Versarien plc (LON:VRS), the advanced materials engineering group, has announced that the Company has agreed to acquire certain graphene production related assets and intellectual property from South Korea based Hanwha Aerospace Co. Ltd, for consideration comprising 11,000,000 ordinary shares of 1 pence each in the Company. The consideration is equivalent to £4.34 million at the 39.475 pence per Ordinary Share closing mid-market price on 18 December 2020.
In addition, the Company has entered into a subscription agreement with Lanstead Capital Investors LP to subscribe for 8,750,000 new Ordinary Shares at 40 pence per Subscription Share raising gross proceeds of £3.50 million, the proceeds of which will be used for an additional sharing agreement with Lanstead, as described below.
Highlights
· Versarien has agreed to acquire certain assets and intellectual property that form the South Korea based chemical vapor deposition (“CVD”) activities of Hanwha Aerospace Co. Ltd for a consideration of 11,000,000 new Consideration Shares.
· The Acquisition comprises a portfolio of over 100 patents and patent rights, many originally developed by Samsung in South Korea, covering CVD graphene manufacturing methods and related applications, together with manufacturing equipment suitable for producing high quality large format electronics grade graphene.
· Subscription for 8,750,000 Subscription Shares by Lanstead, who currently hold approximately 7.57% of the Company’s issued share capital, at the Issue Price to raise gross proceeds of £3.50 million. The £3.50 million gross proceeds of the Lanstead Subscription will be pledged by the Company pursuant to an additional sharing agreement with Lanstead (the “Sharing Agreement”), following the one entered into in March 2020, details of which were notified in the Company’s announcements of 23 March and 6 April 2020.
· The Sharing Agreement, details of which are set out below, entitles the Company to receive back the proceeds on a pro rata monthly basis over a period of 18 months, subject to adjustment upwards or downwards each month depending on the Company’s share price. The net proceeds received by the Company from the Sharing Agreement will be used primarily to establish operations in South Korea following the Acquisition, as well as for the Company’s general working capital purposes.
Neill Ricketts, Chief Executive Officer of Versarien, commented:
“We are delighted to have agreed the Acquisition which complements our existing portfolio of graphene materials technology. In particular, it will provide us with access to patented technology and equipment to produce high quality single and dual layer graphene that has particular applications in the electronics sector, together with other areas, including in relation to some of our existing collaborations. The Acquisition will also help facilitate our planned future Asian development.
“We are pleased that we have received additional support from Lanstead to provide the funding and additional working capital required for our international expansion strategy.”
The Acquisition
The Acquisition comprises certain assets and intellectual property (“IP”) that forms the South Korea based CVD activities of Hanwha Aerospace, part of the Hanwha Group.
As part of the Acquisition, Versarien is acquiring over 100 patents that cover a number of areas including graphene manufacture and certain graphene applications that the Directors believe will complement the Group’s existing 2D materials portfolio. These patents cover areas including using CVD methods to produce high quality single and dual layer graphene and methods to produce graphene based thin film laminates that the Directors believe will have potential applications in the electronics sector, amongst others.
Additionally, the Acquisition comprises manufacturing equipment suitable for producing high quality large format electronics grade graphene. The Company plans to establish operations in South Korea via its new subsidiary which will be overseen initially by Versarien’s Head of International Strategy and Government Relations, Matt Walker.
The consideration for the Acquisition is being satisfied through the issue of the 11,000,000 Consideration Shares to Hanwha Aerospace. Hanwha Aerospace have agreed not to dispose of 2,000,000 of the Consideration Shares for a minimum period of six months and not to dispose of 2,000,000 of the Consideration Shares for a minimum period of 12 months.
Completion of the Acquisition is conditional on the admission to AIM of all of the Consideration Shares. Following Second Admission (as defined below), Hanwha Aerospace will hold approximately 5.79% of the Company’s issued ordinary share capital, as enlarged by the issue of the Consideration Shares, the Subscription Shares and the Value Payment Shares.
The Lanstead Subscription and the Lanstead Sharing Agreement
Existing Lanstead Sharing Agreement
As announced on 23 March 2020, Lanstead subscribed for 15,000,000 Ordinary Shares at an issue price of 40 pence per Ordinary Share and the Company entered into a related sharing agreement to receive the proceeds on a pro rata basis over 24 months. The Company has, as expected, to date received seven of the 24 settlements due under the March 2020 Lanstead Sharing Agreement providing gross proceeds to the Company of approximately £1.42 million with the proceeds from the remaining 17 settlements receivable on a monthly basis as they fall due, in addition to the proceeds from the additional Lanstead sharing agreement described below.
If the Company’s share price had been equal to the average Benchmark Price of 53.33p for the seven settlements received to date, then it would have received gross proceeds to date of £1.75 million from the March 2020 Lanstead Sharing Agreement.
Additional Lanstead Subscription and Sharing Agreement
Pursuant to this additional subscription agreement between the Company and Lanstead, Lanstead has conditionally agreed to subscribe for 8,750,000 Ordinary Shares at the issue price of 40 pence for gross proceeds of £3.50 million before expenses.
The Lanstead Subscription is conditional, inter alia, on Admission and there being: (i) no breach of certain customary warranties given by the Company to Lanstead at any time prior to Admission; and (ii) no force majeure event occurring prior to Admission.
As part of the Lanstead Subscription, the Company will enter into the Sharing Agreement, pursuant to which the £3.50 million gross proceeds of the Lanstead Subscription will be pledged to Lanstead under the Sharing Agreement pursuant to which Lanstead will then make, subject to the terms and conditions of that Sharing Agreement, monthly settlements (subject to adjustment upwards or downwards) to the Company over 18 months, as detailed below. As a result of entering into the Sharing Agreement, the aggregate gross amount received by the Company under the Lanstead Subscription and the related Sharing Agreement may be more or less than £3.50 million, as further explained below.
The Sharing Agreement will enable the Company to benefit from any share price appreciation over the average Benchmark Price of 53.33 pence (as defined below). However, if the Company’s share price is less than the average Benchmark Price then the amount received by the Company under the Sharing Agreement will be less than the gross proceeds of the Lanstead Subscription which were pledged by the Company to Lanstead at the outset.
The Sharing Agreement provides that the Company will receive 18 monthly settlement amounts as measured against an average benchmark share price of 53.33 pence per Subscription Share. The monthly settlement amounts for the Sharing Agreement are structured to commence approximately two months following the admission to trading on AIM of the Lanstead Subscription Shares.
If the measured share price, calculated as the average volume weighted share price of the Company’s Ordinary Shares over a period of 20 trading days prior to the monthly settlement date, exceeds the Benchmark Price, the Company will receive more than 100 per cent. of that monthly settlement due on a pro rata basis according to the excess of the Measured Price over the Benchmark Price. There is no upper limit placed on the additional proceeds receivable by the Company as part of the monthly settlements and the amount available in subsequent months is not affected. Should the Measured Price be below the Benchmark Price, the Company will receive less than 100 per cent. of the monthly settlement calculated on a pro rata basis and the Company will not be entitled to receive the shortfall at any later date.
For example, if on a monthly settlement date the calculated Measured Price exceeds the Benchmark Price by 10 per cent., the settlement on that monthly settlement date will be 110 per cent. of the amount due from Lanstead on that date. If on the monthly settlement date the calculated Measured Price is below the Benchmark Price by 10 per cent., the settlement on the monthly settlement date will be 90 per cent. of the amount due on that date. Each settlement as so calculated will be in final settlement of Lanstead’s obligation on that settlement date.
Assuming the Measured Price equals the average Benchmark Price on the date of each and every monthly settlement, the Company would receive aggregate proceeds of £3.50 million (before expenses) from the Lanstead Subscription and Sharing Agreement. If the Measured Price is less than the Benchmark Price on the date of each and every monthly settlement, the Company would receive aggregate proceeds of less than £3.50 million (before expenses). If the Measured Price is more than the Benchmark Price on the date of each and every monthly settlement, the Company would receive aggregate proceeds of more than £3.50 million (before expenses).
The Company will pay Lanstead’s legal costs incurred in the Lanstead Subscription and in entering into the Sharing Agreement and, in addition, has agreed to issue to Lanstead 437,500 new Ordinary Shares in connection with entering into the Sharing Agreement at a price of 40p per share, a deemed consideration of £175,000.
In no event will fluctuations in the Company’s share price result in any increase in the number of Lanstead Subscription Shares issued by the Company or received by Lanstead.
In total, Lanstead will be issued with 9,187,500 new Ordinary Shares, comprising the Lanstead Subscription Shares and the Value Payment Shares, pursuant to the Lanstead Subscription. No shares, warrants or additional fees are owed to Lanstead at any point during this agreement other than those disclosed above. Following Second Admission (as defined below), Lanstead will hold approximately 11.60% of the Company’s issued ordinary share capital, as enlarged by the issue of the Consideration Shares, the Subscription Shares and the Value Payment Shares.
In order for shareholders to further understand the possible outcomes from the Sharing Agreement, the Company sets out below some examples of the amount of proceeds that it would receive in a monthly settlement from the Sharing Agreement, depending on the 20 day average volume weighted share price of the ordinary shares of the Company in the period prior to the settlement. This does not include the amounts due to the Company from the ongoing March 2020 Lanstead Sharing Agreement, details of which were contained in the Company’s announcements on 23 March and 6 April 2020.
| Measured Price (20 day volume weighted average share price) | Monthly gross proceeds #2 | Approximate monthly net proceeds after all costs #3 |
| 80 pence | £291,685 | £273,004 |
| 60 pence | £218,764 | £201,906 |
| 53.33 pence #1 | £194,444 | £178,194 |
| 40 pence | £145,842 | £130,807 |
| 20 pence | £72,921 | £59,709 |
#1 the Benchmark Price for the Sharing Agreement
#2 being the number of Lanstead Subscription Shares multiplied by the Subscription Price multiplied by the Measured Price divided by the Benchmark Price (being a premium of 33.33% to the Subscription Price) and divided by 18 settlements
#3 assuming this is the average Measured Price over the 18 months of the Sharing Agreement
The proceeds receivable by the Company over the 18 month duration of the Sharing Agreement will be net of the cost of £175,000 incurred by the Company in entering into the Sharing Agreement with Lanstead, satisfied by the issue of the Value Payment Shares to Lanstead, approximately £30,000 of other costs incurred by Versarien in connection with the Lanstead Subscription and Sharing Agreement, together with advisory fees paid to a third party adviser to Versarien of 2.5% of the amounts received under the Sharing Agreement.
The Directors believe that the Sharing Agreement provides a number of benefits to Versarien and its shareholders including: the certainty of near-term funding albeit the quantum is dependent on the Versarien share price; the opportunity to benefit from positive future share price performance; and that the amount of shares issued are fixed, together with the cost of their issue. There are corresponding risks that the aggregate amount of cash proceeds received under the Sharing Agreement might be less than the original subscription and there is uncertainty as to the amount that the Company might receive.
Whilst the Company could potentially raise a greater sum of money per share issued from a future placing of shares, if the share price rises above the Benchmark Price, when compared to the proceeds from the Sharing Agreement, this would be dependent on a number of factors such as the willingness of investors to participate in any placing, the ability to achieve a placing at an appropriate discount and the ability of the Company to limit the costs of any such placing. The Directors believe that the proceeds the Company will receive from the Sharing Agreement with Lanstead outweigh the risks associated with any such theoretical placing given the uncertainty of when such a placing may be possible and the uncertainty of achieving a positive outcome when compared with the possible proceeds from the Sharing Agreement.
Related Party Transaction
For the purposes of the Sharing Agreement, Lanstead has been treated as a related party of the Company. The Directors of the Company (all of whom are independent of Lanstead), having consulted with SP Angel Corporate Finance LLP, the Company’s nominated adviser, consider that the Sharing Agreement is fair and reasonable insofar as Shareholders are concerned.
Admission and Total Voting Rights
The Consideration Shares (11,000,000 Ordinary Shares), the Subscription Shares (8,750,000 Ordinary Shares) and the Value Payment Shares (437,500 Ordinary Shares) will rank pari passu with the existing Ordinary Shares.
Application has been made for the admission to trading on AIM for 9,000,000 of the Consideration Shares, the Subscription Shares and the Value Payment Shares (“First Admission”). It is expected that First Admission will become effective on or around 23 December 2020. Application has been made for the remaining 2,000,000 Consideration Shares to be admitted to trading on AIM (“Second Admission”). It is expected that Second Admission will become effective on or around 24 December 2020.
Following the First Admission, the Company will have 187,869,790 ordinary shares of 1p each in issue. The figure of 187,869,790 may be used by the Company’s shareholders 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 Company under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.
Following the Second Admission, the Company will have 189,869,790 ordinary shares of 1p each in issue. The figure of 189,869,790 may be used by the Company’s shareholders 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 Company under the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.
