7 Mar 2016 07:00
7 March 2016
Nektan plc
("Nektan", the "Company" or the "Group")
Proposed fundraising of up to £2.93 million
and
Related party transactions
The Board of Nektan plc (AIM: NKTN.L), a leading international B2B mobile gaming content developer and platform provider, announces that the Company has received commitments from new and existing investors, including directors, to raise up to £2.93 million. The fundraising comprises:
- The subscription for £2.56 million of new convertible loan notes (the "CLNs") by existing CLN holders and new investors. Subscribers to the CLN will also receive 1 warrant over a new ordinary share, at an exercise price of 81.75 pence (the "Exercise Price"), for every £1 invested in the CLN (the "Warrants") resulting in the issue of up to 2,560,000 Warrants (the CLN and the Warrant together, the "CLN Unit") (the "CLN Subscription");
- A firm subscription with an institutional investor for 358,024 new Ordinary Shares at an issue price of 81 pence per share (the "Issue Price"), raising approx. £290,000. The Issue Price is equal to the closing mid-market price of 81 pence on 2 March 2016 (the "Share Subscription", and together with the CLN Subscription, the "Subscriptions"); and
- In addition, the Board announces that the Company intends to offer up to £300,000 of CLN Units for subscription by qualifying shareholders (the "Offer"). Since a maximum of £2,643,309 is available to be issued under the current Series A 2020 Loan Note instrument, the Offer would potentially raise an additional £83,309 only and to the extent that applications under the Offer exceed this amount, the subscribers in the CLN Subscription will be scaled back.
A circular will be sent to shareholders shortly including notice of extraordinary general meeting and an application form for take up under the Offer.
The Subscriptions and the Offer are subject to the approval of shareholders, at an Extraordinary General Meeting (the "EGM") to be held on or around 29 March 2016, of an increased authority to issue shares on a non pre-emptive basis. However, in advance of the EGM the Company is looking to utilise up to the whole of its remaining existing shareholder authority in this regard and is in discussions with certain key investors to issue up to £550,000 of the CLNs subscribed in the next few weeks.
Highlights
· Subscription for up to £2.56 million of new CLNs together with up to 2,560,000 Warrants strongly supported by major existing investors and certain directors
· Subscription of 358,024 new Ordinary Shares at the Issue Price to raise approximately £290,000
· 1 Warrant for every £1 invested by the subscribers in the CLN Subscription
· In addition, the Company will be making an offer for subscription to qualifying shareholders who will be entitled to subscribe for up to £300,000 of CLNs together with 300,000 Warrants, potentially raising an additional £83,309
· Maximum aggregate value of CLNs currently remaining under the Series A Loan Note 2020 prior to this fundraising is £2,643,309 and therefore the CLN Subscription may be subject to a partial claw back to satisfy take up under the Offer
· The Subscriptions and the Offer are not underwritten and are conditional on the approval of Shareholders at the EGM, to be held on or around 29 March 2016.
Jim Wilkinson, Chairman of Nektan, said: "We welcome the continued support of our major shareholders and convertible loan note holders. We have continued to make good progress on achieving cost efficiencies in the business and this fundraising puts in place additional working capital to support the strong growth we are seeing in Europe and in our US JV.''
For further information on the Group, please contact:
Nektan Gary Shaw | via Newgate below |
Zeus Capital Limited (Nominated Adviser & Broker) Nicholas How (Corporate Finance) Adam Pollock (Corporate Broking) |
Tel: +44 (0)20 3829 5577 |
Newgate (PR Adviser) James Benjamin Alex Shilov Lydia Thompson |
Tel: +44 (0)20 7680 6550 Em: nektan@newgatecomms.com |
Further information on Nektan can be found on the Company's website at www.nektan.com
About Nektan:
Nektan is a leading international B2B mobile gaming content developer and platform provider. The Group designs, builds and operates mobile games in the regulated, interactive real money gaming ("RMG") and freemium gaming space, delivering original and innovative content to large 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 solely on marketing the product to their consumers.
Nektan also operates a joint venture, Respin LLC, with Spin Games LLC that provides US land-based casinos with in-venue mobile technology and an innovative way of increasing revenue from end-of-life cabinets whilst providing players new and innovative content to play, which includes functionality on mobile devices.
Nektan is regulated by the Gibraltar Licensing Authority and the UK Gambling Commission, as well as in the Irish market, and has offices in Gibraltar, London and Las Vegas with Respin based in Reno, Nevada.
ADDITIONAL DETAILS OF THE FUNDRAISING
1. Background to the fundraising
As announced in the Group's trading update on 1 February 2016, the Company has seen Respin, its US joint venture, continue to perform strongly and, with 54 existing or pending contracts with casino operators. In its European operations, the Company has seen at least 32% compound monthly growth in overall Net Gaming Revenue ("NGR") between July 2015 and January 2016. However, a delay in the acceleration of one large contract, anticipated to be worth approximately £7 million in current year NGR, will have a significant impact on Group revenues and EBITDA with the accelerated launch now expected towards the end of the current financial year.
Following recent Board changes, the directors have implemented a wholesale review of all costs and have reduced significantly the Company's monthly fixed cost base by 45% to £270,000 by April 2016, lowering the level of monthly NGR at which the Company will be EBITDA positive.
As stated in the trading update, the Company is now expected to reach an EBITDA break-even monthly run-rate late in the second half of the current financial year.
The Subscriptions and the Offer are therefore intended to address the Company's immediate cash position, provide working capital and to generally strengthen the balance sheet. However, should revenues be less, or costs exceed, the Board's expectations then reaching a stable monthly break-even run rate may take longer and / or require additional funds. More detail on the working capital position of the Company is set out in paragraph 7 "Use of funds and working capital" below.
2. CLN Subscription and the Share Placing
The Company proposes to issue, conditional on the passing of the Resolutions at the EGM, up to £2.56 million of CLN Units pursuant to the CLN Subscription on or around 30 March 2016. In addition, the Company has a firm subscription for 358,024 new Ordinary Shares at the Issue Price, raising an additional approximately £290,000. Subject to any clawback to satisfy applications under the Offer, the total sum raised under the Subscriptions will be £2.85 million.
The Subscriptions and the Offer are subject to the approval of shareholders at the EGM to be held on 29 March 2016. However, in advance of the EGM the Company is looking to utilise up to the whole of its remaining existing shareholder authority and is in discussions with certain key shareholders to issue up to £550,000 of the CLNs subscribed in the next few weeks.
3. The Offer
The Directors consider it important that Qualifying Shareholders have an opportunity to subscribe for CLN Units on the same terms as other subscribers under the CLN 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 included in section 7, "Use of proceeds and working capital", below.
Qualifying shareholders will be invited to subscribe for CLN Units with a value of up to £300,000, in aggregate. The Directors will have the discretion to scale back applications to the extent that aggregate applications exceed this amount.
The maximum proceeds of the Subscriptions and the Offer are £2.93 million.
The Offer is not underwritten and is subject to take up by the qualifying shareholders. Therefore there is no certainty that it will be taken up in full or at all.
4. Terms of the CLNs and Warrants
In April 2015, the Company executed loan note instruments for Series A and Series B Loan Notes which constituted up to £11,100,000 of convertible loan note in total. The CLNs mature in April 2020 and have a coupon rate of 10 per cent. 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 per cent. 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 existing CLNs (Series A and Series B) (the "Existing CLNs") with a value of £8,456,691 which currently convert into 4,672,204 ordinary shares at a Conversion Price of 181.25 pence. The issuance of new ordinary shares at the Issue Price under the Share Subscription will rebase the Conversion Price for the Existing CLNs to 101.25 pence (the "New Conversion Price") which would result, on conversion of the Existing CLNs, in the issue of 8,352,287 Ordinary Shares.
The new CLNs issued under the CLN Subscription and the Offer will be issued on the same terms and will also convert at the New Conversion Price (the "New CLNs").
The Warrants will be exerciseable at any time from 30 March 2016 to 30 March 2021, provided that a warrant holder may not exercise prior to the conversion or redemption of the CLNs in full. The Warrants can be exercised at the Exercise Price.
The Warrants will be subject to anti-dilution provisions if there is a sub-division or consolidation of the Ordinary Shares or allotment of paid up Ordinary Shares by way of capitalisation of profits or reserves to holders of Ordinary Shares (unless paid out of distributable reserves in lieu of a cash dividend). A full description of the terms of the warrant instrument will be available in the circular being sent to shareholders.
The Warrants are not and will not be listed.
5. Dilution
The issue of the Subscription CLNs (based on the New Conversion Price) and the Subscription Shares would, assuming that no Offer CLNs are issued but that all Existing CLNs and Subscription CLNs are converted, mean that shareholders will be subject to a dilution of 8.25 per cent. to their interests in the Company.
The overall dilutive effect of the Subscription Shares and all CLNs, including the Existing CLNs and the New CLNs, at the New Conversion Price would be 32.29 per cent.
6. Resolutions at Extraordinary General Meeting
A notice will shortly be sent to Shareholders convening an EGM at which resolutions to grant the relevant authorities to proceed with the Subscriptions and the Offer (the "Resolutions") will be proposed.
The Directors are of the opinion that the Subscriptions and the Offer are in the best interest of the Company and its Shareholders as a whole. The Company holds irrevocable undertakings or voting commitments from holders of 13,192,157 Ordinary Shares (representing 55.6% of the Company), including the directors undertakings set out below, to vote in favour of the Resolutions.
The Directors unanimously recommend that you vote in favour of the Resolutions. Each of the Directors has irrevocably undertaken to vote in favour of the Resolutions in respect of, in aggregate, 8,063,497 existing Ordinary Shares, representing approximately 34.0 per cent. of the Ordinary Shares in issue as at the date of this announcement.
7. Use of funds and working capital
The funds raised by the Subscriptions of £2.82 million (not including any funds to be raised under the Offer) will be used by the Company for working capital to support the continuing growth of its operations.
The Company's business model sees it receive net gaming revenues in cash on a monthly basis, which will grow in line with its business activities. Moreover, as stated in the trading update of 1 February 2016, the directors have taken, and are continuing to take, action to significantly reduce the Company's fixed cost base. Nevertheless, the Company has significant cash outflows around quarterly payments of gaming revenue taxes and convertible loan note interest and it also has further scheduled investments into the Company's US JV within the next 12 months.
After taking account of the receipt of the net proceeds of the Subscriptions, the Directors expect to be able to manage the Company's working capital during these key periods provided the Company continues to perform in line with the Directors' expectations. However, should this prove more difficult than anticipated or should revenues be less than, or costs exceed, the Board's expectations then the Company would need additional funds.
The Directors are therefore continuing to assess the Company's financing options, in addition to the Subscriptions and the Offer. These options include 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. 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, any such funding or realisation of value in those circumstances could be on unfavourable and onerous terms.
As the Subscriptions are conditional, inter alia, upon the passing by Shareholders of the Resolution at the General Meeting, Shareholders should be aware that, if the Resolution is not passed and Admission does not take place neither the proceeds of the CLN Subscription nor Share Subscription will 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.
8. Principal Terms of the Offer
The Company is proposing to raise up to £2.93 million before expenses by the issue of up to £2.56 million under the CLN Subscription together with 2,560,000 Warrants and 358,024 new Ordinary Shares pursuant to the Subscriptions. In addition, a total of up to £300,000 of CLNs together with 300,000 Warrants are available to qualifying shareholders pursuant to the Offer. To the extent more than £83,309 is raised under the Offer, the Board will need to scale back the CLN Subscription to ensure £300,000 of CLN is available to qualifying shareholders.
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.
If applications are received for more than £300,000 of CLNs from qualifying shareholders, then the Board may scale back applications under the Offer on such basis as it considers to be appropriate.
Qualifying shareholders should note that the Offer is not a rights issue and therefore the CLN Units 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 Offer. The application form is not a document of title and cannot be traded or otherwise transferred.
Further details of the Offer and the terms and conditions on which it is being made, including the procedure for application and payment, will be contained in a circular to be posted to Shareholders shortly.
The Offer is conditional only on the passing of the Resolutions at the EGM and the admission of the New CLNs to the CISEA. If these conditions are not satisfied or waived (where capable of waiver), the Offer will not proceed and CLN Units being offered 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.
The CLNs and Warrants will be issued free of all liens, charges and encumbrances and the CLNs will, when issued and fully paid, rank pari passu in all respects with the Existing CLNs, including the right to receive interest declared, made or paid after the date of their issue.
9. Related party transactions
Gary Shaw is the acting Chief Executive Officer and Jim Wilkinson is the non-executive Chairman of the Company. Set out below is their current holding of Ordinary Shares (neither are current holders of CLNs), the amount of CLNs and Warrants that they are subscribing under the CLN Subscription, and the position following the CLN Subscription.
Holdings prior to Subscriptions | Subscriptions | Holdings following subscription | ||||||
Name | Ordinary Shares | % | CLNs | Warrants | Ordinary Shares | % | CLNs | Warrants |
Gary Shaw | 4,693,804 | 19.8 | £300,000 | 300,000 | 4,693,804 | 19.5 | £300,000 | 300,000 |
Jim Wilkinson | 120,138 | 0.5 | £250,000 | 250,000 | 120,138 | 0.5 | £250,000 | 250,000 |
As Directors of the Company, their participation in the Subscription constitutes a "related party transaction" under the AIM Rules.
Venture Tech Assets Limited, a company under the control of the non-executive director, Sandeep Reddy has a holding of 3,249,555 Ordinary Shares (representing 13.7 per cent. of the Company's existing Ordinary Shares) and has agreed with the Company to subscribe for £1,000,000 of CLN Units under the CLN Subscription and accordingly, following completion of the CLN Subscription, would hold 3,249,555 Ordinary Shares in aggregate as well as £1,000,000 of CLN and 1,000,000 Warrants. As Venture Tech Assets Limited is treated as a "substantial shareholder" of the Company, its participation in the CLN Subscription constitutes a "related party transaction" under the AIM Rules.
Together, Gary Shaw and Jim Wilkinson and Venture Tech Assets Limited are the "Related Parties". In addition, given his control of Venture Tech Assets Limited, Sandeep Reddy would also not be considered independent for the purposes of the directors' declaration below. Alan Turner, the sole Director not involved in the transaction as a related party (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 CLN Subscription are fair and reasonable insofar as the Company's Shareholders are concerned.
END