#TEK Tek Capital PLC investee co #BELL Belluscura PLC – Placing of Unsecured Convertible Loan Notes

Belluscura plc (AIM: BELL), a leading medical device developer focused on lightweight and portable oxygen enrichment technology, today announces that it has raised approximately $5.0 million (£4.1 million) through the conditional issue of a 10% Unsecured Convertible Loan Notes 2026 (the “Placing Loan Notes”) (the “Placing”).

Dowgate Capital Limited (“Dowgate”) is acting as sole placing agent, bookrunner and broker in connection with the Placing a nd SPARK Advisory Partners Limited (“SPARK”) is acting as the Company’s nominated adviser.

Background to the Placing

The Company announced on 13 January 2023 that it has made considerable progress in the past year. In March 2022, the Company signed a manufacturing Master Supply Agreement (“MSA”) with InnoMax Medical Technology, Ltd (“InnoMax”) to manufacture the X-PLOR portable POC in China and took the decision to transfer its US manufacturing in-house, to increase production output at high quality standards, and achieve a significant reduction in production costs. This was successfully completed at the end of July 2022, simultaneously achieving ISO:13485 accreditation, which allows the Company to apply for international registrations. 

The Company launched the next generation X-PLOR in September 2022, which has been well received by the market based upon its performance and reliability and is now distributing throughout the US through multiple sales channels.  In addition, the collaboration agreement with the VGM Group has resulted in 17 new distribution agreements in the last three months, and in December 2022 the Company signed its first international distribution agreement with MedHealth Supplies of South Africa, with the first shipment selling out within 48 hours.

By 31 December 2022 the Company had shipped or received orders for 2,850 X-PLOR units with 1,226 units being shipped in 2022 (2021: 377). The Company stated that at the year-end it had retained cash balances of $1.8 million, which together with inventory and inventory deposits, amounted to $11.9 million. 

The Company is pleased with the sales momentum of X-PLOR, aided by the InnoMax agreement in China, and the successful change of strategy to in-house manufacture which has resulted in improved quality controls.  The expanded global operation and in-house manufacturing capability has led to a growth in inventory levels and therefore requires additional cash resources to finance raw materials. These inventory levels will see a significant downward trend over the next 12 months as the InnoMax operation comes fully on stream. 

Further, in order for the Company to deliver on a successful launch of the DISCOV-R product, which is expected to be launched for pre-market evaluation in Q1 2023, with full commercialisation anticipated in Q2, the Board is seeking to raise a minimum of $5.0 million through the Placing Loan Notes.  The Company has also issued a Broker Option to enable Dowgate to arrange the placing of further loan notes to raise up to an additional approximately $5.0m (the “Broker Option Loan Notes”), together with the Placing Loan Notes (the “Loan Notes”).

Placing of Loan Notes

Dowgate has conditionally placed $5.0 million (£4.1 million) of the Placing Loan Notes with a select group of investors, including certain existing Belluscura shareholders (“Shareholders”). 

Pursuant to a placing agreement between the Company, SPARK and Dowgate dated 27 January 2023 (the “Placing Agreement”), Dowgate has conditionally agreed to use its reasonable endeavours to place $5.0 million (£4.1 million) of the Placing Loan Notes. The Placing is conditional, inter alia, upon passing certain resolutions (the “Resolutions”) that will be proposed at a shareholders’ meeting to be held on or around 16 February 2023 (the “General Meeting”). 

The Placing is not being underwritten (in whole or in part) by Dowgate, SPARK or any other person.

Broker Option

Given that the Placing has not been offered on a pre-emptive basis and in  order to accommodate potential additional demand for Loan Notes, the Company has granted the Broker Option to Dowgate to enable Dowgate to fulfil any additional requests to participate in the Placing, for up to a further approximately $5.0 million (£4.0 million). The Broker Option is exercisable by Dowgate at its absolute discretion, at any point up to 5.00pm on 9 February 2023 and there is no obligation on Dowgate to exercise the Broker Option or to seek to procure subscribers for any Broker Option Loan Notes pursuant to the Broker Option.  Any Broker Option Loan Notes issued pursuant to the exercise of the Broker Option will be issued on the same terms and conditions as the Placing Loan Notes.

The Placing and Broker Option (together the “Convertible Loan Note Financing”) when combined will, if the Broker Option is exercised in full, and assuming all interest on the Loan Notes is capitalised, result in the issue upon conversion of the Loan Notes up to 21,590,029 Belluscura new ordinary shares, representing approximately 14.9% of the enlarged issued share capital of the Company.  

Terms of the Loan Notes

The key terms of the Loan Notes are:

Instrument  10% Convertible Unsecured Loan Notes 2026 constituted pursuant to a loan note instrument dated 27 January 2023 (the “Instrument”).  The Loan notes will be transferable in accordance with the terms of the Instrument but will not be listed on a public market

Issue Price  Loan Notes of £1.00 issued at par

Conversion  Convertible into ordinary shares at a conversion price of 50 pence per share.  Conversion at the holder’s election on the final business day of each quarter, commencing on 30 June 2023 and otherwise automatically at 3 years from the date of the Instrument (the “Maturity Date”)

Repayment  On the Maturity Date, unless otherwise converted

Term  Three years from date of issue. Loan Notes are not redeemable in cash, other than in exceptional circumstances, but are converted into ordinary shares in the capital of the Company on their Maturity Date in accordance with the terms of the Instrument.

Coupon  10% per annum, paid annually.  The coupon to be paid in cash or capitalised at the Company’s discretion

Minimum size  £1,000

Directors’ and connected party participation in the Placing

David Poutney and Adam Reynolds are Directors of the Company. Nigel Wray is a Substantial Shareholder (as defined by the AIM Rules). Each of David Poutney, Adam Reynolds and Nigel Wray have agreed that they will participate in the Placing as set out below. 

* includes 2,658,314 Ordinary Shares held by Vivienne Poutney, Mr Poutney’s spouse.

** excluding any accrued interest on the Loan Notes that may be capitalised at the Company’s option

Related Party Transaction – participation in the Placing

As set out above Directors David Poutney and Adam Reynolds, and Substantial Shareholder  Nigel Wray have agreed that they will participate in the Placing of the Loan Notes.

The participation in the Placing  by each of David Poutney and Adam Reynolds constitute related party transactions under the AIM Rules for Companies. As such, David Poutney and Adam Reynolds are not considered independent for the purposes of AIM Rule 13 in relation to these related party transactions. 

Robert Rauker, Anthony Dyer, Dr. Patrick Strollo and Richard Piper who are Directors of the Company, are considered independent in relation to the consideration of these related party transactions under AIM Rule 13.

Having consulted with SPARK, the Company’s nominated adviser, the Independent Directors consider that the terms of each of David Poutney’s and Adam Reynolds’ participation in the Placing of Loan Notes are fair and reasonable insofar as Shareholders are concerned.

All the Directors are considered independent in relation to the consideration of the participation in the Placing by Nigel Wray.

Having consulted with SPARK, the Company’s nominated adviser, the Directors consider that the terms of Nigel Wray’s participation in the Placing of Loan Notes are fair and reasonable insofar as Shareholders are concerned.

Related Party Transaction – Dowgate’s participation in the Placing Agreement

As set out above, certain Directors and a Substantial Shareholder have agreed to participate in the Placing. The proposed participation by these parties constitute related party transactions under Rule 13 of the AIM Rules.

David Poutney, a Non-Executive Director of the Company, is Chairman of, and a major shareholder in, Dowgate Group Limited (“Dowgate Group”) and Chief Executive of Dowgate, a wholly owned subsidiary of Dowgate Group. As set out above, Dowgate is party to the Placing Agreement, under which Dowgate will receive:

–  a fee of £40,000;

–  commission amounting to 5% of funds raised in the Placing*; and

–  commission amounting to 5% of funds raised under the Broker Option*,

  * excepting any subscriptions made by Directors

Entering into the Placing Agreement constitutes a related party transaction under the AIM Rules for Companies. 

As David Poutney is not considered independent for the purposes of AIM Rule 13, Robert Rauker, Anthony Dyer, Dr. Patrick Strollo, Adam Reynolds and Richard Piper (the “Independent Directors”) have considered the terms of this related party transaction for the purposes of AIM Rule 13. 

Having consulted with SPARK, the Company’s nominated adviser, the Independent Directors consider that the terms of the Placing Agreement are fair and reasonable insofar as shareholders are concerned.

Shareholders’ Meeting 

The issue of the Loan Notes is conditional on the passing of certain resolutions (the “Resolutions”) that will be proposed at the General Meeting.  The Resolutions will, inter alia, increase the current authority to disapplying the relevant statutory pre-emption rights in relation to the issue of new ordinary shares in the Company, sufficient to enable the conversion of the Loan Notes in full. The Resolutions will also seek an amendment to the Company’s Articles of Association to amend the restriction on the Company’s borrowing powers and align it with that of guidelines issued by The Investment Management Association.  The amendments to the Articles of Association will allow the Company to incur borrowings up to an amount equal to two times its adjusted capital and reserves from time to time and, as a result, the Company will be permitted to issue the Loan Notes. 

It is expected that, subject, inter alia, to approval by Shareholders of the Resolutions at the General Meeting the Loan Notes will be issued to placees on or around 17 February 2023.

A Circular and notice of the General Meeting are expected to be sent to Shareholders on or around 31 January 2023.  Notice of the General Meeting will made available on the Company’s website: www.belluscura.com.

For the purposes of this announcement, a currency exchange rate of $1:£1.2375 has been used.

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