24th November 2016
CloudTag (CTAG:LN), the company that brings personal monitoring to the wellbeing, fitness and digital health markets hereby announces that it has posted a circular to shareholders convening Extraordinary General Meeting of the Company to be held at the offices of Collas Crill, 40 Don Street, St Helier, Jersey JE1 4XD at 11.30 a.m. on 12 December 2016.
The circular may be downloaded from www.cloudtag.com/investors. An extract from the letter to shareholders from the Chairman of the Company is detailed below:- “Dear Shareholder,
Issue of Loan Notes Director Fee Shares and
Notice of Extraordinary General Meeting
CloudTag Inc. announced on 7 November 2016 that the Company has conditionally agreed with an overseas Institutional Investor, L1 Capital Global Opportunities Master Fund (“L1”), to issue up to £4,500,000 Senior Unsecured Zero Coupon Convertible Notes to raise gross proceeds of up to £4.05 million (“Fundraising”). The Company will issue L1 with one warrant for each conversion share with a three year exercise period. Pursuant to this, on the 10 November 2016, the Company announced that it had issued £2.5 million of loan notes of nominal value to L1, subsequently £1.3 million of loan notes were converted into 13,684,212 new ordinary shares and L1 were issued with 13,684,212 warrants.
As announced on the 7 November 2016, a second tranche of loan notes may be issued 40 days following the issue of the first tranche. In order to facilitate this issue the Board is seeking the approval of Resolution 1 (as set out in the Notice of EGM which is set out at the end of this document (“Notice”)) to authorise the Company to dis-apply the pre-emption rights in the Articles in respect of the allotment and issue of new Ordinary Shares in respect of conversion rights and the associated warrants.
The Board is also seeking approval of Resolution 2 to authorise the Company to dis-apply the pre-emption rights in the Articles in respect of the allotment and issue of shares to certain directors of the Company pursuant to their service agreements (“Director Fee Shares”).
The purpose of this document is to provide an operational and commercial summary, information on the proposed loan notes and on the Director Fee Shares and convene the EGM for 12 December 2016, notice of which is set out at the end of this document, at which the Resolutions will be proposed in order to facilitate the above.
2. Operational & Commercial Summary
The Board confirms that its strategy is to launch products initially in the USA, Canada, the UK, Germany and France and the Company continues its activities with the distribution and sales partners in those territories.
CloudTag reports that it received an indicative, non-binding purchase order on 24 October 2016 from Second Chance Limited (“SC”) for the Company’s first product (the Cloudtag Track). This order, which is subject to, inter alia, manufacturing and a delivery date being agreed would, if finalised, have a value of £880,000.
Cities is one of the largest commercialisation and distribution service providers in North America with over 30 years’ experience. Subject to entering into the Final Agreement and product samples being available, CloudTag and Cities intend to execute a go-to market strategy initially targeting two major consumer electronics e-tailers in the USA.
The Company intends to continue recruiting key executives to join the Cloudtag team. The Company is looking to establish operations in the USA in 2017 and it is anticipated that the new individuals recruited will form part of the management team based in the USA. It is expected that the role of the USA office will primarily focus on building commercial opportunities for consumer sales as well as B2B and enterprise partnerships.
CloudTag has now commenced production of its wearable device with its manufacturer in Malaysia.
B2B & Enterprise
The Company has appointed Yuval Lange as Chief Business Development Officer to drive forward the Company’s B2B and enterprise strategies. Yuval’s strategy is to target different enterprises and industries in the USA, UK and certain European countries including but not limited to multinational healthcare aggregators, leading sports, footwear and equipment manufacturers, corporate wellness providers, government and private healthcare providers and health insurance companies.
Intellectual Property Estate
Earlier this year in January 2016, the Company announced that it had submitted a number of new patent applications relating to the proprietary designed sensors and communications package utilising the signal processing algorithm. Further, a preliminary filing was submitted in July 2016, covering technological innovations, including, but not limited to, motion sensors and the next generation of new products. The Company continues to monitor its technological innovations and intends to apply for design patents and registered designs in the USA and EU before the year end and the exhibition at CES 2017.
These patent applications are in addition to the exclusive worldwide license granted to CloudTag by Imec for the algorithms developed for use in the Company’s hardware devices. Source code relating to a mobile application, Cloud analytics and user dynamic feedback loop, have largely been developed in-house by the Company.
CES & ISPO 2017
CloudTag is pleased to confirm that it will be exhibiting the CloudTag Track along with other new products and features at CES January 2017 in Las Vegas USA and ISPO Munich in February 2017. For CES, the Company has reserved a stand in the centre of the wearable technology sector.
On 7 November 2016, the Company announced that it had agreed to issue senior unsecured zero coupon convertible notes with a term of 12 months (“Notes”), to L1 Capital Global Opportunities Master Fund (“L1”) to raise up to £4.05 million (before expenses). The Notes have an aggregate nominal value of up to £4.5 million and have and will be issued at a 10% discount to nominal value in up to two tranches. Upon conversion of the Notes into new ordinary shares in the Company (“Conversion Shares”), the Company will also issue L1 with one warrant (“Warrant”) for each Conversion Share, which are governed by the terms of a Warrant Instrument. The Notes and the Warrant Instrument are referred to herein as the “Conditional Subscription Agreements”.
As announced on 10 November 2016, the first tranche of up to £2.5 million in nominal value of Notes has been issued to L1 at a total subscription price of £2.25 million (before expenses) (“Tranche 1 Notes”). The Company confirms that it has received £1.44 million (net of expenses and the Escrow Amount herein described) pursuant to this issue and £637,500 has been placed in escrow (“Escrow Amount”) until 17 December 2016 (the “Escrow Period”). The Escrow Amount is expected to be released to the Company subject to L1 notifying the Company in writing that the “Escrow Release Condition” has been met. The Escrow Release Condition shall be satisfied on the earlier of: (i) an announcement that the Company has sufficient share authority, approved by Shareholders at a general meeting, to issue at least 70,000,000 Ordinary Shares (free from pre-emptive or other preferential rights or restrictions) or (ii) the volume weighted average price of the Company’s ordinary shares having exceeded 14 pence per share for any five consecutive trading days.
The Company announced on 14 November 2016 that £700,000 of Tranche 1 Notes (based on the nominal value of such notes) had been converted into 7,368,422 new ordinary shares of the Company and that 7,368,422 warrants had been issued to L1 with an exercise price the lower of a) 90% of the closing bid price per ordinary share on the day immediately prior to the date of exercise of such warrants or b) 11.25 pence per share.
The Company further announced on 23 November 2016 that £600,000 of Tranche 1 Notes (based on the nominal value of such notes) had been converted into 6,315,790 new ordinary shares of the Company and that 6,315,790 warrants had been issued to L1 with an exercise price the lower of a) 90% of the closing bid price per ordinary share on the day immediately prior to the date of exercise of such warrants or b) 13.125 pence per share. Application for admission of 6,315,790 new ordinary shares to trading on AIM has been made and is expected to occur on or around 28 November 2016.
The issue of the proposed second tranche of £2.0 million in nominal value of Notes (“Tranche 2 Notes”) (for which the subscription price is £1.80 million) is conditional upon, inter alia, the Company obtaining sufficient authorities from Shareholders to disapply pre-emption rights such that the Company may issue the Conversion Shares (the “Shareholder Approvals”). The Issue of the Tranche 2 Notes is also conditional upon (i) no event of default or potential event of default having occurred under the terms of the Notes; (ii) certain repeating representations and warranties given by the Company remaining correct (including that no event has occurred which has had or would be likely to have a material adverse effect on the Company); (iii) the value of the outstanding Tranche 1 Notes and the proposed Tranche 2 Notes does not exceed 7.5% of the Company’s market capitalisation and the Escrow Amount having been released and there being no changes to the capital structure of the Company. The date for the issue of the Tranche 2 Notes may be extended to the date (the “Extension Date”) which is 90 days following the date of issue of the Tranche 1 Notes (or such later date as the Company and the Investor may agree) subject to certain conditions, including (in addition to those set out above) that the market price of the Company’s shares does not drop below 10 pence per Share during the extended period, and that the value of the outstanding Tranche 1 Notes and the proposed Tranche 2 Notes has not exceeded 5% of the Company’s market capitalisation during any three consecutive trading days.
Further detail on the terms and conditions of the Notes and the Warrants are set out in the Company’s announcement dated 7 November 2016. Following the two conversions of the Tranche 1 Notes to date the remaining nominal balance of the outstanding Tranche 1 Notes held by L1 is £1.2 million.
The terms of the Note provides for one Warrant to be issued for each Conversion Share issued on each conversion (in whole or in part) of the Notes. Each Warrant may be exercised within three years from the date of issue at the lesser of (a) 90% of the closing bid price per Share on the day immediately prior to the date of exercise or (b) 125% of the closing bid price per Share on the day immediately preceding the date of issue of the relevant conversion notice in relation to conversion of either the Tranche 1 Notes or the Tranche 2 Notes as the case may be.
The exercise price of the Warrants and the number of Shares arising on exercise of such Warrants shall be adjusted to neutralise the impact of future capital changes. As noted above, following the issue of the Tranche 1 Notes, 13,684,212 warrants have to date been issued to L1.
4.Director Fee Shares
Messrs Wakely, Bereika and Ben-Haim, all directors of the Company, have agreed to be paid all or part of their remuneration in new ordinary shares with the most recent share payments to them having been announced on 29 April 2016. Mr Ben- Haim is paid a combination of cash and shares. A payment for the interim period to 30 September 2016 will be made to them if Resolution 2 is approved. Looking forward, payments are expected to be made immediately following the end of each calendar quarter except if the Company is in a Close Period at that time (“Director Fee Shares”). Historically, the Company has utilised its authority granted at the 2016 AGM (Resolution 7c) to issue shares such as this in relation to fees to directors, employees and certain third party contractors. The Directors will not use this existing authority for directors fees in the future but will retain said authority where possible for the issue of shares for the settlement of third party invoices for general working capital purposes. Accordingly, it is proposed in resolution 2, that a specific authority to disapply pre-emption rights be sought in respect of the Director Fee Shares.
The Directors believe that the Resolutions are in the best interests of the Company and Shareholders as a whole and accordingly recommend that Shareholders vote in favour of the Resolutions, as they intend to do so in respect of their aggregate holding of 30,725,507 Ordinary Shares, representing approximately 7.97% of the current issued share capital of the Company (assuming the 6,315,790 new ordinary shares are admitted to trading on AIM pursuant to the conversion of £600,000 of Tranche 1 Notes by L1 announced on 23 November 2016).”
This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.