8th November 2016
CloudTag (CTAG:LN), the company that brings personal monitoring to the wellbeing, fitness and digital health markets, is pleased to announce that it has secured up to £4.05 million (before expenses) of additional funding. The Company also provides a European sales update.
Up to £4.05 million of funding
The Company has agreed to issue senior unsecured zero coupon convertible notes with a term of 12 months (“Notes”), to raise up to £4.05 million (before expenses), to an overseas Institutional Investor (“Investor”). The Notes have an aggregate nominal value of up to £4.5 million and will be issued at a 10% discount to nominal value in up to two tranches. If the Notes are converted into new ordinary shares in the Company (“Conversion Shares”), the Company will also issue the Investor with one warrant (“Warrant”) for each Conversion Share, details of which are set out below.
The issue of the Notes is subject to the terms and conditions as summarised below. It is expected that the first tranche of up to £2.5 million in nominal value of Notes will be issued to raise £2.25 million (before expenses) on or around 9 November 2016. The net proceeds of the first tranche (including the escrow amount referred to below and net of expenses) is £2.08 million. The issue of the proposed second tranche of £2.0 million in nominal value of Notes is conditional upon, inter alia, the Company obtaining sufficient authorities from Shareholders to disapply pre-emption rights such that the Company may issue the Conversion Shares (the “Shareholder Approvals”).
A circular and notice of general meeting to propose, amongst other matters, appropriate resolutions to Shareholders, will be sent to Shareholders as soon as practicable.
European sales update
CloudTag is actively pursuing its strategy of obtaining product purchase orders by the end of 2016 and continues to work closely with its European distributor, Second Chance Limited, (“SC”).
CloudTag is pleased to report that it has recently received an indicative, non-binding purchase order from SC for the Company’s first product (the Cloudtag Track). This order, which is subject, inter alia, to manufacturing and a delivery date being agreed would, if finalised, have a value of £880,000 and would represent 20% of SC’s total order commitment of $5.2 million for 2016.
Whilst no firm purchase orders have as yet been received from SC or otherwise and therefore the $5.2m of orders stated by SC in the agreement in January 2016 is now unlikely to be achieved, the Board is optimistic that with the £4.05 million of financing in place it should be able to finalise the indicative purchase order referred to above during 2016.
Subject to the finance referred to in this announcement being put in place, the Company is minded to extend the terms of the agreement with SC in order to accept orders placed by SC in 2017 against the balance of SC’s order commitments for Q3 and the Q4 2016, subject to SC agreeing to such extension.
CloudTag continues to actively pursue its stated strategy of obtaining further product orders by the end of 2016 as outlined in announcements previously made although the Board emphasises that additional purchase orders may not be forthcoming.
The delay in SC placing purchase orders is partly attributable to the decision by CloudTag to move its manufacturing capabilities to a larger scale manufacturer, as announced on 12 September 2016. The Company has also taken the opportunity to continue to improve the product using its newly recruited specialists, including the Company’s Chief Creative Officer Peter Griffiths and the creative team. The Company has bolstered the European sales efforts with the addition of Bhav Dattani as Director of Sales, as announced on the 12 September 2016. With more than 20 years’ experience in the consumer electronics retail sector, Bhav has built a substantial network of major UK and European retailer, e-tailer and enterprise channels which he is currently converting to sales for CloudTag.
Terms and conditions of the Notes
The Company has entered into agreements relating to the issue of up to two tranches of Notes and associated Warrants. Subject to fulfilment of the conditions set out below, the Notes will be issued at a 10% discount to their nominal value. The first tranche of Notes has a nominal amount of £2.50 million and a subscription price of £2.25 million (“Tranche 1 Notes”) and the second tranche has a nominal amount of £2.00 million and a subscription price of £1.80 million (“Tranche 2 Notes”). The conditions for the Tranche 1 Notes are satisfied except in respect of the issue of the relevant certificate which is expected to take place today.
Of the Tranche 1 Notes, upon issue, an amount of approximately £640,000 will be placed in escrow (“Escrow Amount”) for up to 40 days (the “Escrow Period”) and released to the Company on the earlier of either (i) announcement that the Company has obtained the Shareholder Approvals or (ii) the volume weighted average price of the Company’s ordinary shares (“Shares”) for any five consecutive trading days during the Escrow Period having exceeded 14 pence per Share. If these conditions are not satisfied within the Escrow Period, the Escrow Amount will be repaid to the Investor and the subscription price for the Tranche 1 Notes will be reduced to £1.46 million and the nominal value of the Tranche 1 Note will be deemed to be reduced to £1.75 million with effect from 17 December 2016.
The net proceeds of the Tranche 1 Notes (including the Escrow Amount and net of expenses) are expected to be approximately £2.08 million and the proceeds (net of expenses) of the Tranche 2 Notes, £1.8 million.
At the option of the Company and subject to the conditions below, the Tranche 2 Notes may be issued 40 days following the issue of the Tranche 1 Notes. The Issue of the Tranche 2 Notes is conditional upon, among other things: (i) no event of default or potential event of default having occurred under the terms of the Notes; (ii) certain repeating representations and warranties given by the Company remaining correct (including that no event has occurred which has had or would be likely to have a material adverse effect on the Company); (iii) the value of the outstanding Tranche 1 Notes and the proposed Tranche 2 Notes does not exceed 7.5% of the Company’s market capitalisation and the Company having sufficient authority to issue the relevant number of Conversion Shares, the Escrow Amount having been released and there being no changes to the capital structure of the Company. The date for the issue of the Tranche 2 Notes may be extended to the date (the “Extension Date”) which is 90 days following the date of issue of the Tranche 1 Notes (or such later date as the Company and the Investor may agree) subject to certain conditions, including (in addition to those set out above) that the market price of the Company’s shares does not drop below 10 pence per Share, and that the value of the outstanding Tranche 1 Notes and the proposed Tranche 2 Notes has not exceeded 5% of the Company’s market capitalisation during any three consecutive trading days.
The nominal value of each tranche of Notes issued is convertible into Conversion Shares at the election of the Investor at a conversion price of either (i) 125% of the closing mid-market price per Share on 4 November 2016 of 14.25 pence; or (ii) the lowest closing bid price per Share during the three consecutive trading days immediately prior to the date on which the Investor elects to convert some or all of its Notes. The Notes may be mandatorily converted (at the option of the Company and subject to satisfaction of certain conditions) into Conversion Shares if the share price exceeds 150% of the volume weighted average price per share (as determined on 7 November 2016) for 15 consecutive trading days. Any outstanding Tranche 1 Notes and the Tranche 2 Notes are repayable at 100% of nominal value 12 months following the issue of the relevant tranche, further details will be set out in the forthcoming circular.
If an event of default occurs under the terms of the Notes, then the Notes become repayable within 5 days at 120% of nominal value. An event of default will occur if (amongst other things): (i) any tranche of the Notes is not repaid on the due date for repayment; (ii) an event occurs or a circumstance comes to subsist which would in the reasonable opinion of the Investor be likely to have a material adverse effect on the Company; or (iii) the Company is subject to certain forms of enforcement action by its creditors or undergoes certain events of insolvency.
The conversion price of the Notes may be adjusted by the Investor in the event that, inter alia, the Company issues Shares, which in the Investor’s opinion, has a dilutive effect on the Investor’s position.
The Company may effect early repayment of the nominal value of the Notes at 105% of nominal value (provided that the Investor may instead elect to convert the Notes to Shares upon being notified that the Company intends to repay the Notes early). The Investor may require the Company to repay the Notes at 120% of nominal value in the event that the Company becomes subject to a change of control.
Under the terms of the Notes, the Company provides certain undertakings which last for so long as the Notes remain outstanding, including that the Company shall not issue any debt, equity or equity-linked securities (including options and warrants) that are convertible at a conversion rate that varies or may be reset, or which grant the right to receive additional securities on more favourable terms.
The terms of the Note provides for one Warrant to be issued for each Conversion Share issued on each conversion (in whole or in part) of the Notes. Each Warrant may be exercised within three years from the date of issue at the lesser of (a) 90% of the closing bid price per Share on the day immediately prior to the date of exercise or (b) 125% of the closing bid price per Share on the day immediately preceding the date of issue of the relevant conversion notice in relation to conversion of either the Tranche 1 Notes or the Tranche 2 Notes as the case may be.
The exercise price of the Warrants and the number of Shares arising on exercise of such Warrants shall be adjusted to neutralise the impact of future capital changes.
Use of proceeds of the Notes
The proceeds of this fundraising will be used by the Company for general working capital purposes. This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.