from OTAQ Plc (isin : GB00BK6JQ137)
Proposed Placing of £1.7 million and Broker Option of £1.0 million
OTAQ Plc (OTAQ) THIS ANNOUNCEMENT AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND FOR INFORMATION PURPOSES ONLY AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, AND DOES NOT CONSTITUTE AN OFFER OF SECURITIES FOR SALE IN, INTO OR FROM THE UNITED STATES OF AMERICA, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION, DISTRIBUTION, OFFER OR SALE WOULD BE UNLAWFUL. PLEASE SEE THE IMPORTANT NOTICES SECTION OF THIS ANNOUNCEMENT. THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND DOES NOT CONSTITUTE OR CONTAIN ANY INVITATION, SOLICITATION, RECOMMENDATION, OFFER OR ADVICE TO ANY PERSON TO PURCHASE AND/OR SUBSCRIBE FOR, OTHERWISE ACQUIRE OR DISPOSE OF ANY SECURITIES IN OTAQ PLC OR ANY OTHER ENTITY IN ANY JURISDICTION. THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF EU REGULATION 596/2014 (WHICH FORMS PART OF DOMESTIC UK LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT 2018), AS AMENDED. ON PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN AND ANY PERSONS WHO RECEIVED INSIDE INFORMATION IN A MARKET SOUNDING ARE NO LONGER IN POSSESSION OF SUCH INSIDE INFORMATION.
OTAQ PLC Proposed Placing of £1.7 million 10% Secured Convertible Loan Notes 2027 Broker Option through Dowgate Capital to allocate up to an additional Waiver under Rule 9 of the City Code
26 June 2024
OTAQ PLC, (“OTAQ” or the “Company”), a highly innovative technology company targeting the aquaculture and offshore markets, announced a proposed fundraising on 17 May 2024. A placing has been conducted by Dowgate Capital to issue £1.7 million 10% Convertible Loan Notes 2027 at par, with a potential further issue by OTAQ of up to £1.0 million further Convertible Loan Notes 2027 under a Broker Option granted by the Company to Dowgate Capital. Further details of the Fundraise, including the terms of the Notes and conditions of the Placing, are set out in this announcement and in a Circular being posted to shareholders today, which will also be available on the Company’s website at https://otaq.com/.
The Circular contains notice of a general meeting of the Company to be held on 12 July 2024 at which resolutions relating to the Placing will be proposed.
At the time of the Company’s acquisition of OTAQ Group Limited on 31 March 2020, it was agreed with the Takeover Panel that certain Shareholders were 'acting in concert' in relation to the Company). The Concert Party, as originally constituted, which also includes the Discretionary Funds managed by Dowgate Wealth Limited and other funds managed by members of the Dowgate Group, now holds 28,438,899 Ordinary Shares representing 22.15 per cent. of the Voting Share Capital. Recent discussions with the Takeover Panel in the context of certain wider relationships between shareholders have resulted in others being deemed to be 'acting in concert' in relation to the Company. The Enlarged Concert Party includes: Nigel Wray and Euroblue Investments Limited (a company controlled by Mr Wray); Giles Clifford and Adam Reynolds (directors of OTAQ); and Onward Opportunities Limited, a closed-ended investment company managed by a small team headed by Laurence Hulse, who is an Investment Director of Dowgate Wealth. The Enlarged Concert Party holds 57,141,078 Ordinary Shares representing 44.51 per cent. of OTAQ’s Voting Share Capital.
As set out below, under the Takeover Code, any change in the Enlarged Concert Party’s shareholding in the Company, which results in an increase in the percentage of the Voting Share Capital of the Enlarged Concert Party would result in the Enlarged Concert Party normally being required to make a mandatory cash offer to all the remaining Shareholders to acquire their Ordinary Shares in cash and at the highest price paid by any member of the Enlarged Concert Party in the preceding 12 months.
Certain members of the Enlarged Concert Party have given commitments to subscribe for Convertible Loan Notes in the Fundraise. In the event that the members of the Enlarged Concert Party acquire and then exercise the conversion rights attaching to the Convertible Loan Notes, the percentage interest of the Enlarged Concert Party may increase to a maximum of 54.50 per cent. (assuming that only Notes held by the Concert Party are converted into new Ordinary Shares excluding SIP Allocations).
Philip Newby, Chief Executive Officer, and Dr Harald Rotsch, Chief Technology Officer, of the Company who are participants in the Company’s Share Inventive Plan, are deemed to be members of the Concert Party. Under the SIP, any member of staff can contribute up to £150 per month under salary sacrifice arrangements to buy existing Ordinary Shares. The Company then matches this by allotting additional new Ordinary Shares on a 1:1 basis, so the maximum number of Ordinary Shares allocated to each participating employee is £300 divided by the prevailing market price. Accordingly, an illustrative 130,000 new Ordinary Shares are authorised to be allocated to each of Philip Newby and Harald Rotsch, who are each entitled under the SIP to 13 monthly Ordinary Share allocations valued at £300 each prior to June 2025. If such SIP Allocations are received in full, this would result in an increase in the aggregate shareholding of the Concert Party to an illustrative maximum of 54.66 per cent. as explained below.
The Company has consulted with the Takeover Panel which has agreed to waive the requirement for the Enlarged Concert Party to make a mandatory cash offer to all Shareholders under Rule 9 of the Takeover Code to all the remaining Shareholders to acquire their Ordinary Shares in cash, in the specific circumstance where those members of the Enlarged Concert Party’s aggregate shareholding increases either on conversion of Notes into new Ordinary Shares thereby resulting in an increase in the aggregate percentage holding of Ordinary Shares or as a result of the SIP allocations (the “Rule 9 Waiver”). The Rule 9 Waiver is subject to and conditional upon the approval by a vote of Independent Shareholders on a poll at a General Meeting of the Company.
About the Group
OTAQ is a highly innovative technology company targeting the aquaculture and offshore markets. It already has a number of established products in its portfolio and is focused on further developing its presence, customer base and cross selling opportunities within core markets both organically and via acquisition.
The Company’s prime focus remains the provision of technology services to the aquaculture sector, which includes technologies to support shrimp farming and to monitor and manage water quality more widely across the sector. Specifically, the aquaculture division products include a sonar device (developed for Minnowtech LLC) to scan shrimp in ponds and water quality monitoring. The Company has developed and now launched LPAS a live plankton analysis product for finfish and shellfish farmers. OTAQ also continues to target opportunities for production and sale of its Sealfence acoustic deterrent device primarily for the salmon farming sector.
OTAQ’s offshore division product range includes OceanSense subsea leak detection, Eagle IP camera systems and Lander seabed survey devices. The Company is also focused on the development of new products through this division, with the aim of increased cross-deployment of skills and technologies into the aquaculture arena.
OTAQ’s connectors division includes the manufacture of subsea electrical connectors and penetrators to operate in challenging subsea applications in the offshore oil and gas, commercial diving and renewable energy markets. The Company’s connectors products have a variety of uses including for diving chambers, survey and drilling equipment and remote operated vehicles.
Reasons for the Fundraise
The Group’s product range includes some which are relatively new (LPAS was launched in May 2024) and others which are still being developed and/or tested. Delays in bringing new products to market and into production have contributed to the Group’s cash resources becoming stretched leading to the need for the Placing. In these circumstances it is difficult to make reliable cash flow forecasts, leading to a relatively conservative approach being taken. Cash generation in Q1 2024 was better than budgeted with a strong contribution from connector sales offsetting a weakness in aquaculture revenues. Overall, the Board of Directors of the Company (the “Board”) believes that the Group’s revenue generating products, together have the potential to generate sufficient cash flow to cover all expenditure by the end of 2025. The Fundraise addresses the Group’s anticipated working capital requirements to continue to operate as a going concern.
Certain of the Group’s major shareholders have made Placing commitments, demonstrating their confidence in the Group’s prospects. These commitments result in a conflict of interest between them and the Company. See paragraph 5. ‘Related Party involvement in the Placing’ below.
Publication of the Circular 26 June 2024
Latest time and date for receipt of completed Forms of Proxy 10.00 a.m. on 10 July 2024
Latest time and date for CREST voting instructions 10.00 a.m. on 10 July 2024
General Meeting 10.00 a.m. on 12 July 2024
Result of General Meeting announced as soon as possible on 12 July 2024
Issue of the Convertible Loan Notes under the Placing as soon as possible following the General Meeting
Expiry of the Broker Option 5.00 p.m. on 31 December 2024
Each of the times and dates above refer to London time and are subject to change. Any such change will be notified by an announcement through a Regulatory Information Service. All events listed in the above timetable following the General Meeting are conditional upon the passing of the Resolutions at the General Meeting. In addition, the Placing is conditional upon, amongst other things, the Placing Agreement (as defined below) not having been terminated in accordance with its terms and Second Admission becoming effective.
Details of the Placing and the Broker Option
Dowgate Capital has conditionally placed £1.7 million of Placing Convertible Loan Notes with new and existing investors.
In order to accommodate potential additional demand for Convertible Loan Notes, the Company has granted the Broker Option of up to £1.0 million to Dowgate Capital to enable Dowgate Capital to fulfil any additional requests for Convertible Loan Notes in excess of the £1.7 million conditionally raised in the Placing. The Broker Option is exercisable by Dowgate Capital at its absolute discretion, at any point up to 5.00 p.m. on 31 December 2024 and there is no obligation on Dowgate Capital to exercise the Broker Option or to seek to procure subscribers for any Broker Option Convertible Loan Notes pursuant to the Broker Option. Any Broker Option Convertible Loan Notes issued pursuant to the exercise of the Broker Option will be issued on the same terms and conditions as the Placing Convertible Loan Notes but may be issued at a higher price.
The Company and Dowgate Capital have entered into the Placing Agreement, pursuant to which Dowgate Capital has agreed to use its reasonable endeavours to procure subscribers for the Placing Convertible Loan Notes pursuant to the Placing. The Placing Agreement also sets out the terms of the Broker Option granted by the Company to Dowgate Capital. The Company has agreed to pay all costs and expenses relating to the Fundraise including commissions payable to Dowgate Capital.
The Placing Agreement contains certain customary warranties and indemnities by the Company in favour of Dowgate Capital. It also contains provisions entitling Dowgate Capital to terminate the Placing Agreement if, amongst other things, there is a breach of any of the warranties given by the Company which Dowgate Capital (acting reasonably) considers to be material in the context of the Fundraise or in the opinion of Dowgate Capital, there shall have occurred any 'Material Adverse Change' (as defined in the Placing Agreement).
The Placing Agreement is conditional upon, inter alia:
Neither the Placing nor the Broker Option has been, nor will be, underwritten.
The Fundraise will, if the Broker Option is exercised in full and the maximum principal amount of Broker Option Convertible Loan Notes are issued, result in the issue, upon conversion of all of the Convertible Loan Notes, of up 90,000,000 new Ordinary Shares, representing approximately 41.21 per cent. of the Enlarged Share Capital of the Company as at the date of the issue of the Convertible Loan Notes (excluding any SIP Allocations).
Details of the Convertible Loan Notes
The Company is proposing to issue Convertible Loan Notes in an aggregate amount of up to £2.7 million under the Fundraise.
The Convertible Loan Notes will be issued pursuant to the instrument executed by the Company on 26 June 2024 (the “Convertible Loan Note Instrument”). The principal terms of the Convertible Loan Notes under the Convertible Loan Note Instrument are as follows:
Investors may subscribe for Convertible Loan Notes for an aggregate minimum amount of £1,000.00 in the Placing or the Broker Option.
The issue of the Convertible Loan Notes, as with the completion of both the Placing and the Broker Option, is among other things conditional on the passing of the Resolutions at the General Meeting,
5. CURRENT TRADING AND OUTLOOK
As announced on 17 May 2024, the Company expects to announce that trading in the year to 31 December 2023 was slightly ahead of management’s expectations with revenues of not less than £4.4 million (2022: £4.0 million). The Company expects to report a reduced EBITDA loss of approximately £311,000 (2022: £331,000). The EBITDA loss is some £66,000 higher than previous guidance, due to certain non-recuring items. The Company continues to manage its limited cash resources with care, and it continues with scheduled repayments of the CBILS loan, which is down to £817,000. The Company’s audited full year results to 31 December 2023 will be announced on or before 28 June 2024.
The Directors confirm that the above profit estimates remain valid have been properly compiled on the basis of the assumptions stated and that the basis of accounting used is consistent with the Company’s accounting policies.
Trading in Q1 FY24 has been encouraging, with revenues up 19 per cent. over Q1 FY23. and the Company continues to see progress across the Group. The Offshore Products division has maintained the positive performance seen in 2023. Aquaculture has also seen a number of positive developments. The Company’s sonar shrimp system developed for Minnowtech LLC, is now gaining traction in its target markets. The Company has also identified further new customer interest in the Company’s established Sealfence solution from salmon farmers in several major salmon production regions, having sold 19 Sealfence units into these core target markets in the first quarter.
The Company has also confirmed that following more than three years in development, OTAQ has now completed successful trials of its Live Plankton Analysis System (LPAS), and recently launched LPAS at the Aquaculture UK conference.
6. RELATED PARTY INVOLVEMENT IN THE PLACING
Dowgate Group controls 13.41 per cent. of the Total Voting Rights and is a substantial shareholder and a related party (as defined in the AQSE Rules. Dowgate Capital, the Company’s AQSE Corporate Adviser and broker, is arranging the Placing and Dowgate Wealth Limited is the manager of Onward Opportunities Limited, which has committed to invest £500,000 in the Placing. David Poutney, a director of and shareholder in Dowgate Group and his wife has committed to invest £300,000 in the Placing.
Dowgate Capital has entered into the Placing Agreement which includes the Broker Option with the Company, as described above and in the summary of the Placing Agreement which is set out in the Circular.
In view of Dowgate Capital’s conflict of interest arising from the above, it has not advised the Board in relation to the terms of the Convertible Loan Notes and the Board sought advice on the Terms of the Notes from Guild Financial.
In the context of the Group’s current negative cash flows and lack of sufficient working capital to cover expected losses until cash flow break-even is reached, it is necessary to offer potential Placees Notes on terms which reflect the high risk nature of their investment. Consideration was given to the issue of new Ordinary Shares but in current market conditions, the discounted price at which any new shares would have to be offered would be considerably more dilutive than the Notes (if they could be placed at all). Accordingly, the issue of the Notes represents a practicable solution for funding the Group.
The Board, having been so advised by Guild Financial, believes that the terms of the Placing Agreement, Broker Option and the Notes, all of which are contracts with related parties (as defined in the AQSE Rules) are fair and reasonable so far as Shareholders as a whole are concerned.
7. USE OF PROCEEDS
The Fundraise is intended to enable the Company to continue with the positive commercial momentum described above. In particular, the Independent Director considers that the Convertible Loan Notes represent an overall funding solution for the Company’s needs that would likely be less dilutive to Shareholders than performing a traditional equity fundraising in the current macroeconomic environment.
The Company expects to receive gross proceeds of approximately £1.7 million pursuant to the Placing and £1.0 million pursuant to the Broker Option (assuming this is exercised in full).
The Company intends to use the net proceeds of the Fundraise principally:
The Directors will continue to assess suitable available funding options for the Company going forward for the purposes of bolstering the Company’s working capital position and securing the funding necessary to pursue its corporate strategy.
Each of the persons and entities listed in the table below are together considered to be 'acting in concert' for the purposes of the Takeover Code in relation to the Company. As at 5.00 p.m. on 24 June 2024 (being the last practicable date prior to this announcement, members of the Enlarged Concert Party have an interest in an aggregate 57,141,078 Ordinary Shares equating to an aggregate of 44.51 per cent. of the existing Voting Share Capital.
Included in the Enlarged Concert Party’s shareholding are the purchase and allocation of existing Ordinary Shares and allotment of new Ordinary Shares of the value of up to £300 per month under the SIP could increase the shareholdings of Philip Newby and Dr Harald Rotsch, both members of the Enlarged Concert Party. The number and percentage of the Total Voting Rights represented by these Ordinary Shares depends on the prevailing share price at the relevant times. Based on an illustrative share price of an Ordinary Share of 3 pence and assuming that the SIP Allocations are made in full prior to the 2025 annual general meeting (when a resolution to renew the Rule 9 waiver in relation to subsequent SIP allocations can be proposed), an illustrative 260,000 new Ordinary Shares would be allocated to members of the Concert Party. Assuming no new Ordinary Shares are issued save for conversions of Notes held by Concert Party members, allocation of 260,000 Ordinary Shares to members of the Concert Party over the period to the end of June 2025 would increase the Enlarged Concert Party’s shareholding to 85,734,411 Ordinary carrying 54.66 per cent. of the enlarged Total Voting Rights. Resolutions are expected to be proposed at annual general meetings in 2025 and in later years to approve waivers of possible mandatory offers arising from SIP allocations of Ordinary Shares to members of the Concert Party in the years following each such general meeting.
No further SIP allocations will be made if they would trigger a mandatory offer under the Takeover Code. The SIP allocation for May 2024 has been deferred until after the General Meeting.
The table below also sets out the intended participation in the Placing by certain members of the Enlarged Concert Party and their resulting shareholding upon conversion of the Convertible Loan Notes.
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