The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (EU) 596 / 2014 which forms part of United Kingdom law by virtue of the European Union (Withdrawal) Act 2018. Upon the publication of this announcement, this inside information is now considered to be in the public domain.

14 May 2024

Sondrel (Holdings) plc

("Sondrel", the "Company" and together with its subsidiaries the "Group")

Conditional Subscription to raise £5.6 million

Proposed Board Changes

Proposed approval of waiver of the obligations under Rule 9 of the Takeover Code

Posting of Circular and Notice of General Meeting

Sondrel (AIM: SND), a leading provider of ultra-complex chips for leading global technology brands, announces, further to the Company's notification of 28 March 2024, that it has conditionally raised gross proceeds of £5,625,400 pursuant to a subscription by ROX Equity Partners Limited for 56,254,000 New Ordinary Shares at the Issue Price of 10 pence per New Ordinary Share.

Furthermore, pursuant to the terms of the ROX Loan Agreements entered into on 5 March 2024 and 28 March 2024 respectively, upon completion of the Fundraising, the principal sums of the ROX Loan Agreements will convert into 28,746,000 New Ordinary Shares.

A circular, containing further details of the Fundraising and Notice of General Meeting to be held at 10:00 a.m. on 30 May 2024 is expected to be published and despatched to Shareholders on or around 14 May 2024 (the "Circular").

A copy of the Circular and the Notice of General Meeting is available on the Company's website at https://ir.sondrel.com/investors/shareholder-information#notices and defined terms used in this announcement are set out at the end of the announcement.

The General Meeting has been called in order to put to Shareholders the Resolutions required to approve the Rule 9 Waiver, complete the Fundraising and, if required, the Additional Fundraising.

Transaction Summary

·    Subscription by ROX to raise £5,625,400 (before expenses) via the conditional issue of New Ordinary Shares at the Issue Price.

·    Pursuant to the terms of the ROX Loan Agreements, upon completion of the Fundraising, the ROX Loan Agreements will convert into 28,746,000 New Ordinary Shares.

·    The Fundraising is conditional upon Shareholders approving the Rule 9 Waiver Resolution and the NSIA Approval. If these approvals are not obtained the Fundraising will not proceed.

·    The Takeover Panel has been consulted and has agreed, subject to the passing of the Rule 9 Waiver Resolution at the General Meeting, to waive the obligation of ROX to make a mandatory offer for the Ordinary Shares in the capital of the Company not already owned by them.

·    Assuming the Regulatory Approvals are received for the Fundraising and conditional upon Admission, ROX will hold 85,000,000 Ordinary Shares, representing 49.29% of the Enlarged Share Capital.

·    The Company has entered into a relationship agreement with ROX, conditional upon Admission and effective for so long as ROX (together with its associates and any persons acting in concert with it) holds 20% or more of the voting rights of the Company;

·    It is expected that the following board changes will take effect on Admission:

o  Nigel Vaughan will retire from his position as Non-Executive Chairman and step down as a director of the Company;

o  David Mitchard will become Chairman and, until such time as a suitable candidate can be found, will continue his role as interim Chief Executive Officer;

o  Fred Walsh, currently Managing Director of Investment Banking at Stifel Nicolaus Europe Limited, will be appointed as an Independent Non-Executive Director; and

o  Miles Woodhouse will be appointed as a Non-Executive Director as ROX's appointed director.

·    The Company requires the Fundraising in order to continue to operate. The net proceeds of the Fundraising (assuming the Regulatory Approvals are received), will be used to settle existing creditors, meet the Company's immediate working capital requirements and execute the Transformation Plan as announced on 28 March 2024.

The Board, having been so advised by Cavendish Capital Markets Limited ("Cavendish"), consider the terms of the Fundraising and the Proposals to be in the best interests of Shareholders taken as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors have irrevocably undertaken to do in respect of their own beneficial holdings (and, in the case of Graham Curren, the holdings of persons connected with him), amounting as at the Reference Date in aggregate to 40,390,736 Ordinary Shares, representing approximately 46.18% of the Existing Ordinary Shares.

Admission, Settlement, Dealings and Total Voting Rights

The New Ordinary Shares will, when issued, be credited as fully paid up and 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 on or in respect of the Ordinary Shares after the date of issue of the New Ordinary Shares, and will on issue be free of all claims, liens, charges, encumbrances and equities.

Application will be made to the London Stock Exchange for the admission of the New Ordinary Shares to trading on AIM. Admission of the New Ordinary Shares to trading on AIM is expected to occur at 8.00 a.m. on 31 May 2024 (or such later times(s) and/or date(s) as ROX and the Company may agree, being no later than 8.00 a.m. on 13 June 2024).

Following Admission, the total number of Ordinary Shares in the capital of the Company in issue is expected to be 172,461,772 with each Ordinary Share carrying the right to one vote. There are no Ordinary Shares held in treasury and therefore the total number of voting rights in the Company is expected to be 172,461,772. The above figure may be used by Shareholders in the Company as the denominator for the calculations by which they will determine if they are required to notify their interest in, or a change to their interest in, the share capital of the Company under the FCA's Disclosure Guidance and Transparency Rules.

For further information:

About Sondrel

Sondrel is a UK-based fabless semiconductor company specialising in high end, complex digital Application Specific Integrated Circuits (ASICs) and System on Chips (SOCs). It provides a full turnkey service in the design, prototyping, testing, packaging and production of ASICs and SoCs.

The Company is one of only a few companies capable of designing and supplying the higher-spec chips built on the most advanced semiconductor technologies, selling into a range of hyper growth end markets such as high-performance computing, automotive, artificial intelligence, VR/AR, video analytics, image processing, mobile networking and data centres.  Sondrel designs have enabled products by leading technology brands including Apple (iPhone), Sony (PlayStation), Meta's (Oculus), Samsung, Google and Sony smartphones, JVC (prosumer camcorders), Tesla and Mercedes-Benz cars.

Sondrel is well-established, with a 20-year track record of successful delivery, supported by long standing ecosystem partnerships including Arm, TSMC and Samsung. Headquartered in the UK, Sondrel has a global presence with offices in UK, USA, China, India and Morocco.

For more information please visit: ir.sondrel.com.

BACKGROUND TO, AND REASONS FOR, THE FUNDRAISING

Sondrel business overview

Sondrel is a UK founded and headquartered, AIM quoted, fabless semiconductor business providing turnkey services in the design and delivery of complex, high end 'application specific integrated circuits' ("ASICs") and 'system on chips' ("SoCs") for leading global technology brands. Sondrel's capabilities are provided to customers seeking competitive advantage by including customised ASIC/SoC devices enabling differentiation of their end products when addressing fast growth technology megatrends.

Sondrel delivers complex ASIC/SoC designs on a consultancy and/or project basis for a wide range of leading multi-national corporate customers. The high-end complex ASICs/SoCs designed and supplied by Sondrel to its customers and Sondrel's previous designs have been included in well-known products such as Apple iPhone, Sony PlayStation, Meta's Oculus Quest virtual reality headset, Samsung, Google and Sony smartphones, JVC prosumer camcorders and Tesla and Mercedes-Benz cars.

Sondrel has transitioned its business model to provide a full turnkey ASIC design and supply service for its customers. This includes contracting for the manufacture, testing and production of ASICs as well as previously offered design and production consulting. Although the testing, packaging, and other capital-intensive engineering functions necessary for production of an ASIC will continue to be outsourced to third parties, Sondrel provides the product engineering and manages the complex manufacturing process by engaging third parties directly.

Reasons for the Fundraising

On 28 December 2023, and further detailed below, Sondrel announced that the Company would need to secure additional capital prior to end of March 2024 to provide a more permanent solution to meet the Company's short-term working capital requirements. This message was repeated in the Company's statements of 10 January 2024 and 5 February 2024.  On 27 February 2024, Sondrel announced that it would "…now require additional capital by the end of February 2024, in order inter alia, to meet payroll and other working capital requirements".

The Company took the decision to carry out the Fundraising to provide a more permanent solution to meet the Group's short-term working capital requirements. The Company requires the Fundraising in order to continue to operate.

On 1 March 2024, the Company announced "that discussions with a potential provider of capital to meet the Group's immediate working capital requirements are now at a very advanced stage in respect of a proposed £0.9 million secured 15% convertible loan note".

Subsequently, on 6 March 2024, Sondrel announced that it had, amongst other things, entered into the Exclusivity Agreement with ROX pursuant to which, subject to the satisfaction of a number of conditions (including the Rule 9 Waiver), ROX would subscribe for up to 65,000,000 new Ordinary Shares at a price of 10 pence per Ordinary Share. On the same day, the Company announced that it had entered into the First ROX Loan Agreement with ROX in order to assist the Company in meeting the Group's February 2024 payroll and certain overdue supplier obligations.

On 28 March 2024, the Company announced that it had entered into the Second ROX Loan Agreement, the proceeds of which would be utilised to enable the Group to meet its March and April 2024 payroll and immediate working capital requirements. On the same day, the Company announced that the Exclusivity Agreement had been further amended so that ROX would subscribe for up to 85,000,000 Ordinary Shares at 10 pence per Ordinary Share. In addition, if during the 12-month period following the Fundraising the Company were to require additional funding to finance the Transformation Plan detailed in the paragraph headed 'Transformation Plan' below, ROX may (if approved by ROX) subscribe for an additional 15,000,000 shares at 10 pence per Ordinary Share. The Fundraising is subject to the Rule 9 Waiver Resolution being passed at the General Meeting and receiving NSIA Approval.

The Fundraising will provide the Company with sufficient working capital required to meet its working capital needs and to execute its Transformation Plan detailed below.

CURRENT TRADING

On 28 December 2023, the Company announced the following update:

"Although continued progress has been made with regard to the ASIC project with a Tier 1 automotive OEM, £1.7m of payments for the achievement of a significant milestone under the contract initially expected to be received in December 2023 have been subject to an unexpected delay and are now expected to be received during January and February 2024. This automotive contract will not now achieve the next milestone, being tape out, until late Q1 2024 and will require additional resource to complete, the funding for which is currently under discussion with the customer.

Significant new ASIC business opportunities are in final negotiation for project start in early 2024 and indications remain encouraging that European and US market demand for Sondrel's turnkey ASIC services is strong.

However, as a consequence of the above delay, the cash position of the Group has further declined during December 2023. Sondrel was unable to meet December 2023 payroll in full and therefore the Company's Directors and senior management agreed to defer their salaries and fees until such time as the delayed funds are received. Sondrel asked certain employees to defer on the same basis, and was pleased that in excess of 67% of Group staff agreed to full deferral, with a significant additional number agreeing to partial deferral.

With a view to managing Group liquidity, negotiations are underway with suppliers to improve the terms of existing supply arrangements. The Group will need to secure additional capital prior to the end of March 2024 to provide a more permanent solution to meet the Company's short-term working capital requirements. However, should the delayed payments not be received through January and February 2024, the Group will need to secure this funding in shorter order."

On 10 January 2024 the Company announced the following update:

"… It is therefore expected that revenue associated with the automotive project of approximately £2.7m will instead now be recognised in the year ending 31 December 2024 ("FY24"). This revenue includes the £1.7m that is now expected to be received in January and February 2024, as per the announcement on 28 December 2023.

As a result, reported FY23 revenue is now expected to be materially lower than previous expectations* at approximately £10m. There will also be a corresponding impact on reported FY23 loss before tax due to the delay and also the additional resources and cost in advancing the project. …

* Current consensus analyst forecasts are for FY23 revenues of £13.0 million and an adjusted loss before tax of £6.0 million."

The current consensus analyst forecasts have not changed since 10 January 2024 and are for FY23 revenues of £10 million. ⁽¹⁾

^{(1) For the purposes of rule 28 of the Takeover Code, the Directors confirm that this forecast consensus remains valid.}

On 5 February 2024 the Company announced the following update:

"Sondrel… is pleased to confirm that it has received £1.5 million of payments in relation to the material turnkey ASIC engagement with its automotive Tier 1 supplier in January 2024, further to the announcement of 10 January 2024.

As a result, previously deferred December 2023 Group payroll has been met along with January 2024 Group payroll and certain creditor payments. Discussions with the customer over resolution of the funding for the project extension continue and additional payments are expected in the coming months, assuming completion of the 'tapeout' milestone and including the balance of £0.2 million.

Significant new ASIC business opportunities are in final negotiation for project start in early 2024 and indications remain encouraging that European and US market demand for Sondrel's turnkey ASIC services is strong.

Negotiations remain ongoing with suppliers to improve the terms of existing supply arrangements but the Group continues to need to secure additional capital prior to the end of March 2024 to provide a more permanent solution to meet the Company's short-term working capital requirements."

On 27 February 2024 the Company announced the following update:

"Sondrel… is pleased to announce that it has won a new design and supply contract for a next generation video processing chip with a total estimated value of US$23 million across the design, qualification and projected production life of the product.

The complex chip is to be used for high performance professional video streaming solutions. The Company has entered into the master agreement with the customer and design work has commenced whilst the parties finalise negotiations to the exhibits to the agreement. 

The initial contract value is for over US$9 million for the duration of the design and qualification phases and the work will be fully funded by the customer.

Chip production and supply are anticipated to start in 2026 and, subject to successful tapeout and qualification of prototypes, the contract is expected to generate production revenue of US$14 million, over 10 to 15 year production lifetime of the product, based on current customer forecasts.

The Company also reports that it has received four new orders in 2024 year to date for its design consulting services, engaging with two existing customers and two new customers. These contracts will generate a combined revenue of US$0.9 million in the current financial year.

Further to the announcement on 5 February 2024, negotiations with the Company's largest supplier to improve the terms of existing and future supply arrangements are now well advanced and have secured an agreement in principle. Discussions with other suppliers are positive and remain ongoing. Notwithstanding the progress made, negotiations with the Company's largest supplier have been slower than originally anticipated and the Group will now require additional capital by the end of February 2024, in order to inter alia, meet payroll and other short-term working capital requirements. The Company is in advanced discussions with a potential provider of capital which would serve to extend this working capital runway."

On 1 March 2024 the Company announced the following update:

"Further to the announcement on 27 February 2024, Sondrel confirms that discussions with a potential provider of capital to meet the Group's immediate working capital requirements are now at a very advanced stage in respect of a proposed £0.9 million secured 15% convertible loan note (the "CLN").

If agreed between the parties, the CLN would be mandatorily convertible into new ordinary shares in the Company at a price of 10 pence per new ordinary share on completion of a wider fundraise by the Company to raise net proceeds of not less than c.£6 million (the "Fundraise"). The provider of the CLN is expected to invest a further material equity amount in the Fundraise, which is intended to be completed prior to the end of March 2024.

The Fundraise is expected to provide the Company with the necessary working capital resources to support it through to a positive trading cash flow position in the year ending 31 December 2024 ("FY24").

Whilst the CLN is expected to be secured imminently, the Company cautions that the provision of the CLN remains subject to agreement between the parties. The Company will not be able to meet February 2024 payroll in full prior to receipt of CLN proceeds."

On 6 March 2024 the Company announced its entry into the First ROX Loan Agreement and the Exclusivity Agreement and on 28 March 2024 it announced its entry into the Second ROX Loan Agreement and that it had agreed an amendment to the Exclusivity Agreement such that the size of the proposed Fundraising was increased from £6.5 million to £8.5 million. The ROX Loan Agreements were entered into to in order to assist the Company in meeting its immediate working capital requirements.

Further to its announcement on 27 February 2024, the Company announced on 27 March 2024 that it had concluded negotiations with the Company's largest supplier referenced in the 27 February 2024 announcement and provided the following information in respect of the outcome of the negotiations:

" …. it has now concluded negotiations with a supplier (the "Supplier") in respect of existing and future supply arrangements under an addendum to an existing supply contract ("Addendum").

Under the Addendum, contract minimum utilisation levels have been reduced to bring them in line with the Company's current license usage rates until 2025 and are expected to increase thereafter in line with usage over the life of the contract as Sondrel scales. Payments will be made quarterly according to utilisation and licence bundles drawn down. Historical license fee liabilities currently owed by the Company to the Supplier are to be paid in equal monthly instalments of US$0.2m up to April 2027 and total cash payments to the Supplier are expected to not exceed US$1.9 million in 2024."

The attention of Shareholders is drawn to the principal risks and uncertainties of the Group detailed on pages 11 to 12 of the Company's 2022 Annual Report and Accounts published on 24 May 2023.

TRANSFORMATION PLAN

On 28 March 2024, the Company announced that it has resolved to adopt a Transformation Plan, which is currently expected to be fully implemented within six months from its adoption on 28 March 2024  based on the outcomes of ROX's due diligence into the Group carried out in connection with their proposed investment in the Company. The Transformation Plan will assist the Company in re-establishing its baseline costs, introducing revised robust management processes and refocusing the business to resolve matters that are central to the cash flow issues faced by the Group to date.

Through the Transformation Plan, the Company will continue to focus on the Group's core customer and supplier relationships and believes that the changes proposed at Board and managerial levels outlined in paragraph 5 of Part I (Letter from the Chairman) in the Circular will provide the Company with the breadth and depth of expertise to execute its plan.

The Company recognises the need to strengthen the management of projects and to further develop its intellectual property to ensure that it maintains and strengthens its capability to deliver projects efficiently utilising the most advanced technologies.

The Company attaches great importance to the skills and experience of the Group's employees and recognises the contribution that they have made to date and believes that a greater focus on the management of the projects coupled with the increased development of intellectual property will enable strong growth in the target markets.  The Company intends to review the Group's current incentivisation structure and establish a revised scheme for its employees.

In the long term, the Company will look to revise its growth strategy focusing on learned experiences and will seek growth opportunities including via strategic acquisitions.

The Company is currently undertaking a review to reduce its cost base and increase its revenue. The review will include the Company assessing the most efficient use of the locations in which the Group operates and the Group's headcount. The initial review has been completed and resulted in 13 employees being made redundant at the end of April. 

As part of the Transformation Plan the Company has resolved (including by unanimous approval of the independent Non-Executive Directors) to seek a proposal to cancel the admission of the Ordinary Shares to trading on AIM ("Cancellation") in such manner that would allow an orderly exit for those shareholders who do not wish to hold shares in a private company environment, where a trading facility will not be offered. The Company and ROX are of the opinion that the costs and complexities of being quoted on AIM do not benefit the Company and its Shareholders during a period where the business is undergoing transformation. It is anticipated that a Cancellation resolution will be put to Shareholders within six months of completion of the Fundraising. 

BOARD AND MANAGEMENT CHANGES

On 28 March 2024, it was announced that Graham Curren would transition from his role as Chief Executive Officer of the Company and on completion of the Fundraising would become Chief Executive Officer of a newly established subsidiary of the Company. However, following the announcement of 28 March 2024, it has been agreed instead that on completion of the Fundraising, Mr Curren will become Chief Executive Officer of Sondrel Ventures Ltd, an existing subsidiary of the Company incorporated in the UK. Sondrel Ventures Ltd will concentrate on the strategy and growth of the Group including acquisition opportunities in the semiconductor value chain. In this new role, Graham's significant experience and relationships with participants in the semiconductor industry will continue to deliver value to the Company. Graham will retain his role as a statutory director on the board of the Company, however, with effect from 2 April 2024, Graham has moved to a Founder and Non-Executive Director role as further detailed in paragraphs 13.1 and 13.2 of Part II (Takeover Code Disclosures for the Purpose of the Rule 9 Waiver) of the Circular.

On 2 April 2024, David Mitchard was appointed by the Company as interim Chief Executive Officer in a non-board capacity. David has more than 20 years' experience in leading large corporate divisions in complex engineering environments and successfully implementing turnaround strategies. Most recently, David was Managing Director of Maritime Services at BAE Systems. David brings with him a wealth of experience which the Company believes will benefit its ability to execute the transformation of its business.

In connection with the Transformation Plan, the Company has appointed a transformation director, in a non-board capacity on an interim basis with effect from 8 April 2024. It is also expected that the Company will seek to create additional new managerial roles which may include, amongst others, a project management director.

Post completion of the Fundraising

It is expected that the following board changes will take effect on Admission:

1.    Nigel Vaughan will retire from his position as Non-Executive Chairman of the Board and as a Non-Executive Director of the Company;

2.    David Mitchard will become Chairman of the Board and, until such time as a suitable candidate can be found, will continue his role as interim Chief Executive Officer;

3.    Fred Walsh will be appointed as a Non-Executive Director of the Board. Fred is currently Managing Director of Investment Banking at Stifel Nicolaus Europe Limited, bringing experience from previous roles at Praxonomy, Panmure Gordon, Arden Partners and Landsbanki. With a robust skill set that includes Corporate Finance, Investment Banking, Mergers & Acquisitions and extensive Capital Markets experience in the technology and telecoms sectors, Fred brings deep expertise in funding for the sector; and

4.    Miles Woodhouse will be appointed as a Non-Executive Director of the Board as ROX's appointed director. Miles brings extensive experience in building businesses from his years as an entrepreneur and director on the boards of various UK technology groups. He has particular expertise in turning operations around through shaping strategy and making tactical acquisitions. Prior to joining ROX, Miles was the Chief Technology Officer of a £3bn subsidiary of a global defence business. 

Both David Mitchard (once he is no longer interim Chief Executive Officer) and Fred Walsh will be deemed to be independent Non-Executive Directors alongside the Company's existing Non-Executive Directors, Sherry Madera and Adrian Carey. Prior to the Cancellation the Company intends to consider the roles of all Non-Executive Directors in the Company in connection with the Cancellation.

Under the terms of the Second ROX Loan Agreement, ROX has the right either to appoint two directors to the Board or to appoint two observers at meetings of the Board. As set out above, ROX has nominated Miles Woodhouse to become its representative director on the Board.

The Company is of the opinion that the revised Board structure will bring a range of experience to assist it in executing the Transformation Plan and provide a stable platform to accelerate growth.

Pursuant to the Transformation Plan, the Company will look to bolster management through appointing a permanent Chief Financial Officer, who will become a statutory director of the Company. 

INTENTIONS OF ROX FOR THE COMPANY

As set out in paragraphs 4 and 5 of Part I (Letter from the Chairman) of the Circular, it is intended that there will be changes made to the business as part of the Transformation Plan, including the intention to undertake the Cancellation and certain board and management changes. ROX notes that regrettably the Transformation Plan has resulted in a headcount reduction of 13 employees being made redundant at the end of April. 

ROX confirms that the Transformation Plan aligns with the outcomes of its due diligence on the Group and is therefore supportive of the Company's plan. Except as outlined in paragraphs 4 and 5 of Part I (Letter from the Chairman) of the Circular, ROX has no intention to change the Company's plans in respect of:

1.    the composition of the Board, the continued management of the Company and its subsidiaries (including any material change in engagement terms of its Non-Executive Directors);

2.    the continued employment of the employees of the Company and its subsidiaries, including any material change in the conditions of employment or in the balance of the skills and functions of the employees;

3.    the Company's future business and its strategic, research and development plans;

4.    the location of the Company's headquarters or headquarter functions or the location of the Company's places of business;

5.    the redeployment of the Company's fixed assets; or

6.    employer contributions into the Company's pension schemes, the accrual benefits of existing members and the admission of new members. 

ROX does not intend to put any incentivisation arrangements in place for the Company's management in connection with the Proposals.

The Board considers the Proposals to be in the best interests of the Company and the Shareholders as a whole and welcome the strategic rationale which underpins them. The Board also welcome the confirmations from ROX as set out above.

The Rule 9 Waiver Resolution will be proposed as an ordinary resolution to approve the Rule 9 Waiver. If the Rule 9 Waiver Resolution is passed by independent Shareholders on a poll at the General Meeting, the Takeover Panel will approve the Rule 9 Waiver and, subject to receipt of the NSIA Approval, will allow the issue of the ROX Subscription Shares and if relevant, the Additional Fundraising Shares, to ROX without ROX being required to make a mandatory offer under Rule 9 of the Takeover Code. If ROX were to participate in the Additional Fundraising, ROX would hold shares carrying more than 50% of the voting rights of the Company and could accordingly increase its aggregate interests in Ordinary Shares without incurring any obligation to make an offer under Rule 9 of the Takeover Code.

USE OF PROCEEDS

The Company has conditionally raised gross proceeds of £5,625,400 by way of the ROX Subscription. Under the ROX Subscription Letter, ROX has agreed, subject to the Regulatory Approvals having been received, to subscribe, at the Issue Price, for 56,254,000 New Ordinary Shares.

The net proceeds of the Fundraising (assuming the Regulatory Approvals are received), will be used to settle existing creditors, meet the Company's immediate working capital requirements and execute the Transformation Plan. 

CONVERSION OF THE ROX LOANS AND THE ROX SUBSCRIPTION

ROX Loans and ROX Subscription

The total amount expected to be raised in the Fundraising is £8.5 million, comprising:

·    the conversion of the principal sum of the First ROX Loan Agreement, being £874,600, into 8,746,000 New Ordinary Shares at a price of 10 pence per share;

·    the conversion of the principal sum of the Second ROX Loan Agreement, being £2 million, into 20,000,000 New Ordinary Shares at a price of 10 pence per share; and

·    the subscription by ROX for 56,254,000 New Ordinary Shares at a price of 10 pence per share pursuant to the terms of the ROX Subscription Letter.

The Fundraising is conditional upon the Regulatory Approvals outlined below. Assuming the Regulatory Approvals are received, ROX will upon Admission hold 85,000,000 Ordinary Shares being 49.29% of the Enlarged Share Capital.

The Issue Price of 10 pence per New Ordinary Share represents an approximate 54%premium to the closing middle market price of 4.6 pence per Existing Ordinary Share on 10 May 2024 (being the last practicable date prior to the date of the announcement of the Fundraising released by the Company on 14 May 2024).

Additional Financing

Additionally, if the Fundraising completes, the Company could request (but not require) ROX to invest up to a further £1.5 million by way of a subscription for up to 15,000,000 Ordinary Shares at a price of 10 pence per share pursuant to the terms of the Exclusivity Amendment Agreement.  In the event that the Additional Fundraising of £1.5 million is required by the Company in full and agreed to by ROX, ROX will hold 100,000,000 Ordinary Shares being 53.34% of the Enlarged Share Capital.

Regulatory Approvals

The Fundraising is conditional upon the Shareholders approving the Rule 9 Waiver Resolution and the NSIA Approval. If approval is not obtained the Fundraising will not proceed.

Unless and until the NSIA Approval has been received, nothing in the ROX Subscription Letter or otherwise shall require or allow ROX's interest in the Company to exceed 25% of its total issued share capital.

The Takeover Panel has agreed to waive the obligation on ROX to make a general offer to all Shareholders that would otherwise arise pursuant to Rule 9 of the Takeover Code as referred to above, subject to the approval by the Shareholders (all of whom are considered independent for this purpose) of the Rule 9 Waiver Resolution on a poll.

If the Regulatory Approvals are not obtained, ROX will have the option to convert the ROX Loans into a total of 28,746,000 New Ordinary Shares (being the ROX Conversion Shares), at the agreed price of 10 pence per New Ordinary Share but will not subscribe for any further shares under the Subscription Letter. This will result in ROX's percentage holding in the Company being 24.74% of the share capital of the Company (as enlarged by the ROX Conversion Shares). 

Statutory allotment authorities

The Company entered into the First ROX Loan Agreement on the basis of statutory authorities to allot shares and securities convertible into Ordinary Shares in the Company free from pre-emption rights which were granted at the Company's annual general meeting held on 27 June 2023.

The Company has entered into the Second ROX Loan Agreement on the basis of the statutory authorities to allot shares and securities convertible into Ordinary Shares in the Company which were granted at the Company's general meeting held on 25 March 2024.

The Company has sufficient statutory authorities to allot shares in connection with the issue and allotment of the ROX Subscription Shares.

In order to complete the Fundraising (due to the required Rule 9 Waiver resolution requirement) and to ensure the Company has sufficient statutory authorities to allot shares to execute the Additional Fundraising (should it need to do so), the Company requires the approval of the Resolutions by Shareholders holding the requisite number of Ordinary Shares at the General Meeting.

APPLICATION OF THE TAKEOVER CODE AND RULE 9 WAIVER

Takeover Code

The Company is subject to the Takeover Code. Under Rule 9 of the Takeover Code, any person who acquires an interest in shares (as defined in the Takeover Code) which, taken together with any shares in which that person or any other person acting in concert with that person is interested, carry 30% or more of the voting rights of a company which is subject to the Takeover Code, is normally required to make an offer to all of the remaining shareholders to acquire their shares in the company.

Similarly, when any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30% of the voting rights of such a company, but does not hold shares carrying more than 50% of such voting rights, a general offer will normally be required if any further interest in shares is acquired by any such person, or persons acting in concert with him, which increases the percentage of shares carrying voting rights held by such persons.

An offer under Rule 9 would have to be made in cash and at the highest price paid for any interest in shares by that person or by any person acting in concert with it within the 12 months prior to the announcement of the offer.

Rule 9 Waiver Resolution

As noted in paragraph 8 above, on Admission it is expected that ROX will be interested in shares carrying more than 30% of the voting rights of the Company but will not hold shares carrying more than 50% of the voting rights of the Company. The Takeover Panel may waive ROX's obligation to make an offer under Rule 9 if independent Shareholders (all Shareholders are deemed independent for this purpose) ("Independent Shareholders") pass the Rule 9 Waiver Resolution.

The Takeover Panel has been consulted and has agreed, subject to the passing of the Rule 9 Waiver Resolution by the Company's Independent Shareholders on a poll at the General Meeting, to waive the obligation of ROX to make a mandatory offer for the Ordinary Shares in the capital of the Company not already owned by them which would otherwise arise following completion of the Fundraising and if relevant, the Additional Fundraising. Accordingly, the Company is proposing the Rule 9 Waiver Resolution to seek the approval of the Company's Independent Shareholders to the Rule 9 Waiver Resolution.

Shareholders should be aware that under the Takeover Code, if a person (or group of persons acting in concert) holds interests in shares carrying 30% or more of the voting rights in that company and they do not hold shares carrying more than 50% of the voting rights in that company, no member of that group may acquire an interest in any other shares carrying voting rights in that company without incurring a similar obligation under Rule 9 to make a mandatory offer (save to the extent permitted by the Rule 9 Waiver).

Shareholders should also be aware that under the Takeover Code, if a person (or group of persons acting in concert) holds shares carrying more than 50% of the Company's voting rights, that person (or any person(s) acting in concert with him) may acquire further shares without incurring any obligation under Rule 9 to make a mandatory offer.

If ROX were to participate in the Additional Fundraising, ROX would hold shares carrying more than 50% of the voting rights of the Company and could accordingly increase its aggregate interests in Ordinary Shares without incurring any obligation to make an offer under Rule 9 of the Takeover Code.

The Rule 9 Waiver to which the Takeover Panel has agreed under the Takeover Code will be invalidated if any purchases are made by ROX or any party acting in concert with ROX in the period between the date of the Circular and the General Meeting. Furthermore, neither ROX nor any person acting in concert with it, has purchased Ordinary Shares in the 12 months preceding the date of the Circular.

GENERAL MEETING

The Company has called the General Meeting in order to (i) put to Independent Shareholders the Rule 9 Waiver Resolution required to approve the Rule 9 Waiver and to (ii) put to Shareholders the other Resolutions set out in Part III (Notice of General Meeting) of the Circular. Your attention is drawn to the fact that all of the Resolutions must be passed by Shareholders at the General Meeting in order for the Fundraising to proceed.

The Notice of General Meeting, which is proposed to be held at Sondrel House, Theale Lakes Business Park, Moulden Way, Sulhamstead, Reading, RG7 4GB at 10:00 a.m. (UK time) on 30 May 2024, is set out at the end of the Circular.

The Rule 9 Waiver Resolution will be proposed as an ordinary resolution to approve the Rule 9 Waiver. If passed it will approve the Rule 9 Waiver and, subject to receipt of the NSIA Approval, will allow the issue of the ROX Subscription Shares and if relevant, the Additional Fundraising Shares, to ROX without ROX being required to make a mandatory offer under Rule 9.

The Takeover Code requires the Rule 9 Waiver Resolution to be passed by the Independent Shareholders only.  All existing Shareholders are considered independent for this purpose.

At the General Meeting the following inter-conditional Resolutions will be proposed:

Resolution 2 - Authority to allot shares

Resolution 2 is an ordinary resolution to authorise the Directors to allot relevant securities with an aggregate nominal value of up to £15,000, being equal to 15,000,000 New Ordinary Shares (i.e. the maximum number of Ordinary Shares that may be allotted pursuant to or in connection with the Additional Fundraising).

Resolution 3 - Disapplication of statutory pre-emption rights

Resolution 3, which is conditional on the passing of Resolution 2, is a special resolution to authorise the Directors to allot up to 15,000,000 New Ordinary Shares (i.e. the maximum number of Ordinary Shares that may be allotted pursuant to or in connection with the Additional Fundraising) for cash on a non-pre-emptive basis.

The authorities given by the Resolutions 2 and 3 will be in addition to any existing similar authorities which the Directors may have.

If the Resolutions are not approved by Shareholders at the General Meeting, no Ordinary Shares will be issued to ROX pursuant to the Fundraising and the Fundraising will not proceed. As such, the anticipated net proceeds of the Fundraising would not become available to the Company. There is no certainty that other funding would be available on suitable terms or at all. Accordingly, in light of the Group's reducing cash position, it would be likely that the Company would have to ceasing trading in such circumstances.

Furthermore, if the Resolutions are not passed at the General Meeting, the Company will not have the necessary allotment authorities in place to allot the new Ordinary Shares needed for the Additional Fundraising, should the Company and ROX proceed with the Additional Fundraising in the 12-month period following completion of the Fundraising.

INDEPENDENT ADVICE IN RESPECT OF THE WAIVER

The Takeover Code requires the Directors to obtain competent independent advice regarding the merits of the Proposals. Cavendish has provided formal advice to the Directors regarding the Proposals and in providing such advice, Cavendish has taken into account the Directors' commercial assessments. Cavendish confirms that it, and any person who is or is presumed to be acting in concert with it, is independent of ROX and has no personal, financial or commercial relationship, or arrangements or understandings with ROX. Cavendish has given and has not withdrawn its written consent to the inclusion in the Circular of its name and the references to it in the form and context in which they are included.

ROX RELATIONSHIP AGREEMENT

On 14 May 2024, the Company entered into a relationship agreement (the "ROX Relationship Agreement") with ROX pursuant to which ROX agreed, amongst other things, that: 

(a)        the Group shall be managed for the benefit of shareholders as a whole and shall be capable at all times of carrying on its business independently of ROX and/or its associates;

(b)        all transactions, agreements and arrangements between any member of the Group and ROX or its associates) shall be on an arm's length basis and on normal commercial terms;

(c)        at least 2 directors who are considered to be independent shall at all times be appointed to the Board;

(d)        any dispute between ROX and/or its associates and the Company (including any matter relating to the terms of the ROX Relationship Agreement) shall be dealt with by a committee comprising only independent directors; and

(e)        the remuneration and nomination committee and audit and risk committee established by the Board from time to time shall comprise a majority of independent directors and shall be chaired by an independent Director.

The ROX Relationship Agreement is effective for so long as ROX (together with its associates and any persons acting in concert with him) hold in aggregate shares in the capital of the Company representing 20% or more of the rights to vote at a general meeting of the Company. The ROX Relationship Agreement will lapse on Cancellation.

The ROX Relationship Agreement is governed by English law.

DEFINITIONS AND GLOSSARY

The following definitions and glossary apply throughout the Circular (including the Notice of General Meeting) unless the context otherwise requires: