds from corporate actions prove more difficult than anticipated then the Company would need to seek alternative additional funds and, notwithstanding any corporate actions, the Company may require further funds should revenues be less than, or costs exceed, the Board's expectations.

The Directors are therefore continuing to assess the Company's financing options, in addition to the Offer. These options include seeking a strategic partner; or seeking to realise value from its trading assets seeking new investors, debt finance or other financial support from key stakeholders for the Group; These options have not yet been explored in detail and, whilst the Directors believe that, if required, the Company would be reasonably likely to secure additional funding from one of these options, there is no guarantee that any such funding or realisation of value could be completed.

As the Subscription and the Offer are conditional, inter alia, upon the passing by Shareholders of the Resolutions at the AGM, Shareholders should be aware that, if the Resolutions are not passed and Admission does not take place, the proceeds of the Subscription will not be received by the Company. In addition, the Offer will not proceed. In such circumstances, the Company would need urgently to pursue additional or alternative funding sources. There would be no certainty of the terms under which alternative financing would be made available if at all. Failing to receive such additional funding could see the Company go into receivership, liquidation or administration.

8. Principal terms of the Offer

Pursuant to the Offer, a total of up to 1,818,182 Offer Shares at the Offer Price, payable in full on acceptance, are available to Qualifying Shareholders, subject to a minimum aggregate subscription per participating Qualifying Shareholder of £10,000 and a maximum aggregate value of £500,000.

If the aggregate amount of Offer Shares applied for by Qualifying Shareholders exceeds £500,000, the Board may scale back applications under the Offer to raise the maximum of £500,000 under the Offer in order to get to a total sum raised of £2.775 million between the Subscription and the Offer.

The Offer Shares must be paid in full on application. The latest time and date for receipt of a completed Application Form is 1.00 pm on 20 January 2017.

For each Offer Share subscribed for by Qualifying Shareholders, they will receive their pro rata entitlement to a number of limited exercise Warrants.

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 Offer.

The Subscription and the Offer are conditional only on the passing of the Resolutions at the AGM, the admission of the New Ordinary Shares to AIM occurring not later than 8.00 am on 30 January 2017 (or such later time and/or date as the Company may agree being no later than 8.00 am on 13 February 2017).

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

The New Ordinary 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, interest and other distributions declared, made or paid after the date of their issue.

Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. It is expected that Admission and trading will occur and that dealings will commence at 8.00 am on 30 January 2017.

9. Overseas Shareholders

The attention of Qualifying Shareholders who have registered addresses outside the United Kingdom, or who are citizens or residents of countries other than the United Kingdom, or who are holding Existing Ordinary Shares for the benefit of such persons, (including, without limitation, custodians, nominees, trustees and agents) or who have a contractual or other legal obligation to forward this document or the Application Form to such persons, is drawn to the information which appears in paragraph 6 of Part 3 of the circular being sent to Shareholders.

In particular, Qualifying Shareholders who have registered addresses in or who are resident in, or who are citizens of, countries other than the UK (including without limitation the United States of America), should consult their professional advisers as to whether they require any governmental or other consents or need to observe any other formalities to enable them to participate in the Offer.

10. Related party transactions

Gary Shaw, Jim Wilkinson, Leigh Nissim and Sandeep Reddy have, either directly or through their associated companies, the following holdings of 4,693,804, 120,138, 0 and 3,249,535 Ordinary Shares respectively (representing 19.5 percent, 0.5 percent, 0 percent and 13.5 percent of the Company's Existing Ordinary Shares respectively). Gary Shaw, Jim Wilkinson, Leigh Nissim and Sandeep Reddy, either directly or through their associated companies, have agreed with the Company to subscribe for 636,363, 181,818, 90,909 and 3,181,818 Subscription Shares and the applicable Warrants respectively. As Directors of the Company, their participation in the Subscription constitutes a "related party transaction" under the AIM Rules for Companies.

Together, Gary Shaw, Jim Wilkinson, Leigh Nissim and Sandeep Reddy are the "Related Parties". Alan Turner (the "Independent Director") considers, having consulted with the Company's nominated adviser, Zeus Capital, that the terms on which the Related Parties are participating in the Subscription are fair and reasonable insofar as the Company's Shareholders are concerned.

11. Annual General Meeting and Accounts

Shareholders will be sent a notice convening the AGM at which the Resolutions will be proposed by the Directors. The Resolutions grant the relevant authorities to proceed with the Subscription and the Offer, as well as variously providing authorities for the issue of the Warrants, the CLN Deferred Interest Warrants, further Ordinary Shares, in case a fundraising is required, the conversion of the CLNs and the standard authorities and disapplication of pre-emption rights.

The Accounts, which will be laid before the AGM, have been posted on the Company's website today.

The Directors are of the opinion that the Subscription and the Offer and the amendments to the Series A CLNs are in the best interest of the Company and its Shareholders as a whole.

In addition, the Directors unanimously recommend that shareholders vote in favour of the Resolutions. Directors or their connected parties has irrevocably undertaken to vote in favour of the Resolutions in respect of, in aggregate, 4,813,942Existing Ordinary Shares, representing approximately 20.0 percent of the Ordinary Shares in issue as at the date of this letter.

Further, significant shareholders have irrevocably undertaken or committed to vote in favour of the Resolutions in respect of, in aggregate, 8,739,679 Existing Ordinary Shares, representing approximately 36.3 percent of the Ordinary Shares in issue as at the date of this letter.

As the Subscription and the Offer are conditional, inter alia, upon the passing by Shareholders of the Resolutions at the AGM, Shareholders should be aware that, if the Resolutions are not passed and Admission does not take place, the proceeds of the Subscription will not be received by the Company. In addition, the Offer will not proceed. In such circumstances, the Company would need urgently to pursue additional or alternative funding sources which, if they are available at all, may be expensive and/or onerous for the Company. Failing to receive such additional funding could see the Company go into receivership, liquidation or administration.

12. Particulars of the Warrants

Pursuant to the Subscriptions and the Offer, pro rata limited exercise Warrants are being issued to subscribers of Subscription Shares and Offer Shares.

The Warrant Instrument shall constitute up to 260,000,000 limited exercise Warrants each entitling the holder thereof to subscribe for Ordinary Shares at 1 pence per Ordinary Share. The Warrants are granted to subscribers of the Subscription Shares and Offer Shares to protect them from equity dilution in circumstances where there is a further equity issue in the 6 month period following the date of the Warrant Instrument at below the Subscription Price and Offer Price.

Where such a further equity issue takes place during that 6 month period below the Subscription Price and Offer Price such number of Warrants will be exercisable at 1 pence per Warrant in order that each subscriber acquires a number of Ordinary Shares such that their total average cost of acquisition per share across the two equity issuances and exercise of the Warrants is equivalent to the new lower equity issue price, subject to this equity issue price being not less than 2 pence per Ordinary Share.

Subject to the further terms of the Warrant Instrument, the Warrants shall be exercisable, if required, for a period of 6 months from the date of issue of the Warrant Instrument. Issuances of Ordinary Shares pursuant to the Warrant Instrument will not rebase the Conversion Price.

In the event that at the end of the 6 month period following the creation of the Warrant Instrument not all of the Warrants are exercised, the Company shall cancel the remaining Warrants.

Ordinary Shares allotted pursuant to the exercise of Warrants will not rank for any dividends or other distributions declared, made or paid on or by reference to a record date prior to the date of allotment of Ordinary Shares on exercise of such Warrants.