TIDMAGM
RNS Number : 6328Q
Applied Graphene Materials PLC
22 February 2023
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES
OF ARTICLE 7 OF REGULATION 2014/596/EU (WHICH FORMS PART OF
DOMESTIC UK LAW PURSUANT TO THE EUROPEAN UNION (WITHDRAWAL) ACT
2018), AS AMED.
22 February 2023
Applied Graphene Materials plc
("Applied Graphene Materials", the "Company" or the "Group")
Proposed Sale of Shares in the Company's Main Operating
Subsidiaries and Proposed De-Listing of the Company's Ordinary
Shares
Further to the announcement on 13 January 2023, the Board
announces that the Company has agreed binding terms with Universal
Matter UK Limited, a wholly owned subsidiary of Universal Matter
Inc., ("Universal Matter" or the "Buyer") to sell the entirety of
its shares in Applied Graphene Materials UK Limited ("AGM UK") and
Applied Graphene Materials LLC ("AGM US"), the Company's main
operating subsidiaries (together, the "Subsidiaries"), for a total
consideration of US$1.3m ("Consideration"), payable in cash by
completion (the "Transaction" or "Disposal").
Introduction
The Transaction constitutes a disposal resulting in a
fundamental change of business under the AIM Rules and is therefore
conditional on, inter alia, shareholder approval and National
Security and Investment Act 2021 ("NSIA") approval pursuant to a
mandatory notification to be made by the Buyer shortly after the
date of this announcement.
A general meeting of the Company's shareholders will be convened
("General Meeting") and a circular sent out to shareholders in due
course (the "Circular"). The Company will also put a resolution to
shareholders to de-list the Company's ordinary shares to trading on
AIM and convert from a public limited company to a private limited
company (the proposed "De-Listing").
The Circular will set out further reasons why the board believes
the Transaction and the De-Listing are in shareholders' best
interests.
Background to and Reasons for the Disposal
Applied Graphene Materials was founded in July 2010 and admitted
to trading on AIM in November 2013, raising GBP11m. The Group has
successfully raised funds on a number of occasions since to launch
numerous commercial products and develop an international sales
distribution network.
In January 2021, GBP6m was raised to provide the funding
necessary for the Board to execute the next stage of its growth
plan and, at the time, it was noted that the Group would likely
need to raise further funds in 2023 to continue to make progress
towards its medium-term objectives.
As previously announced, and noted in the interim results for
the six months ended 31 January 2022, the Group's performance has
been impeded by COVID-19 disruption and supply chain challenges for
basic raw materials. A number of existing and potential customers
have experienced challenges when sourcing the raw materials needed
for their own products and this has led to a slower than
anticipated rate of customer orders materialising. As a result,
commercial development took longer than previously expected.
In preparation, the Group laid the groundwork for a fundraise in
early 2022. This included the consideration of potential investors
in non-UK jurisdictions but in particular focusing on the USA. In
addition, the Group met with UK investors in October and November
2022 to gauge demand for a potential fundraise. Neither exercise
uncovered suitable demand for a fundraise with the lack of interest
driven by investors unwilling to back early stage pre-commercial
revenue loss-making companies.
In response, the Group appointed Alvarez & Marsal Europe LLP
to conduct a strategic review in November 2022 to consider the
options available to maximise value for the Company's shareholders
and other stakeholders. The strategic review did not uncover any
offers for funding from a strategic investor.
It has become increasingly apparent to the Board during the
strategic review that the business can no longer continue as an
independent entity and it has been decided, therefore, that the
best course of action is to pursue a sale of the trading operations
in the interests of shareholders and other stakeholders.
Background to the Buyer
Founded in July 2019, Universal Matter Inc is a Canadian-based
developer and supplier of graphene- based solutions to several
major industries. Its proprietary Turbostratic Graphene utilises a
broad range of carbon-based feedstock materials, including recycled
tires/plastic, petroleum coke, coal, biomass, methane derived
carbon and others. Universal Matter has operations in the US and
Canada and leverages its strong R&D foundation to scale
production processes and supply high quality graphene to a diverse
customer base with global presence.
Terms of Disposal
Conditions
The Transaction is conditional upon:
-- a resolution passed at a general meeting of the Company (or
at any adjournment thereof) approving (inter alia) the sale and
purchase agreement
-- the Secretary of State providing the Buyer with requisite
clearance pursuant to the NSIA in respect of the Transaction,
in each case, by 30 April 2023.
Termination
The sale and purchase agreement is terminable by the Buyer in
the event of the occurrence of a material adverse change of AGM UK,
being a material undisclosed liability of AGM UK, AGM UK being a
party to material litigation or the resignation of a certain
proportion of AGM UK's employees.
Company Covenants
The sale and purchase agreement includes interregnum provisions
in relation to the Company's conduct of AGM UK and AGM US for such
period until the Transaction completes.
The sale and purchase agreement also provides for the Company to
provide the Buyer with non-solicit and non-compete covenants for a
period of 2 years following completion of the Transaction.
Completion
Completion of the Transaction shall take place on the date that
is 2 Business Days after the last of the conditions has been
satisfied or waived ("Completion").
Consideration
The terms of the Disposal provide that the Buyer will
conditionally acquire the entire share capital of AGM UK and AGM
US, entities in which the Company has a 100% equity interest. The
Consideration for the Subsidiaries will be paid entirely in cash
and split as follows:
-- Shares in AGM UK: US$1,299,999
-- Shares in AGM US: US$1
Funding to Completion
The agreed terms of the Disposal provide AGM UK with liquidity
to continue to operate prior to Completion. The Buyer has agreed to
pay holding costs to AGM UK (the "Holding Costs") for the period
from 1 March 2023 until the earlier of Completion or 30 April 2023,
being the longstop date ("Longstop Date") as part of the
Consideration payable for the Transaction. In the event the
requisite resolutions in connection with the Transaction are not
passed by shareholders at the Company's General Meeting, the share
sale agreement will be terminated and any undischarged Holding
Costs will be repayable by the Company.
The balance between the aggregate Holding Costs paid by the time
of Completion and the Consideration will be satisfied in US Dollars
on Completion.
Basis for Disposal
The Transaction shall conclude on a cash free/debt free
basis.
Description of the Subsidiaries Subject of the Disposal
The principal activities of AGM UK are the research, development
and manufacture of graphene. As at 31 July 2021 (FY21) (being the
Company's most recently audited balance sheet) AGM UK had net
assets of GBP1,780,000 (FY20: net liabilities GBP26,343,000). AGM
UK generated revenues in FY21 of GBP123,000 (FY20: GBP83,000),
generating losses after tax of GBP2,438,000 (FY20:
GBP2,697,000).
The principal activities of AGM US are for administrative
purposes with US regulatory authorities. AGM US has had no
financial transactions since its inception. It has no assets or
liabilities.
Together, the Subsidiaries represent all of the Company's
trading business, activities and substantially all of its assets.
The Transaction is a Fundamental Change of Business under AIM Rule
15.
Use of Proceeds
It is anticipated that the net Consideration (after deducting
the Holding Costs and advisers' costs) will substantially be used
to repay creditors, the Company's staff and operating costs of the
Group until the Company can be wound down.
Should Completion occur, the Board will seek to wind-up the
Company on a solvent basis, however the Board anticipates that,
following settlement of advisory fees in connection with the
Transaction and ongoing costs associated with the business, the
Company will have a minimal net cash position following Completion
and therefore, is very unlikely to be in a position to return funds
to shareholders. To the extent there are any residual amounts after
the costs of the winding up are deducted, then such amounts will be
distributed to shareholders via an appointed liquidator.
Proposed De-Listing
The Directors have for some time been reviewing the merits or
otherwise of the Company's ordinary shares continuing to be
admitted to trading on AIM and remaining a public limited company
in the UK. The following key factors have been taken into account
by the Directors in reaching the conclusion that, assuming
completion of the Disposal, the De-Listing is in the best interests
of the Company and its Shareholders as a whole:
-- following completion of the Disposal, there will be
negligible assets remaining within the Group which would not
justify the costs associated with remaining as a listed business;
and
-- as a cash shell, the Directors believe that the Company would
not be of sufficient scale to attract any interest from
institutional and other investors and would consequently suffer
from a lack of liquidity in its ordinary shares.
The Directors strongly believe that for the reasons referred to
above the Company should seek the cancellation of the admission of
its ordinary shares to trading on AIM and subsequently a solvent
wind-up. In the event that the Disposal is completed and the
De-Listing does not occur, as an AIM Rule 15 cash shell, if the
Company does not make an acquisition or acquisitions constituting a
reverse takeover under the AIM Rules within twelve months of
becoming an AIM Rule 15 cash shell, then the Company's ordinary
shares would be suspended from trading on AIM (notwithstanding, as
described below, that the Company's ordinary shares have been
suspended from trading since 1 February 2023 pending publication of
the Company's Annual Report and Accounts for the year ended 31 July
2022 ("FY22")).
Annual Report and Accounts for the year ended 31 July 2022
In light of the Disposal the Company is not proposing to prepare
its annual report and accounts for FY22 as the business will not be
regarded as a going concern. The Group generated unaudited turnover
of GBP91,000 and an unaudited pre-tax loss of GBP3,861,000 in the
year to 31 July 2022. Cash at 31 July 2022 was GBP2,092,000,
however, this has since depleted due to the funding of operating
expenditure and the cost of the strategic review process. It should
be noted that these figures were prepared assuming that the going
concern assumption was applied in preparing the unaudited accounts.
The figures would be different if a break up basis is used but the
Board sees no benefit in preparing such figures. As previously
announced (and excluding the impact of the Disposal described
above), the Company's available working capital will become fully
depleted by 28 February 2023 (excluding the impact of the
Transaction).
For the avoidance of doubt, as the Company is not proposing to
prepare its annual report and accounts for FY22, the Board
anticipates that the Company's ordinary shares will remain
suspended from trading on AIM until the earlier of De-Listing or a
wind-up of the Company.
Current Trading
Post year-end trading has been encouraging, however, at this
juncture the Company has insufficient liquidity to pursue its
growth strategy. The Board is therefore of the view that it is in
shareholders' and creditors' best interests to sell the trading
operations and wind-up the Company.
General Meeting
The Board will be writing to shareholders in due course to
convene the General Meeting and will be strongly urging
shareholders to vote in favour of the Disposal resolution and the
De-Listing resolution in order to maximise proceeds on a
wind-up.
If shareholders vote down the Disposal resolution then, in the
Board's view, the Company and the trading subsidiary would appoint
administrators almost immediately and this is expected to
materially reduce any final returns to shareholder and
stakeholders.
If shareholders vote down the De-Listing resolution, then the
Company would remain listed and continue to incur relevant costs,
further depleting any potential returns to shareholders and
stakeholders.
Shareholders should be aware that, now that a sale has been
agreed (subject to satisfaction of the conditions, as set out
above), the directors do not intend to publish accounts for FY22.
If the Company does not publish its FY22 accounts by 31 July 2023,
then the Company's listing on AIM will be cancelled.
As set out above, the Directors believe that the Company is very
unlikely to be in a position to return funds to shareholders,
however, in order to maximise any potential returns for
shareholders and stakeholders on a solvent wind-up, the board will
be recommending that shareholders vote in favour of both
resolutions at the General Meeting.
For further information, please contact:
Applied Graphene Materials +44 (0) 1642 438 214
Adrian Potts, Chief Executive Officer
David Blain, Chief Financial Officer
Alvarez & Marsal Europe LLP +44 (0) 784 107 2042
Alex Baird abaird@alvarezandmarsal.com
Singer Capital Markets (Nominated Adviser and Broker) +44 (0) 207 496 3000
Peter Steel / Alex Bond / Oliver Platts
Note: the Company also announces that Singer Capital Markets,
the Company's nominated adviser, is now sole broker to the
Company.
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END
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