TIDMCBUY
RNS Number : 7614Y
Cloudbuy PLC
08 December 2017
This announcement contains inside information
cloudBuy plc
Proposed issue of up to GBP3.4m convertible secured loan
notes
8 December 2017
cloudBuy plc ("cloudBuy" or "Company") is pleased to announce
that Mr Roberto Sella, who has already provided significant
financial support to the Company, has agreed to subscribe for up to
a further GBP3,400,000 nominal value loan notes similar to those
issued by the Company in April 2016 (the "Financing")
On 26 April 2016, the Company created secured loan notes in the
aggregate principal amount of GBP5.75 million. It is now proposed
that new convertible secured loan notes of GBP1.00 par value each
in the aggregate principal amount of GBP3.4 million will be created
("New CLS") and an initial tranche in the principal amount of
GBP1.7 million issued. The New CLS attract an annual interest
charge of 2.33 per cent., which can be met in cash or by the issue
of additional New CLS ("PIK Notes") and will be convertible at a
price of 2p per share into new Ordinary Shares.
The proceeds of the Financing will be used to provide working
capital to the business.
Mr. Sella, who is solely participating in the issue of New CLS,
is considered to be acting in concert with Mr. Michael Pasternak,
an existing Shareholder and a non-executive director of the
Company, for the purposes of the City Code (together the "Concert
Party").
The Directors currently believe that the initial issue of
GBP1.7m nominal value New CLS will be sufficient to take the
Company to profitability.
In the event that no further New CLS are issued for cash beyond
the initial GBP1.7m, both the existing and new loan notes are
converted on their final redemption dates (being 10 years after
issue), all future interest payments are satisfied by the issue of
PIK Notes and the Existing CLS and New CLS are converted at 6.5p
and 2p respectively, the holding of the Concert Party would
increase to 63.34 per cent. of the issued share capital and voting
rights of the Company.
In the event that the full GBP3,400,000 New CLS are issued, all
future interest payments are satisfied by the issue of PIK Notes
but the Company is in default on both Existing CLS and New CLS 10
years after initial issue, whereby the exercise price for both
Existing CLS and New CLS reduces to 1p, the holding of the Concert
Party would increase to 89.0 per cent. of the issued share capital
and voting rights of the Company.
Due to the increase in the potential holding of the Concert
Party, Shareholder consent is required for the Financing. A
shareholder meeting will be held on 27 December 2017 which should
allow the initial GBP1,700,000 to be received by 31 December 2017,
thus significantly strengthening the Company's year end balance
sheet.
Background to and reasons for the Financing
On 26 April 2016, the Company completed a financing of GBP5.75
million in the form of a loan note instrument (the "Existing Loan
Notes") which were subscribed by Roberto Sella, an existing
shareholder in the Company. The Existing Loan Notes were divided
into GBP4.17 million convertible notes (at 6.5 pence per share)
("Existing CLS") and GBP1.58 million non-convertible notes
("Existing LS"). The Existing Loan Notes attract an annual interest
charge of 2.33 per cent. The Existing Loan Notes are secured by a
debenture entered into between the Company and Roberto Sella. In
addition, Roberto Sella was granted the right, but not the
obligation, to participate in future equity financings at 80 per
cent. of the price of other investors up to 26 April 2026 (being
the term of the Existing Loan Notes). The final tranche of the
Existing Loan Notes was drawn down by the Company on 25 May
2017.
The Existing Loan Notes were issued to provide working capital
whilst the Company's business model was transitioned to focus new
customer leads globally and to allow time for existing contracted
marketplaces to be developed and generate transaction revenue.
From the second half of 2016, the Company's focus has been on
revenue generation from existing contracts and identifying which of
its new opportunities would deliver material levels of future
revenue. A rigorous cost reduction plan has been implemented,
including a significant reduction in staff numbers and withdrawing
from a number of countries, so that the Company now only has costs
in countries where there is ongoing revenue. The company has also
focussed resource on the PHBChoices UK care marketplace through its
customer NHS Shared Business Services Limited.
Although much progress has been made, the Company requires
additional financing in order to continue the development of its
technologies and allow time for the growth in PHBChoices. Roberto
Sella believes that the Company has now adopted a focused strategy
that will deliver returns to Shareholders which is why he has
agreed to provide the additional Financing from his personal
resources.
The Board consider it important that the balance sheet is
strengthened by this financing before the year end of 31 December
2017 to assist with the going concern review to be carried out as
part of the audit and also to improve the company's rating by
credit agencies.
The Board further believe that the initial proceeds of the issue
of New CLS, being GBP1.7 million before expenses, will be
sufficient to take the business of the Company to
profitability.
The timing of this financing and shareholder meeting should
allow the initial funding of GBP1,700,000 to be received before 31
December 2017
The Directors believe that the Group has a positive future.
However, if the issue of the New CLS is not approved by
shareholders, then the Company is likely to become insolvent in the
future unless alternative funding can be obtained, and may receive
a qualified audit report for the year ended 31 December 2017 on the
basis of going concern.
Terms of the Financing and associated security
Pursuant to the terms of the subscription agreement entered into
between the Company and Roberto Sella dated 8 December 2017
("Subscription Agreement"), conditional on the satisfaction of
certain conditions, including the passing of the resolutions to be
proposed at the general meeting of the Company being convened for
27 December 2017 ("General Meeting"), Mr. Sella has:
-- subscribed for and the Company has agreed to issue 1,700,000
of the New CLS in the aggregate principal amount of GBP1,700,000
for cash; and
-- been granted the right (but has no obligation), upon
receiving a written request for further investment from the Company
at any time prior to 27 December 2027 ("New CLS Final Redemption
Date"), to subscribe for up to a further 1,700,000 New CLS in the
aggregate principal amount of GBP1,700,000. Under the terms of the
Subscription Agreement, the Company is obliged to invite Roberto
Sella to subscribe for the balance of New CLS not then issued prior
to approaching any other investor. This right will remain in place
until the earlier of the New CLS Final Redemption Date and the date
upon which the New CLS have been issued in full.
Until the New CLS are converted into Ordinary Shares interest
shall accrue and be paid on the principal amount of the New CLS
outstanding at a rate of 2.33% per annum and shall become due and
payable by the Company to Mr. Sella on each 6-month anniversary of
the date of issue of the New Loan Note Instrument. If the Company
fails to pay redemption monies or interest when due on the New CLS,
interest shall continue to accrue on the unpaid amount at a rate of
2.33% per annum.
On any date on which interest on the New CLS is payable, the
Company may, at its own option, issue to Mr. Sella that number of
additional New CLS (in satisfaction of the Company's obligation to
pay interest on any such date) of GBP1.00 nominal amount that
equals every GBP1.00 of interest due to him in full or partial
satisfaction of interest that has accrued in respect of the New CLS
up to that date ("New PIK CLS"). No interest accruing after the New
CLS Final Redemption Date shall be capable of being satisfied via
New PIK CLS.
Under the terms of the Subscription Agreement Mr. Roberto Sella
will have the right but not the obligation to appoint up to (but
not more than) 40 per cent. of the total number of directors on the
Company's board of directors from time to time and from time to
time to remove any such director appointed by him and appoint
another in his place. For these purposes Michael Pasternak is
deemed to be one such director. Any appointment or removal of a
director by Mr. Roberto Sella shall be subject to the prior
approval of the Company's nominated adviser following all such due
diligence as it deems appropriate in order to assess the ongoing
appropriateness of the Company for admission to trading on AIM.
The New CLS will be secured on the assets of the Company under a
new debenture, the terms of which are similar to those of the
existing debenture.
Shareholders are reminded that the Company has previously agreed
that Mr. Roberto Sella shall have the right, but not the
obligation, during the term of the Existing Loan Notes to
participate in any equity financing exercise it carries out at a
subscription price that is 80 per cent. of the issue price to be
offered to the other Shareholders or other new investors in the
Company who participate in any equity financing.
Upon conversion of the New CLS (including any New PIK CLS
issued), application will be made for the applicable number of new
ordinary shares of 1p each in the Company ("Ordinary Shares") to be
admitted to trading on AIM, and the Company will provide the
relevant notifications to the market setting out the number of New
CLS held by the Concert Party, the Concert Party's interest in
voting rights, and the total number of Ordinary Shares that could
be issued on future conversions.
Use of proceeds of the Financing
The net proceeds of the Financing will be applied towards
working capital purposes and in particular to continue with
investment to drive revenue growth in PHBChoices and support
revenue generation from existing contracts and focussed new revenue
opportunities.
The City Code on Takeovers and Mergers
The Financing gives rise to certain considerations under the
City Code. Brief details of the Takeover Panel, the City Code and
the protections they afford are described below.
The City Code is issued and administered by the Takeover Panel.
The City Code applies to all takeover and merger transactions,
however effected, where the offeree company is, inter alia, a
listed or unlisted public company resident in the United Kingdom
(and to certain categories of private limited companies). The
Company is an AIM quoted public company and its Shareholders are
entitled to the protections afforded by the City Code.
Under Rule 9 of the City Code, where any person acquires,
whether by a series of transactions over a period of time or not,
an interest in shares which (taken together with shares already
held by him and an interest in shares held or acquired by persons
acting in concert with him) carry 30 per cent. or more of the
voting rights of a company which is subject to the City Code, that
person is normally required to make a general offer to all the
holders of any class of equity share capital or other class of
transferable securities carrying voting rights in that company to
acquire the balance of their interests in the company.
Rule 9 of the City Code also provides that, among other things,
where any person who, together with persons acting in concert with
him, is interested in shares which in aggregate carry not less than
30 per cent. but not more than 50 per cent. of the voting rights of
a company which is subject to the City Code, and such person, or
any person acting in concert with him, acquires an additional
interest in shares which increases the percentage of shares
carrying voting rights in which he is interested, then such person
is normally required to make a general offer to all the holders of
any class of equity share capital or other class of transferable
securities carrying voting rights of that company to acquire the
balance of their interests in the company.
Under the City Code, a concert party arises when persons who,
pursuant to an agreement or understanding (whether formal or
informal), co-operate to obtain or consolidate control of that
company. Under the City Code, control means an interest, or
aggregate interests, in shares carrying 30 per cent. or more of the
voting rights of a company, irrespective of whether the interest or
interests gives de facto control.
An offer under Rule 9 must be in cash (or with a cash
alternative) and at the highest price paid within the preceding 12
months for any shares in the company by the person required to make
the offer or any person acting in concert with him.
Rule 9 of the City Code further provides, among other things,
that where any person who, together with persons acting in concert
with him is interested in shares carrying over 50 per cent. of the
voting rights of a company, acquires an interest in shares which
carry additional voting rights, then they will not generally be
required to make a general offer to the other shareholders to
acquire the balance of their shares.
Mr. Roberto Sella and Mr. Michael Pasternak are treated as
acting in concert under the City Code.
Following approval of the Financing, Roberto Sella and Michael
Pasternak will in aggregate hold 16,850,000 Ordinary Shares and a
maximum of GBP11,473,155 Loan Notes, of which GBP8,979,820 will be
convertible into Ordinary Shares.
Assuming no other person has exercised any option or any other
right to subscribe for shares in the Company following the date of
this announcement and there has been no further issues of Ordinary
Shares, upon full conversion of the New CLS and the Existing CLS,
and assuming that the Company converts such Loan Notes and all
applicable interest on or prior to the respective final redemption
dates of the loan note instruments, the Concert Party will be
interested in 303,354,965 Ordinary Shares carrying a maximum 72.8
per cent. of the voting rights of the Company. Without a waiver of
the obligations under Rule 9 of the City Code, this would oblige
the Concert Party to make a Rule 9 Offer.
In the event that any Existing CLS or any accrued but unpaid
interest thereon is not repaid or converted into Ordinary Shares on
or before the Existing Loan Notes' final redemption date of 26
April 2026 and the Company is therefore in default, the conversion
price for each Existing CLS share will fall to 1 penny. In the
event that any New CLS or any accrued but unpaid interest thereon
is not repaid or converted into Ordinary Shares on or before the
New CLS Final Redemption Date and the Company is therefore in
default, the conversion price per New CLS share will reduce to 1
penny. As a result, assuming no further issues of Ordinary Shares,
the maximum interest of the Concert Party upon full conversion of
the New CLS and Existing CLS in such a default situation would be
914,832,000 Ordinary Shares representing 89.0 per cent. of the
voting rights of the Company.
Shareholders should note that:
Assuming full subscription and conversion of the Loan Notes, the
Concert Party may come to hold shares carrying more than 50 per
cent. of the total voting rights of the company. If the Concert
Party obtains more than 50 per cent. of the total voting rights
they will be able to acquire further interests in Ordinary Shares
without incurring any further obligation to make a general offer,
subject to the individual limits of the City Code described
above.
Assuming full subscription and conversion of the Loan Notes,
Roberto Sella may come to hold shares carrying more than 50 per
cent. of the total voting rights of the company. If Roberto Sella
obtains more than 50 per cent. of the total voting rights he will
be able to acquire further interests in Ordinary Shares without
incurring any further obligation to make a general offer.
Dispensation from General Offer
Under Note 1 of the Notes of the Dispensations from Rule 9 of
the City Code, the Takeover Panel will normally waive the
requirement for a general offer to be made in accordance with Rule
9 of the City Code if, inter alia, the shareholders of the company
who are independent of the person who would otherwise be required
to make an offer and any person acting in concert with him pass an
ordinary resolution on a poll at a general meeting approving such a
waiver.
The Takeover Panel has agreed to such waiver in relation to the
Financing, subject to a specific resoluion to be proposed at the
General Meeting ("Whitewash Resolution") being passed on a
poll.
The Concert Party will not vote on the Whitewash Resolution. The
Concert Party or any member of the Concert Party will not be
restricted from making an offer for the Ordinary Shares which it
will not own post-Completion.
Related Party Transactions
Owing to Roberto Sella holding 11.27 per cent. of the issued
share capital of the Company, together with the fact that he is
deemed to be acting in concert with Michael Pasternak, the
Financing will constitute a related party transaction for the
purposes of Rule 13 of the AIM Rules for Companies. The Directors
(other than Michael Pasternak), consider, having been so advised by
Arden Partners plc, the Nominated Adviser to the Company, that the
terms of the Financing and the Rule 9 waiver are fair and
reasonable insofar as its shareholders are concerned. In providing
advice to the independent Directors, Arden has taken into account
the commercial assessments of the independent Directors.
General Meeting and importance of the vote
A circular setting out further details of the Financing, the
Concert Party and the Rule 9 waiver is being posted to shareholders
in the Company today and will be available on the Company's website
www.cloudbuy.com (the "Circular").
The Circular contains a notice convening the General Meeting, to
be held at 10:00 a.m. on 27 December 2017 at the registered office
of cloudBuy, 5 Jupiter House, Calleva Park, Aldermaston, Reading,
RG7 8NN. The General Meeting will be held to consider and, if
thought appropriate, pass the resolutions necessary to enact the
Rule 9 waiver and issue the New CLS.
Shareholders should be aware that if any of the Resolutions are
not approved by Shareholders at the General Meeting, the Financing
will not proceed as currently envisaged and, as a consequence, the
anticipated net proceeds of the Financing will not become available
to fund the Company's working capital and the Company will be
unable to achieve the objectives set by the Board. Accordingly, the
Company is likely to be insolvent in the future unless alternative
funding can be obtained, and may receive a qualified audit report
for the year ended 31 December 2017 on the basis of going
concern.
For further information, please contact:
cloudBuy plc
David Gibbon, CFO Tel: 0118 963 7000
Arden Partners plc - NOMAD Tel: 020 7614 5900
and broker
William Vandyk, Dan Gee-Summons
About cloudBuy plc
cloudBuy, (AIM: CBUY), provides cloud solutions for buyers and
sellers - and brings them together to trade securely and ethically
via an increasing number of public eMarketplaces and private
purchasing portals around the world, powered by cloudBuy
technology. cloudBuy solutions for buyers help B2B purchasers
understand and control their spend, to reduce costs and increase
value. Our cloudSell solutions enable sellers of all sizes, from
startups to corporates, reach new customers and grow their
business.
cloudBuy's technology platform powers web sites, public
marketplaces and private purchasing portals that enable all types
of online interactions and relationships including, citizen and
business to government; consumer to business; and business to
business.
For more information, visit: www.cloudbuy.com .
The person responsible for arranging the release of this
announcement is David Gibbon, a director of the Company.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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