£12.6m Placing, Subscription and Acquisition
THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, THE REPUBLIC OF IRELAND, THE REPUBLIC OF SOUTH AFRICA, JAPAN OR ANY JURISDICTION WHERE TO DO SO MIGHT CONSTITUTE A VIOLATION OF LOCAL SECURITIES LAWS OR REGULATIONS.
THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR FORM PART OF ANY OFFER OR INVITATION TO SELL OR ISSUE, OR ANY SOLICITATION OF ANY OFFER TO PURCHASE OR SUBSCRIBE FOR, ANY NEW ORDINARY SHARES IN ANY JURISDICTION, NOR SHALL IT (OR ANY PART OF IT), OR THE FACT OF ITS DISTRIBUTION, FORM THE BASIS OF, OR BE RELIED ON IN CONNECTION WITH, OR ACT AS ANY INDUCEMENT TO ENTER INTO, ANY CONTRACT OR COMMITMENT WHATSOEVER WITH RESPECT TO THE PROPOSED PLACING.
Cyan Holdings plc
("Cyan" or the "Company")
£12.6 million Placing, Subscription and
Acquisition of Connode,
Director Dealings
and
Notice of General Meeting
Highlights
· Acquisition of Connode Holding AB, a well-established supplier of wireless communication solutions for smart metering and the Internet of Things ("IoT") with customers in the UK, Europe and Asia for a consideration of £6.8 million, consisting of £4.3 million in cash and £2.5 million in equity consideration. The £12.6 million transaction value consists of the £10.1 million Placing and Subscription and the £2.5 million equity consideration
· Connode is a key supplier of mesh technology to the UK Smart Metering Implementation Programme. The potential value of the SMIP rollout to Connode is approximately £37 million in software licence and support fees over the rollout and support lifecycle
· Cash consideration will be financed through an equity fund raise of £10.1 million consisting of a Placing of 4,341,777,600 Ordinary Shares ("Placing Shares") and a Subscription of 1,280,277,650 Ordinary Shares ("Subscription Shares") at a price of 0.18 pence per share
· Biggles Enterprises Limited, part of the J. S. Technical Services Company, Limited group of companies ("JST") in Thailand (with whom the Company signed a distribution agreement in May 2016) has agreed to make a strategic investment of £2 million as part of the Subscription
· As part of the fundraise, all the Directors of Cyan are investing alongside certain senior managers and a consultant for a total of £304,500 as part of the Subscription
· Directors and certain senior managers have also agreed that, in the interests of retaining cash within the Company, they will receive all of their net income and bonuses earned during the period from July 2016 to June 2017 as shares issued at the issue price, which will represent an incremental equity investment of £729,904
· Connode offers Cyan a highly complementary product range with further growth opportunities to create the global number one Narrowband Mesh radio solution Internet of Things canopy provider
· Since 2006 utilities and telecom operators have deployed Connode-enabled devices in large-scale projects in Europe. As a result, the acquisition will open up new territories for the Company in Europe and other western markets, including potentially North America
· The Directors believe that Connode represents an attractive opportunity to acquire a business with a complementary product suite in new territories
Cyan Holdings plc (AIM:CYAN), the integrated system and software design company delivering mesh based flexible wireless solutions for utility metering and lighting control, is pleased to announce a proposed placing and subscription with institutional and other investors of 5,622,055,250 ordinary shares of 0.01 pence each at a price of 0.18 pence per share raising a total of £10.1 million. The Issue Price represents a discount of 14.3 per cent. to the closing price of 0.21 pence on 13 June 2016 (being the latest practicable date prior to the announcement of the Proposals). The net proceeds of the Placing and Subscription will be used to fund the proposed acquisition of Connode, a Swedish provider of wireless communication solutions and for working capital purposes.
Completion of the Placing, Subscription and the Acquisition are conditional upon, inter alia, passing of the Resolutions by Shareholders at the General Meeting in order to ensure that the Directors have the necessary authorities and powers to allot the Placing Shares and Subscription Shares for cash on a non-pre-emptive basis, and in order to ensure that the Directors have the authority to allot the Consideration Shares in connection with the Acquisition. Notice of the General Meeting is included in the Circular which was posted to Shareholders yesterday. The Circular provides details of, and the background to the Proposals and sets out the reasons why the Board believes that the Proposals are in the best interests of the Company and its Shareholders. If the Resolutions are passed, the Placing Shares, Subscription Shares and Consideration Shares will be allotted after the General Meeting and Admission of the New Ordinary Shares is expected to occur at 08.00 a.m. on 1 July 2016. The Placing and Subscription are not being underwritten.
John Cronin, Executive Chairman of Cyan commented:
"As our clients in developing markets realise the benefits from our proprietary end-to-end solutions, we believe that they will want to converge their networks and this will require standards-based technologies. Convergent networks require a standards-based core language to enable the rapid development integration and consolidation of applications. The acquisition of Connode is transformational for Cyan, and will give us the capability to build these functions into our core products, enabling us to future proof our customer solutions and provide standards-based interfaces for additional connectivity as required for the Internet of Things and smart cities."
Director Dealings
As part of the Subscription (in which Directors, senior management and consultants are subscribing for £304,500 of Ordinary Shares), certain of the Directors' share holdings will increase.
The beneficial and non-beneficial interests of the Directors in Ordinary Shares as at the date of this document and following the Placing and Subscription are set out in the table below.
|
|
Date of this announcement |
Subscription Shares subscribed |
Immediately following the Placing |
||
|
|
Number of Ordinary Shares |
Percentage of ordinary share capital |
Number of Ordinary Shares |
Number of Ordinary Shares |
Percentage of Issued ordinary share capital |
|
Director |
|
|
|
|
|
|
John Cronin |
159,742,048 |
2.24 |
18,611,100 |
178,353,148 |
1.26 |
|
Simon Smith |
107,266,588 |
1.51 |
18.611,100 |
125,877,688 |
0.89 |
|
Dr. John Read |
38,484,815 |
0.54 |
5,555,550 |
44,040,365 |
0.31 |
|
Harry Berry |
30,214,286 |
0.42 |
16,666,650 |
46,880,936 |
0.33 |
|
Paul Ratcliff |
- |
- |
2,777,750 |
2,777,750 |
0.02 |
|
|
|
|
|
|
|
The conditional agreements entered into by John Cronin, Simon Smith, John Read, Henry Berry and Paul Ratcliff to subscribe for Subscription Shares are classified as related party transactions for the purposes of the AIM Rules. In the absence of an independent director, Cantor Fitzgerald, the Company's Nominated Adviser, considers that the terms of the transaction are fair and reasonable insofar as the Company's shareholders are concerned.
A copy of this announcement will be published, subject to certain restrictions relating to persons resident in restricted jurisdictions, on Cyan's website at www.cyantechnology.com. For the avoidance of doubt, neither the content of the Company's website (or any other website) is incorporated into, or forms part of, this announcement nor, unless previously published by means of a recognised information service, should such content be relied upon in reaching a decision as to whether or not to acquire, continue to hold, or dispose of securities in the Company.
This announcement is not an invitation nor is it intended to be an inducement to engage in investment activity for the purpose of section 21 of FSMA. The Placing Shares are in any event being placed only with (i) persons who have professional experience in matters relating to investments and who are investment professionals within the meaning of Article 19(5) of the Financial Services and markets Act 2000 (Financial Promotion) Order 2005 of the United Kingdom (the "Financial Promotion Order") or (ii) persons who fall within Article 49(2)(a) to (d) ("high net worth companies, unincorporated associations etc.") of the Financial Promotion Order (all such persons together being referred to as "relevant persons"). Any investment or investment activity to which this announcement relates is available only to relevant persons and will be engaged in only with relevant persons. Anyone other than a relevant person must not rely on this announcement.
Cantor Fitzgerald Europe is acting as Nominated Adviser and Broker to the Company in relation to the Proposals. Cantor Fitzgerald Europe, which is a member of the London Stock Exchange and is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting for the Company and for no one else in relation to the Placing. Cantor Fitzgerald Europe will not be responsible to any other person for providing the protections afforded to its clients nor for advising any other person in connection with the matters contained in this announcement.
This announcement has been issued by, and is the sole responsibility of, the Company. Cantor Fitzgerald Europe has not authorised the contents of any part of this announcement and no representation or warranty, express or implied, is or will be made as to, or in relation to, and no responsibility or liability is or will be accepted by Cantor Fitzgerald Europe, or by any of its respective affiliates or agents, as to or in relation to, the accuracy or completeness of this announcement or any other written or oral information made available to any interested party , and any liability therefore is expressly disclaimed.
All statements in this announcement other than statements of historical fact are, or may be deemed to be, "forward-looking statements". In some cases, these forward-looking statements may be identified by the use of forward-looking terminology, including the terms "targets", "believes", "estimates", "anticipates", "expects", "intends", "may", "will" or "should" or, in each case, their negative or other variations or comparable terminology. They appear in a number of places throughout the announcement and include statements regarding the intentions, beliefs or current expectations of the Company and/or Directors concerning, among other things, the trading performance, results of operations, financial condition, liquidity, prospects and dividend policy of the Company. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not guarantees of future performance. The Company's actual performance, result of operations, financial condition, liquidity and dividend policy may differ materially from the impression created by the forward-looking statements contained in this announcement, which only represent the Company's and/or the Directors' views as at the date of this announcement. In addition, even if the performance, results of statements contained in this announcement, those results or developments may not be indicative of results or developments in subsequent periods. Important factors that may cause these differences include, but are not limited to, changes in economic conditions generally; changes in interest rates and currency fluctuations; impairments in the value of the Company's assets; legislative/regulatory changes; changes in taxation regimes; the availability and cost of capital for future expenditure; the availability of suitable financing; the ability of the Group to retain and attract suitably experienced personnel and competition within the industry. Prospective investors should specifically consider the factors identified in this announcement which could cause actual results to differ before making an investment decision.
Any indication in this announcement of the price at which Ordinary Shares have been bought or sold in the past cannot be relied upon as a guide to future performance. No statement in this announcement is intended to be a profit forecast and no statement in this announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company. The Issue Price and the income from the New Ordinary Shares may go down as well as up and investors may not get back the full amount invested on disposal of the New Ordinary Shares.
This announcement or any part of it does not constitute or form part of any offer to issue or sell, or the solicitation of an offer to acquire, purchase or subscribe for, any securities in the United States (including its territories and possessions, any state of the United States and the District of Columbia). The Placing Shares have not and will not be registered under the United States Securities Act of 1933, as amended (the "Securities Act") or with any securities regulatory authority of any state or jurisdiction of the United States, and may not be sold or transferred, directly or indirectly, in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. There will be no public offering in the United States.
The distribution of this announcement and the Placing of the Placing Shares as set out in this announcement in certain jurisdictions may be restricted by law. No action has been taken that would permit an offering of such shares or possession or distribution of this announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this announcement comes are required by the Company to inform themselves about, and to observe, such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.
Enquiries:
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Cyan Holdings plc |
Tel: +44 (0) 1954 234 400 |
|
John Cronin, Executive Chairman |
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|
Cantor Fitzgerald Europe - Nominated Adviser and Broker Andrew Craig Richard Salmond |
Tel: +44 (0)207 894 7000 |
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Beaufort Securities Limited - Joint Broker |
Tel: +44 (0) 207 382 8300 |
|
Jon Belliss |
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Walbrook PR - Financial PR |
Tel: +44(0) 20 7933 8780 |
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Paul Cornelius Nick Rome |
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About Cyan
Cyan provides a communication platform for energy, lighting and emerging applications in the wider 'Internet of Things' network. Its integrated platform and partner collaborations deliver end-to-end solutions that connect millions of devices and support bidirectional communication with the end customer. Cyan's smart metering and lighting solutions enhance quality of service in emerging regions, through power savings, lower operating costs and increased cost efficiency. Cyan's vision to create improved value through Smart City solutions has provided its customers with the foundation upon which to build incremental services as these markets evolve.
For more information, please visit www.cyantechnology.com.
About Connode
Connode, headquartered in Stockholm Sweden, is the leading supplier of wireless communication products for the Internet of Things. Connode wireless technology is the result of 10 years development of large-scale wireless mesh networks. Since 2006 utilities and telecom operators have deployed Connode-enabled devices in large-scale projects in Europe, Middle East and Asia. Connode is a key supplier of mesh technology to the UK Smart Metering Programme.
For more information, please visit www.connode.com.
EXPECTED TIMETABLE OF EVENTS
|
Announcement of the Proposals |
14 June 2016 |
|
Latest time for receipt of Forms of Proxy |
11.15 a.m. on 28 June 2016 |
|
General Meeting |
11.15 a.m. on 30 June 2016 |
|
Issue of New Ordinary Shares |
on or around 1 July 2016 |
|
Admission and commencement of dealings in the Enlarged Share Capital expected to commence on AIM |
8.00 a.m. on 1 July 2016 |
|
Completion of the Acquisition |
on or around 1 July 2016 |
|
CREST accounts expected to be credited |
1 July 2016 |
|
Definitive share certificates to be dispatched by |
30 July 2016 |
Each of the times and dates above is subject to change. Any such change will be notified by an announcement on a Regulatory Information Service.
ADMISSION AND PLACING STATISTICS
|
Total number of Existing Ordinary Shares |
7,117,864,892 |
|
Number of EIS Placing Shares |
1,453,222,150 |
|
Number of General Placing Shares |
2,888,555,450 |
|
Number of Subscription Shares |
1,280,277,650 |
|
Number of Consideration Shares being issued by the Company |
744,583,888 |
|
Number of Additional Consideration Shares being issued by the Company |
659,620,000 |
|
Number of Placing Shares, Subscription Shares, Consideration Shares and Additional Consideration Shares as a percentage of the Enlarged Share Capital |
49.68 per cent. |
|
Issue Price |
0.18 pence |
|
Enlarged Share Capital* |
14,144,124,030 |
|
Gross proceeds of the Placing and Subscription |
£10.1 million |
|
Net proceeds of the Placing and Subscription |
£9.2 million |
|
Market capitalisation of the Company on Admission at the Issue Price |
£25.5 million |
|
ISIN of the Existing Ordinary Shares |
GB00B0P66Q02 |
|
SEDOL of the Existing Ordinary Shares |
B0P66Q0 |
*assuming no new Ordinary Shares are issued prior to the date of the General Meeting
Introduction
The Company has announced today that it is proposing to raise £10.1 million (before the deduction of fees and expenses) through a Placing and Subscription comprising the issue of 4,341,777,600 Placing Shares and 1,280,277,650 Subscription Shares at 0.18 pence per New Ordinary Share and has conditionally agreed to acquire Connode, a Swedish based supplier of wireless communication solutions for smart metering and the Internet of Things. In addition, Connode AB (a wholly owned subsidiary of Connode) has conditionally agreed to acquire Connode India, which exclusively distributes Connode's solutions in India. Under the terms of the Acquisition Agreement, Connode will be acquired for approximately £6.8 million, comprising £4.3 million in cash consideration and £2.5 million payable as equity consideration. Under the terms of the Connode India Acquisition Agreement, Connode India will be acquired by Connode AB for approximately US$1.5 million, of which US$1.3 million is a conditional deferred payment, which will be subject to sales performance criteria being achieved.
Each of the Acquisition, Placing and Subscription are conditional, inter alia, on the passing of the Resolutions at the General Meeting, Admission becoming effective by no later than 8.00 a.m. on 1 July 2016 (or such other time and/or date, being no later than 31 July 2016, as the Company and Cantor Fitzgerald may agree) and the Placing Agreement between the Company and Cantor Fitzgerald becoming unconditional and not being terminated prior to Admission (in accordance with its terms). It is expected that the New Ordinary Shares will be admitted to trading on AIM on or around 8.00 a.m. on 1 July 2016 and that the Acquisition will complete at the same time.
The Board believes that raising equity finance by the Placing and Subscription is the most appropriate method of financing for the Company at this time. This allows both existing and new institutional investors to be targeted and to participate in the Placing in order to finance the consideration for the Acquisition and the Connode India Acquisition and to provide additional working capital for the Enlarged Group. The Board believes that the potential value creation for the benefit of Shareholders arising from the Placing, the Subscription and Acquisition outweighs the dilutive effects of the Placing and Subscription.
In the event that the Placing and Subscription do not complete, the Placing, Subscription and Acquisition will not proceed and the Company will have incurred significant costs in relation to the Proposals.
The purpose of the circular which was posted to shareholders yesterday, is to set out the reasons for, and provide further information on, the Proposals, to explain why the Board considers the Proposals to be in the best interests of the Company and its Shareholders as a whole and why the Directors unanimously recommend that you vote in favour of the Resolutions, as they have irrevocably undertaken to do so in respect of their own beneficial holdings of 335,707,737 Ordinary Shares, in aggregate representing approximately 4.72 per cent. of Cyan's issued share capital on 13 June 2016 (being the last Business Day prior to publication of this announcement).
At the end of the circular you will find a notice convening the General Meeting at which the Resolutions will be proposed by the Directors. The General Meeting has been convened for 11.15 a.m. on 30 June 2016 and will take place at Taylor Vinters LLP, Merlin Place, Milton Road, Cambridge, CB4 0DP.
Information on Connode
Connode, headquartered in Stockholm, Sweden, is a well-established supplier of wireless communication solutions for smart metering and the Internet of Things ("IoT") and has historically been funded locally by a private equity firm. Cyan was aware of Connode's product suite due to its involvement with targeted counter parties in India and also due to Connode's involvement in the Smart Metering Implementation Programme ("SMIP"), as described below. Cyan participated in a competitive process to acquire Connode in Q4 2015, and has worked, together with its professional advisers, to complete extensive due diligence on Connode since that time. Connode offers Cyan a highly complementary product range with further growth opportunities to create the global number one narrowband mesh radio solution Internet of Things multi-application networks provider.
Connode's wireless technology is the result of 10 years' development of large-scale wireless mesh networks. Since 2006 utilities and telecom operators have deployed Connode-enabled devices in large-scale projects in Europe. Connode is a key supplier of mesh technology to the SMIP. As such the Directors believe that Connode represents an attractive opportunity to acquire a business with a complementary product suite in new territories.
Connode is backed by CapMan Oyj, a Swedish private equity fund and has benefited from over 100 man years of development and £10 million of investment to date. With an experienced team of 11 people based in Stockholm, Connode has grown internationally and its products are used in large scale wireless mesh networks. The Directors expect that the Company will continue to benefit from the expertise of Connode's existing staff and, as such, do not envisage that any cost synergies will be delivered by the Acquisition or the Connode India Acquisition. The pool of smart metering experts in the world is very small due to the fact that few projects have been rolled out and Cyan therefore view the Connode staff (mainly software developers) as a key asset being acquired. Consequently, Cyan has made provision for what the Directors believe to be attractive incentive arrangements in order to retain the Connode team.
Connode has over 650,000 legacy systems deployed across Europe with a mix of blue chip partners. More recently, Connode has been contracted by Telefonica through Toshiba in 2014 to provide wireless mesh communication for the SMIP. The Directors believe that, after two delays in the SMIP roll out, SMIP will commence in the second half of 2016 and deliver revenues to Connode in H2 2016 and onwards. The potential value of the SMIP rollout to Connode is approximately £37 million over the rollout and support lifecycle (details below), and the Directors therefore perceive Connode to represent an attractive opportunity to enter the UK market with a tested product and with blue chip partners, capable of delivering incremental revenue which would mark a significant shift in Cyan's growth.
With the £10 million of investment made in Connode since its incorporation in 2011, Connode has developed a product which is compatible with IPv6/6LoWPAN, the latest version of internet protocol and a standards based technology which the directors believe will become essential to ensure forward compatibility with communications networks. IPv6/6LoWPAN is a technology in which Cyan would have to invest £2.5 million and commit to for 18 months in order to develop in the event that the Acquisition does not complete. The Directors believe that IPv6/6LoWPAN solutions are the solutions of choice of customers in western markets and increasingly demanded in India.
The Connode India Acquisition will enhance Cyan's presence in India, with its existing relationships with Reliance Industries Limited (an Indian communications conglomerate with over 6.4 million customers) and Intel Corporation (the global semiconductor manufacturing company). The Directors believe that the potential software licence revenue opportunity from Reliance alone represents approximately £21 million of revenue over a multi-year period.
UK Smart Metering Implementation Program
The UK Smart Metering Implementation Programme is a major infrastructure project involving the national roll out of 53 million gas and electricity meters across the UK by 2020 (a deadline imposed on the UK by the European Union). Telefonica was awarded a contract as the preferred communications service provider in two out of the three regions tendered by the UK Government. Telefonica's SMIP solution is based upon its existing cellular network in the UK, supported by Connode's C4 solution, which connects households without reliable cellular coverage (known as "not-spots" by the mobile phone network operators). Connode was awarded a contract for 1.8 million C4 units across the central and southern regions of the UK by Toshiba, with an expected rollout date starting during the second half of 2016. The Directors believe that Connode is one of very few suppliers globally that has the capability to support smart meter deployment in areas where there is no cellular coverage.
Connode's potential revenue from SMIP is set out in the table below:
|
|
Current contract |
Expected |
Best case |
|
|
|
|
|
|
Contracted licence fees until 2020 |
£4.4 million |
£5.9 million |
£9.3 million |
|
|
|
|
|
|
Support fees (over 15 years) |
- |
£19.3 million |
£28.0 million |
|
Total |
£4.4 million |
£25.2 million |
£37.3 million |
Initially, SMIP was intended to commence in December 2015, however the UK Government announced in March 2015 that the roll out would be delayed by four months until April 2016. In August 2015, the UK Government announced that SMIP would be further delayed until August 2016. British energy suppliers still expect that the August 2016 deadline is achievable and that there are unlikely to be further delays. However, the UK Government has stated that all deadlines are subject to change as may be determined by the UK Secretary of State.
During its negotiations and due diligence process, Cyan has discussed the proposed Acquisition with both Toshiba and Telefonica, both of which have indicated their support for the Acquisition. As Connode's SMIP contract contains change of control provisions which would allow Toshiba to terminate the contract upon a change in Connode's ownership structure, Cyan has obtained written comfort from Toshiba that it does not consider the proposed Acquisition to be a prohibited change of control.
Financial information on Connode
As at 31 December 2015, Connode had net assets of circa £0.5 million and generated EBITDA of £0.2 million in the year ended 31 December 2015 from revenues of £2.3 million.
Background to and reasons for the Proposals and expected benefits to the Enlarged Group of the Acquisition
Cyan's product suite is, in the opinion of the Directors, well suited to the energy infrastructure located in emerging markets. The lack of connectivity and reliability of communications networks, which are prevalent in many emerging markets, pose a problem which can be addressed by Cyan's narrowband mesh radio solutions, utilising low power radio frequency based communication technology with a range more appropriate to the dense populations commonly found in the Company's current target markets.
Connode also develops narrowband mesh radio solutions and has an existing presence in Europe, the UK and Asia. The UK market represents a significant opportunity for Cyan to develop its presence in a higher margin geography, with existing attractive blue chip partnerships.
Connode's C4 solution provides Cyan with the opportunity to acquire a full standards-based solution, suited to both developed and developing markets. As mentioned above, acquiring Connode enables Cyan to avoid the £2.5 million cost and 18 months elapsed time of developing its own proprietary IPv6/6LoWPAN compatible product solution and, due to the move to IPv6/6LoWPAN standards, the Directors believe that the Enlarged Group's competitors will be forced to replicate the Connode technical solution at a competitive price point. Furthermore, the blue chip customer base which already exists within the Connode business, and which customer base (Toshiba and Telefonica) has, as disclosed above, been consulted by Cyan in relation to the Acquisition, provides a level of credibility to the Connode product and an attractive entry point for Cyan in the UK market.
Cyan intends to utilise Connode's relationships to further expand its complete product set in European and Western markets with, among others, Telefonica, Toshiba, Landis+Gyr AG and Itron. In emerging markets, the Acquisition accelerates (and defends) Cyan's position in the market by providing it with direct relationships with Reliance Industries Limited and Intel Corporation. Furthermore, the expected revenue which is likely to stem from Connode's SMIP contract is expected to bolster Cyan's financial results going forward. The core Connode business model involves the licensing of software with relatively high margins.
The Directors believe that the Enlarged Group will, from its European hubs in Cambridge and Stockholm, together with the Cyan and Connode operations in India, be able to deliver a world class communication multi-application networks solution for all smart energy solutions and emerging applications in the Internet of Things network, with solutions designed to meet the standards of developed economies while retaining the competitive price point for emerging market metering and lighting opportunities. The Directors believe that the key client relationships already possessed by Cyan and Connode will be augmented by the Enlarged Group's strengthened product offering.
Cyan intends to retain the Connode brand as this is well known by its customers, with the Connode solution being sold alongside Cyan. Over time, it is intended that the two solutions will be integrated on both a technical and commercial level in order to provide customers with maximum choice on a common IoT multi-application networks solution.
As a result of the Placing and Subscription, the Directors also believe that the Enlarged Group's increased market capitalisation and the introduction of new institutional investors though the Placing will be of benefit to the Company and its Shareholders.
The total consideration payable by the Company to the Sellers under the Acquisition Agreement is £6,777,567, which shall be satisfied as follows:
· £4,250,000 payable in cash on Completion;
· £1,340,251 will be satisfied through the issue of the Consideration Shares to the Sellers on Completion; and
· £1,187,316 will be satisfied through the issue of the Additional Consideration Shares to the Sellers on Completion.
The equity consideration payable to the Sellers will be split out as follows:
1. 744,583,888 New Ordinary Shares subject to a six month lock-in followed by a 12 month orderly market period; and
2. 659,620,000 New Ordinary Shares subject to a 12 month orderly market period.
The total consideration payable by Connode AB under the Connode India Acquisition is up to US$1,460,000, which shall be satisfied as follows:
· US$160,000 payable in cash on Completion; and
· up to US$1,300,000 payable as conditional deferred consideration, dependent upon certain purchase orders being placed on Connode India.
Further details of the Acquisition Agreement and the Connode India Acquisition Agreement are set out in Part 3 of the Circular, which is available on the Company's website. The acquisitions of both Connode and Connode India are insured by a warranty and indemnity insurance policy as described in more detail on page 31 of the Circular.
In addition, the current owners of Connode India will have the opportunity to earn a percentage royalty per software licence sold in India according to the terms of the Cooperation Agreement, further details of which are set out in Part 3 of this Circular.
Directors' shareholdings
As part of the Subscription (in which Directors, senior management and consultants are subscribing for £304,500 of Ordinary Shares), certain of the Directors' share holdings will increase.
The Directors have also agreed that, in the interests of retaining cash within the Company, they will each use all of their net income and bonuses earned during the period from July 2016 to June 2017 to purchase new Ordinary Shares issued at the Issue Price. These amounts are expected to be the amounts as set out in the table below. In addition certain members of the Company's management team have agreed that they will use any net bonus earned during this period to purchase new Ordinary Shares issued at the Issue Price, also expected to be in the amounts as set out in the table below.
|
Director / management
|
Monetary amount |
Number of Ordinary Shares |
|
John Cronin |
£374,009 |
207,782,778 |
|
Simon Smith |
£152,920 |
84,955,556 |
|
John Read |
£19,398 |
10,776,667 |
|
Harry Berry |
£89,009 |
49,449,444 |
|
Paul Ratcliff |
£21,368 |
11,871,111 |
|
Other members of management
|
£73,200
|
40,666,667 |
|
TOTAL |
£729,904 |
405,502,223 |
Reasons for the Placing and Subscription and use of proceeds
The Company is proposing to raise a total of £10.1 million (before deduction of fees and expenses) from the Placing and Subscription. The Placing and Subscription are considered by the Directors to be in the best interests of Shareholders as they will enable the Company to pursue its stated strategy more effectively. The intended uses of the Gross Proceeds are set out below:
|
|
£m |
|
Acquisition |
4.3 |
|
|
|
|
Conditional deferred consideration in respect of Connode India held in escrow |
0.6 |
|
|
|
|
Working Capital for Cyan
Working Capital for Connode |
3.6
0.7 |
|
|
|
|
Fees and Expenses |
0.9 |
|
|
|
|
Gross Proceeds |
10.1 |
The Placing and Subscription will raise net proceeds equivalent to the cash consideration payable for the acquisition of Connode and an additional £4.3 million for working capital purposes for both Cyan and Connode. As a result, Cyan will both strengthen its balance sheet and preserve its existing free cash resources. The Placing and Subscription will enable the Company to commit further capital over the next 12 months towards the delivery of its growth strategy described above.
In order to support the Company's plans over the next 12 months, the Directors and certain senior employees have agreed to receive their existing contracted remuneration through the receipt of the Income Shares on a periodic basis. The Income Shares will be issued at the Issue Price.
Details of the Placing and Subscription
The Company proposes to raise, in aggregate, £10.1 million (approximately £9.7 million net of expenses) by way of a Placing of 4,341,777,600 Placing Shares and a Subscription for 1,280,277,650 Subscription Shares with certain new and existing investors representing 39.7 per cent. of the Enlarged Share Capital, at an Issue Price of 0.18 pence per Ordinary Share. Cantor Fitzgerald and Beaufort have conditionally agreed to place all of the Placing Shares pursuant to the Placing Agreement.
The Issue Price of 0.18 pence per New Ordinary Share represents a discount of 14.3 per cent. to the closing price of 0.21 pence on 13 June 2016, being the last Business Day prior to the publication of this document. The Board unanimously agrees that the level of discount and method of issue are appropriate to secure the investment necessary in order to undertake the Acquisition and provide working capital.
In connection with the Placing, the Company has entered into the Placing Agreement with Cantor Fitzgerald and Beaufort, pursuant to which Cantor Fitzgerald and Beaufort have agreed to use reasonable endeavours, as agents on behalf of the Company, to procure placees for the Placing Shares at the Issue Price and have agreed to conditionally place the Placing Shares with certain new and existing investors. The Placing and Subscription are conditional, inter alia, on:
· the passing of the Resolutions at the General Meeting;
· the conditions in the Placing Agreement being satisfied or (if applicable) waived and the Placing Agreement not having been terminated in accordance with its terms prior to Admission; and
· Admission becoming effective by no later than 8.00 a.m. on 1 July 2016 (or such later time and/or date, being no later than 8.00 a.m. on 31 July 2016, as the Company and Cantor Fitzgerald may agree).
Accordingly, if any of these conditions are not satisfied or, if applicable, waived, the Placing and Subscription will not proceed.
In connection with the Subscription, the Subscribers have entered into the Subscription Agreements. One of the Subscribers, Biggles Enterprises Limited, which is part of the J. S. Technical Services Company, Limited group of companies, with whom the Company signed a distribution agreement in May 2016, has agreed to subscribe for 1,111,111,111 Subscription Shares in consideration for £2 million. The other Subscribers comprise all of the Directors, certain senior management and a consultant of Cyan who have subscribed for in aggregate, 169,166,539 New Ordinary Shares for a consideration of £0.3 million.
Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM. The New Ordinary Shares will 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 in respect of the Ordinary Shares following Admission. It is expected that Admission will become effective, and that dealings on AIM will commence, at 8.00 a.m. on 1 July 2016.
General Meeting
A notice convening the GM to be held at Taylor Vinters LLP, Merlin Place, Milton Road, Cambridge, CB4 0DP at 11.15 a.m. on 30 June 2016 is set out at the end of this document. The Resolutions to be proposed at that meeting are, inter alia, to:
(a) empower the Directors to allot Ordinary Shares in the capital of the Company in connection with the Placing Shares, the Subscription Shares, the Consideration Shares, the Additional Consideration Shares, the Cooperation Agreement Shares, the Income Shares, to issue the Corporate Finance Warrants and to allot Ordinary Shares up to a further nominal value of £486,636.29, being approximately one third of the Company's share capital as enlarged by the issue of the Placing Shares, the Subscription Shares, the Consideration Shares, the Additional Consideration Shares, the Income Shares and the Corporate Finance Warrants; and
(b) empower the Directors to allot, or where appropriate, issue, Ordinary Shares in the capital of the Company for cash otherwise than in accordance with the statutory pre-emption provisions set out in the Companies Act in connection with the Placing, the Subscription, the Acquisition, the Cooperation Agreement, the Income Shares, to issue the Corporate Finance Warrants and to allot Ordinary Shares up to a further nominal value of £145,990.89, being approximately 10 per cent. of the Company's share capital as enlarged by the issue of the Placing Shares, the Subscription Shares, the Consideration Shares, the Additional Consideration Shares, the Income Shares and the Corporate Finance Warrants.
The authority proposed to be given to the Directors to allot Ordinary Shares in the capital of the Company requires the prior authorisation of the Shareholders at a general meeting under section 551 of the Companies Act. Following the passing of Resolution 1, the Directors will have authority to allot up to: £434,177.76 in nominal value in connection with the Placing, £128,027.77 in nominal value in connection with the Subscription Shares, £300,000.00 in nominal value in connection with the Cooperation Agreement, £140,420.39 in nominal value in respect of the Consideration Shares and the Additional Consideration Shares, £40,550.22 in nominal value in connection with the Income Shares, £4,946.24 in nominal value in connection with the Corporate Finance Warrants, and up to a further £486,636.29 in nominal value, being approximately one third of the Company's share capital as enlarged by the issue of the Placing Shares, the Subscription Shares, the Consideration Shares, the Additional Consideration Shares, the Income Shares and the Corporate Finance Warrants. Except in relation to the Cooperation Agreement Shares, this authority will expire at the next annual general meeting of the Company held in 2017, or if earlier, the date which is 15 months after the date of the passing of this resolution. In relation to the Cooperation Agreement Shares, this authority will expire on 31 December 2019.
Subject to the passing of Resolution 2, the Directors will have the power under section 570 of the Companies Act to allot, for cash, up to £434,177.76 in nominal value in respect of the Ordinary Shares in connection with the Placing, £128,027.77 in nominal value in respect of the Subscription, £300,000.00 in nominal value in respect of the Cooperation Agreement, £40,550.22 in nominal value in respect of the Income Shares, £4,946.24 in nominal value in connection with the issue of the Corporate Finance Warrants and in addition up to £145,990.89 in nominal value, being approximately 10 per cent. of the Company's share capital as enlarged by the issue of the Placing Shares, the Subscription Shares, the Consideration Shares, the Additional Consideration Shares, the Income Shares and the Corporate Finance Warrants without being required first to offer such securities to Shareholders in accordance with their statutory pre-emption rights. Except in relation to the Cooperation Agreement Shares, this authority will expire at the next annual general meeting of the Company held in 2017, or if earlier, on the date which is 15 months after the date of the passing of this resolution. In relation to the Cooperation Agreement Shares, this authority will expire on 31 December 2019.
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