Source - RNS
RNS Number : 2762L
Helios Underwriting Plc
30 September 2016
 

THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH SUCH RELEASE, PUBLICATION OR DISTRIBUTION WOULD BE UNLAWFUL

Neither this Announcement nor any part of it constitutes an offer to sell, or the solicitation of an offer to buy, subscribe or acquire new ordinary shares in the capital of the Company in any jurisdiction in which such an offer or solicitation is unlawful or would impose any unfulfilled registration, publication or approval requirements on the Company and/or Stockdale.

 

 

30 September 2016

 

Helios Underwriting PLC

 

("Helios" or the "Company")

 

 

Proposed Placing and Open Offer

 

 

Helios today announces a proposed placing of up to 3.5 million New Ordinary Shares to raise up to £5.25 million (gross of expenses) at a price of £1.50 per share by way of an accelerated book-building process. In addition, up to a further £3.2 million may be raised by way of a conditional Open Offer to existing shareholders on the basis of 1 New Ordinary Share for every 5 Existing Ordinary Shares.

 

Each of the Directors of Helios have indicated that they intend, directly or indirectly, to participate in the Placing to a total of approximately £650,000. Will Roseff, a substantial shareholder, has also indicated that he intends to participate in the Placing up to an amount of approximately £1.26 million.  In addition, each of the Directors and Will Roseff have undertaken not to take up their Open Offer Entitlements.

 

Settlement and admission to trading on AIM of the Placing Shares is expected to occur on or about 6 October 2016.

 

The accelerated book-building process is being carried out by Stockdale Securities Limited acting as bookrunner in relation to the Placing. The identity of Placees and the basis of the allocations are at the discretion of Stockdale. The number of Placing Shares will be agreed by Helios with Stockdale at the close of the book-building process. Details of the number of Placing Shares will be announced as soon as practicable after the close of the book-building process, which is expected to occur later today.

 

Appendix I to this Announcement (which forms part of this Announcement) sets out the terms and conditions of the Placing. Attention is also drawn to Appendix II to this Announcement entitled "Risk Factors".

 

Helios intends to use the proceeds of the Placing and the Open Offer to provide additional funding to continue to expand its portfolio of capacity that participates on syndicates at Lloyd's.

 

The Circular detailing the Open Offer and convening a general meeting to seek the required shareholder authorities together with, in the case of Qualifying Non-CREST Shareholders, the Application Form in respect of the Open Offer, will be sent to Shareholders as soon as reasonably practicable.

 

Today, Helios is also separately announcing its interim results for the six months ended 30 June 2016.

 

This announcement contains inside information which is disclosed in accordance with the Market Abuse Regulation.

 

-Ends-

For further information, please contact:

Helios

Nigel Hanbury - Chief Executive                                  020 7863 6655 / [email protected]

Arthur Manners - Chief Financial Officer                       07754 965917

 

Stockdale Securities                                               020 7601 6100

Robert Finlay

Richard Johnson

David Coaten

 

 

Stockdale Securities Limited is acting exclusively for the Company and no-one else in connection with the Placing and Admission and will not regard itself as owing duties under the rules and regulations of the Financial Conduct Authority to any other person or regard any other persons as its client.

The distribution of this Announcement and the Placing of the Placing Shares in certain jurisdictions may be restricted by law. No action has been taken by the Company or Stockdale that would permit an offering of such shares or possession or distribution of this Announcement or any other offering or publicity material relating to such shares in any jurisdiction where action for that purpose is required. Persons into whose possession this Announcement comes are required by the Company and Stockdale to inform themselves about, and to observe, such restrictions.

No offering document, prospectus or admission document has been or will be submitted to be approved by the FCA or submitted to the London Stock Exchange in relation to the Placing.   The Placing Shares are being offered to a limited number of specifically invited persons only and will not be offered in such a way as to require a prospectus in the UK or in any other jurisdiction.  This Announcement contains no offer to the public within the meaning of section 102B FSMA or otherwise. 

1.       Introduction

 

The Company today announces a proposed Placing to raise up to £5.25 million (gross of expenses) through the issue of up to 3.5 million New Ordinary Shares, together with a conditional Open Offer to raise up to approximately £3.2 million (before expenses) through the issue of up to 2.1 million New Ordinary Shares, each at an issue price of £1.50 per New Ordinary Share.

 

The Issue Price represents a discount of approximately 11.8 per cent. to the Closing Price on 29 September 2016. Application will be made to the London Stock Exchange for the New Ordinary Shares to be admitted to trading on AIM.

 

Settlement and admission to trading on AIM of the Placing Shares is expected to occur on or about 6 October 2016.

 

The accelerated book-building process is being carried out by Stockdale Securities Limited acting as bookrunner (the "Bookrunner") in relation to the Placing. The identity of Placees and the basis of the allocations are at the discretion of Stockdale. The number of Placing Shares will be agreed by Helios with Stockdale at the close of the book-building process. Details of the number of Placing Shares will be announced as soon as practicable after the close of the book-building process, which is expected to occur later today.

 

2.       Overview of Helios

 

Helios provides a limited liability direct investment into the Lloyd's insurance market and is quoted on AIM (ticker: HUW).  Helios trades within the Lloyd's insurance market and has a portfolio of syndicate capacity of £32.7m, as at June 2016.  The portfolio provides a good spread of classes of business being concentrated in property insurance and reinsurance.

 

3.       Background to and reasons for the Placing and the Open Offer and use of proceeds

 

Helios' strategy of building the portfolio of syndicate capacity continues to rely on the flow of limited liability vehicles ("LLVs") for sale at reasonable prices.  

 

This acquisition strategy has increased the portfolio from £12.9 million at the start of the 2013 underwriting year to £32.7 million currently.  During that period, the Company has have acquired 16 companies for a total consideration of £19.4 million. 

 

Helios will continue to use quota share reinsurance to reduce the exposure of the portfolio and to assist in the financing of acquisitions.  Currently, reinsurers provide £13.3 million of underwriting capital for the portfolio.

 

The net proceeds of the Placing and Open Offer would strengthen the balance sheet and provide readily available funds to expand the capacity portfolio by acquiring further LLV's.

 

4.       Current trading and outlook

 

This morning, Helios announced its interim results for the six months ended 30 June 2016: operating profit before goodwill, impairment and tax of £605,000 (H1 2015: £73,000); earnings per share of 6.4p (H1 2015: 2.9p): adjusted net tangible asset value increased to 200p per share (H1 2015: 183p per share); and capacity value rose to 130p per share (H1 2015: 112p per share).

 

During the first half of 2016, Helios we continued to build the portfolio of capacity through the acquisition of two further LLVs.  These acquisitions have made significant contributions to the capacity retained by Helios for both 2014 and 2015 underwriting years. 

 

The syndicates that the Group supports have announced overall increases in the business to be underwritten for 2017 which is expected to increase the Helios capacity fund by over £2 million. 

 

5.       Details of the Open Offer

 

The Board considers it important that Qualifying Shareholders have the opportunity to participate in the fundraising, and the Directors have concluded that the Open Offer is the most suitable option available to the Company and its Shareholders.

 

Pursuant to the Open Offer, Qualifying Shareholders will be given the opportunity to subscribe at the Issue Price for:

 

1 Open Offer Share for every 5 Existing Ordinary Shares

 

held on the Record Date. Assuming that the maximum number of Open Offer Shares are issued, the Open Offer would raise gross proceeds of approximately £3.2 million.

 

The Open Offer will be conditional, inter alia, on the passing of the relevant resolutions at the general meeting of the Company, which is expected to be convened during the latter half of October 2016.  A detailed expected timetable of the principal events in respect of the Open Offer will be announced as soon as practicable.  For the avoidance of doubt, it is intended that the Placing Shares will not qualify for an entitlement under the Open Offer.

 

Each of the Directors and Will Roseff have undertaken not to take up their Open Offer Entitlements.  There will be no excess entitlement facility under the Open Offer. 

 

The ability to participate in the Open Offer is subject to certain restrictions relating to Qualifying Shareholders with registered addresses or located or resident in countries outside the UK (particularly the Excluded Overseas Shareholders). Subject to certain exceptions, Application Forms will not be despatched to, and Open Offer Entitlements will not be credited to the stock accounts in CREST of Shareholders with registered addresses in any of the Restricted Jurisdictions.

 

Application for Admission

 

Application will be made to the London Stock Exchange for the Placing Shares to be admitted to trading on AIM and dealings on AIM are expected to commence at 8.00 a.m. on 6 October 2016 (or such later time and/or date as may be agreed between the Company and Stockdale).

 

The Placing Shares will rank pari passu in all respects with the Existing Ordinary Shares in issue at the date of this Announcement and will carry the right to receive all dividends and distributions declared, made or paid on or in respect of the Ordinary Shares after Admission.

 

In issuing this announcement and structuring the Placing and the Open Offer in this manner, the Company is relying on the exemption from issuing a prospectus in section 85(5) and paragraph 9 of Schedule 11A of FSMA and on paragraph 43 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended).

 

6.       Effect of the Placing and the Open Offer

 

Upon completion of the Placing and the Open Offer, the New Ordinary Shares will represent approximately 34.6 per cent. of the Enlarged Share Capital (assuming the maximum number of New Ordinary Shares are issued pursuant to the Placing and the Open Offer).

 

7.       The Placing Agreement

 

Stockdale has entered into the Placing Agreement with the Company whereby Stockdale has agreed, as agent for and on behalf of the Company, to use its reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price conditionally upon, inter alia:

 

(a)      the Placing Agreement becoming unconditional and not being terminated by Stockdale in accordance with its terms; and

 

(b)      Admission of the Placing Shares becoming effective by not later than 8.00 a.m. on 6 October 2016 (or such later time and/or date as Stockdale and the Company may agree, but not later than 8.00 a.m. on 21 October 2016).

 

Stockdale may in its absolute discretion waive the conditions referred to above, other than that relating to Admission.

 

Under the Placing Agreement, certain warranties have been given by the Company to Stockdale concerning, inter alia, the accuracy of the Announcement, the affairs of the Company and certain taxation and other matters, and certain indemnities have been given by the Company in relation to Stockdale's involvement in the Placing and Admission.

 

The Placing Agreement will be capable of being terminated by Stockdale at its absolute discretion at any time before Admission, if inter alia, (i) there has been a breach of any of the warranties in the Placing Agreement; or (ii) there has occurred certain force majeure events which in the reasonable opinion of Stockdale render the Placing or Admission impracticable or inadvisable.

 

For the avoidance of doubt, Stockdale is not underwriting the Placing

 

8.       Share Incentive Scheme

 

With the Company now in a position to move on to the next phase of its growth, the Board has concluded that it is now an appropriate time to establish a suitable structure for employee and director share incentives. The Company intends to adopt a share incentive plan following the Placing. The plans will, in aggregate, have a dilution limit of no more than 10 per cent. of the issued ordinary share capital of the Company, from time to time, that should be issued or issuable under all share incentive schemes operated by the Group in any rolling ten-year period.  Notifications relating to the share option awards will be made in due course. Initial awards made under the share incentive plan are not expected to exceed 4 per cent. of issued ordinary share capital at such time. Any awards will be subject to the vesting arrangements as determined by the remuneration committee of the Board.

 

9.       Related party transaction

 

All Directors of the Company, being Sir Michael Oliver, Non-Executive Chairman, Nigel Hanbury, Chief Executive, Arthur Manners, Finance Director, Jeremy Evans, Non-Executive Director, Michael Cunningham, Non-Executive Director, and Andrew Christie, Non-Executive Director, intend to participate, directly or indirectly, in the Placing by subscribing an aggregate of 433,333 Placing Shares (approximately £650,000, in aggregate, at the Issue Price). A substantial shareholder, Mr. Will Roseff, has also expressed an intention to participate in the Placing by subscribing an aggregate amount of up to 840,000 Placing Shares (approximately £1.26m at the Issue Price). The Directors' and the substantial shareholder's participation in the Placing each constitute a related party transaction under the AIM Rules for Companies. In the absence of independent Directors, Stockdale Securities Limited, the Company's Nominated Adviser, considers the terms of the Directors' and such shareholder's participations in the Placing to be fair and reasonable insofar as Shareholders are concerned.



 

EXPECTED TIMETABLE OF PRINCIPAL EVENTS IN RESPECT OF THE PLACING

 


2016

Announcement of the Placing

 

30 September

Admission of the Placing Shares to trading on AIM

 

6 October

New Ordinary Shares in uncertificated form expected to be credited to accounts in CREST (uncertificated holders only)

 

6 October

Expected despatch of definitive share certificates for the new Ordinary Shares (certificated holders only)

 

By 20 October

 

Notes:

 

(1)        Each of the times and dates set out in the above timetable and mentioned in this Announcement is subject to change by the Company (with the agreement of Stockdale Securities Limited), in which event details of the new times and dates will be notified to the London Stock Exchange and the Company will make an appropriate announcement to a Regulatory Information Service.

 

(2)        References to times in this announcement are to London times unless otherwise stated.

 

(3)        A detailed expected timetable of the principal events in respect of the Open Offer will be announced as soon as practicable

 

 



 

APPENDIX I

 

Terms and Conditions of Placing ("Terms and Conditions")

 

 

HELIOS UNDERWRITING PLC 

 

Conditional placing by Stockdale Securities Limited of up to 3.5 million Placing Shares of 10p each in the Company at a price of £1.50 per share to raise up to £5.25 million for the Company.

 

Ordinary Shares ISIN: GB00B23XLS45                            Ticker: HUW                 

 

IMPORTANT INFORMATION REGARDING THE PLACING FOR PLACEES ONLY

 

Eligible participants

 

Members of the public are not eligible to take part in the Placing. This Appendix and the Terms and Conditions set out herein are for information purposes only and are directed only at:

 

 a) persons in member states of the European Economic Area who are 'qualified investors' as defined in section 86(7) of the Financial Services and Markets Act 2000, as amended, ("Qualified Investors") being persons falling within the meaning of article 2(1)(e) of the Prospectus Directive (Directive 2003/71/EC and amendments thereto, including Directive 2010/73/EU, to the extent implemented in the relevant member state of the EEA) and any implementing measure in each relevant member state of the European Economic Area) (the "Prospectus Directive"); and

 

 b)  in the United Kingdom, Qualified Investors who are (i) persons who have professional experience in matters relating to investments and are deemed sufficiently expert or sufficiently sophisticated to understand the risks involved and as such fall within the definition of investment professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); (ii) are high net worth companies, partnerships or the trustees of high value trusts or unincorporated associations as defined in Article 49(2)(a) to (d) (high net worth companies, unincorporated associations, etc) of the Order; or (iii) are persons to whom it may otherwise be lawfully communicated, (all such persons in (a) and (b) together being referred to as "Relevant Persons").

 

This Appendix and the Terms and Conditions set out herein must not be acted on or relied on by persons who are not Relevant Persons. Any investment or investment activity to which this Appendix and the Terms and Conditions set out herein relates is available only to Relevant Persons and will be engaged in only with Relevant Persons. This Appendix does not itself constitute an offer for sale or subscription of any securities in the Company.

 

Each Placee should consult with its own advisers as to legal, regulatory, tax, business and related aspects of an acquisition of Placing Shares.                              

Book-building

 

Stockdale will today commence a book-building to determine demand for participation in the Placing by Placees (the "Bookbuild"). This Appendix gives details of the terms and conditions of, and the mechanics of participation in, the Placing. No commissions will be paid to placees ("Placees") or by Placees in respect of any Placing Shares.

 

Stockdale shall be entitled to effect the Placing by such alternative method to the Bookbuild as it may in its absolute discretion (following consultation with Helios) determine including by requiring Placees to enter into subscription arrangements directly with Helios outside of the Bookbuild process.

 

Participation in, and principal terms of, the Placing

 

1.        Stockdale is acting as bookrunner and agent of Helios.

 

2.        Participation in the Placing will only be available to persons who may lawfully be, and are, invited to participate by Stockdale. Stockdale is entitled to enter bids in the Bookbuild as principal.

 

3.        The Bookbuild will establish the number of Placing Shares to be issued and will be agreed between Stockdale and Helios following completion of the Bookbuild. The Issue Price is £1.50 per Placing Share. The number of Placing Shares will be announced on a Regulatory Information Service following the completion of the Bookbuild.

 

4.        To bid in the Bookbuild, Placees should communicate their bid by telephone to their usual sales contact at Stockdale. Each bid should state the number of Placing Shares which the prospective Placee wishes to subscribe for at the Issue Price. Bids may be scaled down by Stockdale on the basis referred to in paragraph 9 below.

 

5.        The books will open with immediate effect. The Bookbuild is expected to close no later than 12.00 noon (London time) on 30 September 2016 but may be closed at such earlier or later time (not being later than 5.00 p.m. on 4 October 2016) as Stockdale may, in its absolute discretion, determine. Stockdale may, following consultation with Helios, accept bids that are received after the Bookbuild has closed. Helios reserves the right (upon the agreement of Stockdale) to reduce or seek to increase the amount to be raised pursuant to the Placing, in its absolute discretion.

 

6.        Each prospective Placee's allocation will be confirmed orally by Stockdale as agent of Helios following the close of the Bookbuild. That oral confirmation will constitute an irrevocable legally binding commitment upon that person (who will at that point become a Placee) in favour of Stockdale and Helios to subscribe for the number of Placing Shares allocated to it at the Issue Price on the Terms and Conditions set out in this Appendix and in accordance with Helios's articles of association.

 

7.        Each prospective Placee's allocation and commitment will be evidenced by a confirmation note issued to such Placee by Stockdale. The terms of this Appendix will be deemed incorporated in that confirmation note.

 

8.        Each Placee will also have an immediate, separate, irrevocable and binding obligation, owed to Helios and Stockdale as agent of Helios, to pay Stockdale (or as it may direct) in cleared funds, an amount equal to the product of the Issue Price and the number of Placing Shares such Placee has agreed to subscribe and Helios has agreed to allot and issue to that Placee.

 

9.        Stockdale may choose to accept bids, either in whole or in part and may scale down any bids for this purpose on such basis as it may determine in its absolute discretion. Stockdale may also, notwithstanding paragraphs 5 and 6 above, (i) allocate Placing Shares after the time of any initial allocation to any person submitting a bid after that time; and (ii) allocate Placing Shares after the Bookbuild has closed to any person submitting a bid after that time (following consultation with Helios). 

 

10.      A bid in the Bookbuild will be made on the terms and subject to the conditions in this Announcement and will be legally binding on the Placee on behalf of which it is made and except with the consent of Stockdale will not be capable of variation or revocation after the time at which it is submitted.

 

11.      Irrespective of the time at which a Placee's allocation pursuant to the Placing is confirmed, settlement for all Placing Shares to be acquired pursuant to the Placing will be required to be made on the basis explained below under "Settlement - CREST delivery - versus - payment".

 

12.      All obligations under the Bookbuild and Placing will be subject to fulfilment of the conditions referred to below under "Conditions of the Placing" and to the Placing not being terminated on the basis referred to below.

 

13.      By participating in the Bookbuild, each Placee will agree that its rights and obligations in respect of the Placing will terminate only in the circumstances described below and will not be capable of rescission or termination by the Placee.

 

14.      To the fullest extent permissible by law and the Rules, none of Stockdale, any holding company of Stockdale, any subsidiary of Stockdale, any subsidiary of any such holding company, any branch, affiliate or associate undertaking of any such company nor any of their respective directors, officers, employees and advisers (each an Affiliate) nor any person acting on their behalf shall have any liability to Placees (or to any other person whether acting on behalf of a Placee or otherwise). In particular, neither Stockdale nor any of its Affiliates shall have any liability (including to the fullest extent permissible by law, any fiduciary duties) in respect of Stockdale's conduct of the Bookbuild or of such alternative method of effecting the Placing as Stockdale shall in its absolute discretion (following consultation with Helios) determine. 

 

Conditions of the Placing

 

The obligations of Stockdale under the Placing Agreement are conditional on, amongst other things:

 

·              admission of the Placing Shares taking place by 8.00 a.m. (London time) on 6 October 2016 (or such later time and/or date as Helios and Stockdale may otherwise agree, being no later than 8.00 a.m. on 21 October 2016); and

 

·              the Placing Agreement becoming unconditional in all other respects and not having been terminated by Stockdale in accordance with its terms.

 

If any of the conditions contained in the Placing Agreement in relation to the Placing are not fulfilled, or waived by Stockdale, by the respective time or date where specified (or such later time and/or date as Helios and Stockdale may agree) or the Placing Agreement is terminated in accordance with its terms, the Placing will not proceed. The Placee's rights and obligations hereunder in relation to the Placing Shares shall cease and terminate at such time and each Placee agrees that no claim can be made by the Placee in respect thereof.

 

Stockdale may, at its discretion and upon such terms as it thinks fit, waive compliance by Helios with the whole or any part of any of Helios's obligations in relation to the conditions in the Placing Agreement, save that the conditions in the Placing Agreement relating to Admission taking place may not be waived. Any such extension or waiver will not affect Placees' commitments as set out in this Announcement.

 

None of Stockdale, Helios or any other person shall have any liability to any Placee (or to any other person whether acting on behalf of a Placee or otherwise) in respect of any decision they may make as to whether or not to waive or to extend the time and/or the date for the satisfaction of any condition to the Placing nor for any decision they may make as to the satisfaction of any condition or in respect of the Placing generally, and by participating in the Placing each Placee agrees that any such decision is within the absolute discretion of Stockdale.

 

Right to terminate the Placing Agreement

 

The Placing Agreement may be terminated by Stockdale at any time prior to Admission in certain circumstances including, among other things, following a breach by the Company of the Placing Agreement or on the occurrence of certain force majeure events.

 

Upon such termination, the parties to the Placing Agreement shall be released and discharged (except for any liability arising before or in relation to such termination) from their respective obligations under or pursuant to the Placing Agreement subject to certain exceptions.

 

By participating in the Placing, Placees agree that the exercise by Stockdale of any right of termination or other discretion under the Placing Agreement shall be within the absolute discretion of Stockdale and that they need not make any reference to Placees and that they shall have no liability to Placees whatsoever in connection with any such exercise or failure so to exercise.

 

Agreement to subscribe Placing Shares

 

Conditional on:

 

•        Admission taking place by 8.00 a.m. (London time) on 6 October 2016 (or such later time and/or date as Helios and Stockdale may otherwise agree, being no later than 8.00 a.m. on 21 October 2016);

 

•        the Placing Agreement becoming otherwise unconditional in all respects and not having been terminated on or before Admission (or such later time and/or date, not being later than 8.00 a.m. on 21 October 2016 as Stockdale and the Company may agree); and

 

•        Stockdale confirming to Placees their allocation of Placing Shares,

 

a Placee agrees to become a member of the Company and agrees to subscribe for those Placing Shares allocated to it by Stockdale at the Issue Price.

 

To the fullest extent permitted by law, each Placee acknowledges and agrees severally, and not jointly nor jointly and severally, that it will not be entitled to exercise any remedy of rescission at any time. This does not affect any other rights the Placee may have.

 

Contract

 

Following oral acceptance of a firm Placing participation, Placees will receive a confirmation note following closing of the Bookbuild and prior to Admission of the Placing Shares notifying them of the number of Placing Shares they will receive, together with a request for such Placee's CREST participant details and contact details. Dealings in the Placing Shares will not be permitted prior to Admission.

 

Oral acceptance of a Placing participation, on the terms and subject to the conditions of these Terms and Conditions and the Announcement (and subject to the Articles) will constitute a binding contract, inter alia, to subscribe for that Placing participation at the Issue Price.

 

Payment for Placing Shares

 

Each Placee must pay the Issue Price for the Placing Shares issued to the Placee in the manner and by such time as directed by Stockdale. If any Placee fails to pay as so directed and/or by the time required by Stockdale, the relevant Placee's application for Placing Shares may, at the discretion of Stockdale, be rejected.

 

Placing Agreement

 

Stockdale as AIM nominated adviser and broker (as defined under the AIM Rules for Companies) to the Company, has entered into the Placing Agreement with the Company whereby Stockdale has agreed, as agent for and on behalf of the Company, to use its reasonable endeavours to procure subscribers for the Placing Shares at the Issue Price conditionally upon, inter alia:

 

(a)      the Placing Agreement becoming unconditional and not being terminated by Stockdale in accordance with its terms; and

 

(b)      Admission of the Placing Shares becoming effective by not later than 8.00 a.m. on 6 October 2016 (or such later time and/or date as Stockdale and the Company may agree, but not later than 8.00 a.m. on 21 October 2016).

 

Stockdale may in its absolute discretion waive the conditions referred to above, other than that relating to Admission.

 

Under the Placing Agreement, certain warranties have been given by the Company to Stockdale concerning, inter alia, the accuracy of the Announcement and the presentation to potential investors, the affairs of the Company and certain taxation and other matters, and certain indemnities have been given by the Company in relation to Stockdale's involvement in the Placing and Admission.

 

The Placing Agreement may be terminated by Stockdale in certain circumstances and as set out above under the heading, 'Right to terminate the Placing Agreement'.

 

For the avoidance of doubt, Stockdale is not underwriting the Placing.

 

Placing participation

 

Each Placee which confirms its agreement to Stockdale (acting as agent on behalf of the Company) to purchase Placing Shares will be bound by these Terms and Conditions and will be deemed to have accepted them severally, and not jointly nor jointly and severally.

 

Placing Shares are subscribed on the terms and subject to the conditions and on the basis of these Terms and Conditions, the Announcement and the Articles. Placing Shares are subscribed at the Issue Price (free of commission) payable in cleared funds in full and in accordance with the settlement obligations set out below.

 

A Placee's participation in the Placing is conditional upon, inter alia, the Placing Agreement becoming unconditional in all respects and not being terminated by Stockdale in accordance with its terms. In the event that the Placing Agreement does not become unconditional in all respects or is terminated, the Placing will not proceed and all funds delivered by a Placee pursuant to these Terms and Conditions will be returned to the Placee at the Placee's risk, without interest.

 

No commissions are payable to Placees in respect of their participation in the Placing.

 

A Placee's Placing participation is expected to be free of stamp duty and stamp duty reserve tax in accordance with the paragraph entitled "Stamp Duty" below.

 

Dealings and Admission to trading on AIM

 

Application will be made to the London Stock Exchange for all of the Placing Shares to be admitted to trading on AIM. Subject to the fulfilment of the conditions of the Placing Agreement, it is expected that Admission of the Placing Shares will become effective and that dealings in the Placing Shares will commence at 8.00 a.m. on 6 October 2016 (or such later time and/or date as the Company and Stockdale may agree, not being later than 8.00 a.m. on 21 October 2016).

 

It is expected that, in relation to a Placee's Placing participation, CREST accounts will be settled with Placing Shares on a delivery-versus-payment basis on 6 October 2016.

 

The Placing Shares will be issued fully paid and, when issued, will rank pari passu in all respects with the existing ordinary shares of the Company in issue immediately prior to Admission, and will rank in full for any dividends and other distributions declared, paid or made on the enlarged ordinary share capital of the Company after Admission.

 

Conditions and Termination

 

These Terms and Conditions, which are legally binding, confirm the Issue Price and the Terms and Conditions on which each Placee confirms its agreement to Stockdale on behalf of the Company to participate in the Placing.

 

Stockdale will have the right to terminate the Placing Agreement, exercisable at any time prior to Admission, in certain circumstances, including if any warranties given by the Company in the Placing Agreement are untrue, inaccurate or misleading in any material respect or if a Specified Event occurs.

 

A Placee's rights and obligations under the Placing are not conditional and will not be capable of termination or rescission by a Placee in any circumstances, save in respect of fraud.

 

Each Placee severally, and not jointly nor jointly and severally, irrevocably confirms its agreement with Stockdale and the Company on the terms and subject to the conditions set out herein or therein and subject to the Announcement, the Placing Agreement and the Articles, to subscribe for those Placing Shares allocated to it by Stockdale at the Issue Price and comply with these Terms and Conditions.

 

Each Placee's individual and separate agreement to subscribe for Placing Shares also constitutes an acknowledgment that its commitment has been made solely on the basis of the information contained in the Announcement and these Terms and Conditions and that accordingly none of the Company, its Directors, or any person acting on behalf of any of them shall have any liability to a Placee for any information or representation other than as is contained in the Announcement and these Terms and Conditions.

 

Each Placee's participation in the Placing is conditional upon, inter alia, the Placing Agreement being executed and becoming or being declared unconditional in all respects and not being terminated by Stockdale in accordance with its terms.

 

If Placees do not provide any CREST details or if Placees provide insufficient CREST details for the delivery of Placing Shares to their CREST account, their Placing participation will be delivered in certificated form provided payment has been made in terms satisfactory to Stockdale and all other conditions in relation to the Placing have been satisfied or waived.

 

The right is reserved to issue Placing Shares in certificated form should Stockdale or the Company consider this to be necessary or desirable. This right is only likely to be exercised in normal circumstances in the event of any interruption, failure or breakdown of CREST or any part of CREST or on the part of the facilities and/or system operated by the Company's registrars in connection with CREST.

 

The person named for registration purposes (which term shall include the holder of the relevant CREST account) must be:

 

(a)      the person procured by the Placee to subscribe for or acquire the relevant Placing Shares; or

(b)      the Placee itself; or

(c)      a nominee of any such person, as the case may be.

 

Settlement - CREST delivery-versus-payment

 

Settlement will be effected on a matching delivery-versus-payment basis within CREST from Stockdale's settlement agent's CREST account (LAMAY).

 

Contract

 

Following oral acceptance of a firm Placing participation, Placees will receive a confirmation note following closing of the Bookbuild and prior to Admission of the Placing Shares notifying them of the number of Placing Shares they will receive together with a request for the Placee's CREST participant details and contact details. Dealings in the Placing Shares will not be permitted prior to Admission.

 

Oral acceptance of a Placing participation, on the terms and subject to the conditions of these Terms and Conditions and the Announcement (and subject to the Articles) will constitute a binding contract, inter alia, to subscribe for that Placing participation at the Issue Price.

 

Stamp Duty

 

Whilst Stockdale does not believe there to be any liability to stamp duty or stamp duty reserve tax in respect of the issue of Placing Shares, should any such stamp duty or stamp duty reserve tax be payable it will be entirely for the Placee's account and neither the Company nor Stockdale will have any liability in respect thereof.

 

Money Laundering

 

To ensure compliance with the Money Laundering Regulations 2007 (as amended and supplemented from time to time), the money laundering provisions of the Criminal Justice Act 1993,  the Anti-Terrorism Crime and Security Act 2001 and the Proceeds of Crime Act 2002 (together with the provisions of the Money Laundering Sourcebook of the Financial Conduct Authority and the manual of guidance produced by the Joint Money Laundering Steering Group in relation to financial sector firms), all together "Relevant Anti-Money Laundering Procedures", Stockdale may, in its absolute discretion, require verification of a Placee's identity to the extent that the Placee has not already provided the same. Pending the provision to Stockdale of evidence of identity, Placing Shares may be retained and/or delivery may be delayed at Stockdale's absolute discretion. If within a reasonable time after a request for verification of identity Stockdale has not received evidence satisfactory to it, it may, at its absolute discretion terminate a Placing participation in which event the monies payable on acceptance of the subscription will, if paid, be returned without interest to the account of the drawee bank from which they were originally debited.

 

Alternatively, if Placing Shares have already been allotted to a Placee following payment of the subscription monies in respect thereof, Stockdale may (at its discretion) sell them on the Placee's behalf and hold the proceeds of sale (net of expenses) or an amount equal to the original payment (whichever is the lower) on trust for the Placee. In these circumstances neither Stockdale nor the Company shall (save in the event of fraud or wilful default) be responsible for, or have any liability for, any loss or damage arising as a result.

 

Representations and Warranties

 

•      Stockdale is acting exclusively for the Company and no-one else in connection with the Placing and Admission and will not regard itself as owing duties under the rules and regulations of the Financial Conduct Authority to any other person or regard any other persons as its client.

 

•      By agreeing to subscribe for Placing Shares, each Placee which enters into a contract with Stockdale to subscribe for Placing Shares will (for itself and any person(s) procured by it to subscribe for Placing Shares and any nominee(s) for any such person(s)) be deemed to represent and warrant severally, and not jointly nor jointly and severally, to Stockdale and the Company that:

 

•      it has read and understood this Announcement in its entirety (including this Appendix) and acknowledges that its participation in the Placing and its subscription for, and the issue of, the Placing Shares will be governed by the terms of this Announcement (including this Appendix);

 

•      it may lawfully acquire Placing Shares;

 

•      it is subscribing for the Placing Shares for its own account, it does not have any contract, understanding or arrangement with any person to sell, pledge, transfer, or grant a participation therein to such person or any third person with respect to any Placing Shares; save that if it is a private client stockbroker or fund manager it confirms that in purchasing the Placing Shares it is acting under the terms of one or more discretionary mandates granted to it by private clients and is not acting on an execution only basis or under specific instructions to purchase the Placing Shares for the account of any third party;

 

•      it is not a national, citizen or resident of the USA, Canada, Australia, South Africa or Japan or any other jurisdiction in which this offer is or would be unlawful, and that it has not, and will not offer, sell, renounce or deliver as principal or agent, directly or indirectly, Placing Shares in, into or within the USA, Canada, Australia, South Africa or Japan or any other jurisdiction in, into or within which such action is or would be unlawful, or to or for the benefit of any person who is a citizen of, or taxpayer to, or is resident in any of those territories or to any person purchasing such shares with a view to their re-offer, sale or transfer in or into any such territory;

 

•      it is: if in the UK (i) a person who having professional experience in matters relating to investments, is deemed sufficiently expert or sufficiently sophisticated to understand the risks involved and as such falls within the definition of investment professionals as defined in Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order"), (ii) a high net worth company, partnership or the trustees of high value trusts or unincorporated associations as defined in Article 49(2)(a) to (d) of that Order, or (iii) it is a person who may lawfully receive these Terms and Conditions and the Announcement (each a "Relevant Person"); or a person who is a "Qualified Investor" within the meaning of the Prospectus Directive (Directive 2003/71/EC and amendments thereto, including Directive 2010/73/EU, to the extent implemented in the relevant member state of the EEA) and any implementing measure in each relevant member state of the European Economic Area. Any investment or investment activity to which these Terms and Conditions relate is only available to and will only be engaged in with (i) in the UK, Relevant Persons; and (ii) in any other member state of the EEA, Qualified Investors. Each Placee severally, and not jointly nor jointly and severally, represents and warrants that it is either a Relevant Person or a Qualified Investor;

 

•      it acknowledges and agrees that it has such knowledge and experience in financial, business and international investment matters as is required to evaluate the merits and risks of subscribing for the Placing Shares and that it is experienced in investing in securities of this nature and is aware that it may be required to bear, and is able to bear, the economic risk of, and is able to sustain, a complete loss in connection with the Placing and that it has relied on its own investigation with respect to the Placing Shares and the business, financial, regulatory, legal or other position of the Company in connection with its decision to subscribe for the Placing Shares and it acknowledges that it has not received, and it is not relying on, any investigation that Stockdale, or any of its Affiliates or any person acting on their behalf may have conducted with respect to the Placing Shares or the Company and none of such persons has made any warranties, representations or statements to it, express or implied, with respect thereto;

 

•      it is entitled to subscribe for the Placing Shares comprised in its Placing participation under the laws of all relevant jurisdictions which apply to it, that it has fully observed and will fully observe such laws and has obtained all governmental, regulatory and other consents which may be required thereunder and complied with all necessary formalities and it has paid any issue, transfer or other taxes due in connection with its acceptance in any jurisdiction and that it has not taken any action or omitted to take any action which will or may result in Stockdale or the Company or any of their respective directors, officers, agents, employees or advisers acting in breach of the legal and regulatory requirements of any jurisdiction in connection with the Placing or the Placee's acceptance of the Placing participation;

 

•      it acknowledges and agrees that its participation in the Placing will be subject to the terms and conditions of the Placing Agreement and the articles of association of the Company in force both before and after Admission;

 

•      it acknowledges and agrees that the Placing Shares of the Company will be admitted to AIM and the Company is therefore required to publish certain business and financial information in accordance with the AIM Rules for Companies and practices of the London Stock Exchange (the "Exchange Information") which includes a description of the nature of the Company's business and the Company's most recent annual report and interim statements, the admission document and the Company's announcements and circulars published in the last 12 months and that it is able to obtain or access this Exchange Information without undue difficulty;

 

•      it represents, warrants and agrees that the only information on which it is entitled to rely and on which such Placee has relied in committing itself to subscribe for the Placing Shares is contained in this Announcement and any Exchange Information, and any information previously published by the Company by notification to a Regulatory Information Service or available on the Company's website, such information (the "Company Information") being all that it deems necessary to make an investment decision in respect of the Placing Shares;

 

•      it has not relied on any information given or any representations or statements made at any time by any person in connection with the Placing, the Company, the Placing Shares or otherwise, other than the information contained in the Announcement and these Terms and Conditions and that in making its application under the Placing it will be relying solely on the Company Information;

 

•      it does not expect Stockdale to have any duties or responsibilities towards it for providing protections afforded to Stockdale's clients under the rules set out in The Financial Conduct Authority Handbook (the "FCA Handbook") or under the regulatory system (as defined in the Glossary to the FCA Handbook) (the "Rules") or advising it with regard to the Placing Shares and that it is not a client of Stockdale as defined by the Rules. It agrees that any payment by it will not be treated as client money governed by the Rules;

 

•      it represents and warrants that its participation in the Placing would not give rise to an offer being required to be made by it or any person with whom it is or it is deemed or presumed to be, acting in concert pursuant to Rule 9 of the City Code on Takeovers and Mergers;

 

•      any exercise by Stockdale of any right to terminate the Placing Agreement shall be within Stockdale's absolute discretion in accordance with its terms and that Stockdale shall not have any liability to it whatsoever in relation to any decision to exercise or not to exercise such right;

 

•      it is in Stockdale's absolute discretion to agree or not to agree to extend the time or waive the requirement for the satisfaction of all or any of the conditions of the Placing Agreement in accordance with its terms and otherwise to adjust the timetable for implementation of the Placing and Stockdale shall have no liability or duty to Placees whatsoever in connection with such extension or waiver. All times and dates referred to in these Terms and Conditions or in the accompanying Announcement) are therefore subject to adjustment in accordance with that reservation;

 

•      it does not expect Stockdale to have any duty to it similar or comparable to the "best execution", "suitability" and "risk warning" rules in the Rules and that it is not relying on Stockdale to advise whether or not the Placing Shares are in any way a suitable investment for it;

 

•      it is not relying on any representations or warranties or agreements by Stockdale or the Company or by any director, employee or agent of Stockdale or the Company or any other person except as set out in the Announcement or these Terms and Conditions;

 

•      it acknowledges and agrees that the content of this Announcement is exclusively the responsibility of the Company and that none of Stockdale, nor any of its Affiliates nor any person acting on their behalf will be responsible for or shall have any liability for any information, representation or statement contained in this Announcement or for any Company Information and none of Stockdale nor any of its Affiliates nor any person acting on their behalf will be liable for any Placee's decision to participate in the Placing based on any information, representation or statement contained in this Announcement or otherwise provided that nothing in this paragraph excludes the liability of any person for any fraudulent misrepresentation made by that person;

 

•      it will (or will procure that its nominee will), if applicable, make notification to the Company of the interest in its ordinary shares in accordance with the Act and Chapter 5 of the FCA's Disclosure Guidance and Transparency Rules;

 

•      it is not (and is not applying on behalf of) a person who falls within the special charge to stamp duty reserve tax (broadly, persons or nominees or agents for persons, whose business is or includes using depository receipts or the provision of clearance services) nor who attracts a higher rate of stamp duty (including, without limitation, under section 67, 70, 93 or 96 of the Finance Act 1986);

 

•      it is liable for all and any stamp duty or stamp duty reserve tax and any related costs, fines, penalties and interest arising in respect of the delivery and settlement in respect of the Placing Shares comprised in its Placing participation;

 

•      it has complied with its obligations under the Relevant Anti-Money Laundering Procedures and it acknowledges that it is a term of its Placing participation that, to ensure compliance with all the Relevant Anti-Money Laundering Procedures, Stockdale may, in its absolute discretion, require verification of a Placee's identity. Pending the provision to Stockdale of evidence of identity, definitive certificates for the Placing Shares may be retained at Stockdale's absolute discretion;

 

•      it is responsible for obtaining any legal and tax advice that it deems necessary for the execution, delivery and performance of its obligations in applying for Placing Shares, and that it is not relying on the Company or Stockdale to provide any legal or tax advice to it;

 

•      all notices, remittances and documents of title are sent to it or its agent at its own risk;

 

•      agrees to indemnify on an after tax basis and hold the Company and Stockdale and its agents harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements, agreements and undertakings in this Appendix;

 

•      it acknowledges and agrees that Stockdale is entitled to exercise any of its rights under the Placing Agreement or any other right in its absolute discretion without any liability to Placees; and

 

•      that it irrevocably appoints any director of Stockdale or the Company as its agent for the purpose of executing and delivering to the Company and/or its registrars any and all documents, and taking such other action, on its behalf necessary to enable it to be registered as the holder of any Placing Shares in its Placing participation.

 

•      these Terms and Conditions and any contract which may be entered into between a Placee and Stockdale pursuant hereto, and any non-contractual obligations arising out of or in connection with such agreements, shall be governed by and construed in accordance with the laws of England and that it submits to the exclusive jurisdiction of the English Courts as regards any claim, dispute or matter arising out of or relating to these Terms and Conditions or any such contract, save that enforcement proceedings in respect of the obligation to make payment for the Placing Shares) may be taken by the Company or Stockdale in any jurisdiction;

 

The above confirmations, acknowledgements and agreements will survive completion of the Placing. Stockdale shall be entitled to exercise any of its rights under the Placing Agreement or any other right in its absolute discretion without any liability to Placees including, without limitation, the extension of any time limit, waiver in full or in part of any condition or term in the Placing Agreement or the termination of the Placing Agreement if any condition therein has not been satisfied.

 

To the extent that a Placee fails to pay Stockdale the subscription monies relating to its participation in the Placing in accordance with the settlement arrangements set out above, then Stockdale shall be entitled to:

 

(a)      delete its name from the list of Placees; or

 

(b)      notify the Placee that its Placing participation will remain on such list but will be sold by Stockdale on its behalf and Stockdale shall proceed immediately to sell such shares at such price as Stockdale may determine (which may be less than the Issue Price), in which event the sale proceeds received, net of costs of sale (including any taxes) shall be paid to Stockdale as agent for the Company. To the extent that such net proceeds are less than the aggregate Issue Price in relation to its final Placing participation, a Placee shall continue to be liable for such difference and Stockdale or the Company may demand and seek payment of the same from it. By a Placee's acceptance of these Terms and Conditions, it hereby appoints Stockdale as its agent to sign all documents required to give effect to this paragraph.

 

Neither the Announcement nor these Terms and Conditions constitute an offer to sell, or the solicitation of an offer to buy, subscribe or acquire Placing Shares in any jurisdiction in which such an offer or solicitation is unlawful or would impose any unfulfilled registration, publication or approval requirements on the Company and/or Stockdale. The Placing Shares have not been and will not be registered or qualified for sale under the securities laws of the USA or any of its states or possessions, Canada, Australia, South Africa or Japan. Accordingly, the Placing Shares may not be offered or sold, directly or indirectly, in, into or within the USA or to US Persons (as defined below) or within or to persons in or resident in or citizens of, or taxpayers to, the USA, Canada, Australia, South Africa or Japan or any other jurisdiction in or into which such actions are or would be unlawful, and neither the Announcement nor these Terms and Conditions may be distributed in or into or within the USA, Canada, Australia, South Africa or Japan or any other jurisdiction in which such distribution is or would be unlawful, except in the case of the USA, pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act of 1933, as amended. By making an oral confirmation of a firm Placing participation, a Placee confirms, represents and warrants severally, and not jointly nor jointly and severally, that it is not a US Person or a person resident in Canada, Australia, South Africa or Japan or any other jurisdiction in which this offer is or would be unlawful, and it is not acquiring Placing Shares on behalf of, or with a view to re-sale directly or indirectly to any US Person or a person resident in Canada, Australia, South Africa or Japan or any other jurisdiction in which such actions are or would be unlawful, or to any other person whom it has reason to believe is purchasing or subscribing for such Placing Shares for the purposes of such re-offer or re-sale. "US Person" means a citizen or resident of the USA, a citizen or partnership or other entity created or organised in or under the laws of the USA or any sub-division thereof or therein and any estate or trustee which is subject to US federal income taxation regardless of its source.

 

Any decision in connection with any proposed purchase of Placing Shares must be made solely on the basis of the information contained in the Announcement and these Terms and Conditions. Any presentation materials supplied to Placees were for their own information and may not be reproduced, further distributed to any other person or published, in whole or in part, for any purposes whatsoever. In particular, they must not be distributed to any person with an address in the USA, its territories or possessions, or Canada, Australia, South Africa or Japan or to any national or resident of the USA, Canada, Australia, South Africa and Japan or any corporation, partnership, or other entity created or authorised under the laws of the USA, Canada, Australia, South Africa and Japan. Any such distribution could result in a violation of the laws of the USA, Canada, Australia, South Africa or Japan.

 

Any presentation and accompanying materials distributed by the Company were directed solely at persons who are either Relevant Persons and/or Qualified Investors and it is not intended that they should be acted upon in any way and nor should they be disclosed in any way to any person who is not a Relevant Person or a Qualified Investor.

 

No offering document, prospectus or admission document has been or will be submitted to be approved by the FCA or submitted to the London Stock Exchange in relation to the Placing.   The Placing Shares are being offered to a limited number of specifically invited persons only and will not be offered in such a way as to require a prospectus in the UK or in any other jurisdiction.  This Announcement contains no offer to the public within the meaning of section 102B FSMA or otherwise.  Placees' commitments will be made solely on the basis of the information contained in this Announcement and the Terms and Conditions, and subject to the further terms set forth in the contract note to be provided to individual prospective Placees.

 

Persons (including, without limitation, nominees and trustees) who have a contractual or other legal obligation to forward a copy of this Announcement should seek appropriate advice before taking any action.

 

Any indication in this Announcement of the price at which the Ordinary Shares have been bought or sold in the past cannot be relied upon as a guide to future performance. No statement in this Announcement is intended to be a profit forecast and no statement in this Announcement should be interpreted to mean that earnings per share of the Company for the current or future financial years would necessarily match or exceed the historical published earnings per share of the Company.

 

Neither the content of the Company's website (or any other website) nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is incorporated into or forms part of this Announcement.

 

Any forward looking statements, including any projections, contained in this Announcement, any presentation and presentation materials are for the internal planning purposes of the Company and its senior management only, have not been commented or reported on by the Company's auditors and accordingly may not necessarily be on a basis that is consistent with the Company's accounting policies. Actual results may differ substantially from figures used for planning purposes only.  By their nature forward looking statements involve risk and uncertainty because they relate to future events and circumstances. Forward looking statements are not guarantees of future performance and the development of the markets and the industry in which the Group operates, may differ materially from those described in, or suggested by, any forward looking statements contained in this Announcement, any presentation and presentation materials. In addition, even if the development of the markets and the industry in which the Group operates are consistent with such forward looking statements, those developments may not be indicative of developments in subsequent periods. A number of factors could cause developments to differ materially from those that may be expressed or implied by the forward looking statements including, without limitation, general economic and business conditions, industry trends, competition, changes in regulation or government, changes in business strategy, political and economic uncertainty and other factors.  Accordingly, any such forward looking statements or projections should not be relied on in any manner whatsoever.

 

Stockdale confirms that, in relation to the arrangements referred to herein, it is acting in the provision of corporate finance services to the Company for its own account, within the meaning of the Rules, and Stockdale is an authorised person for the purposes of the Financial Services and Markets Act 2000 (as amended).

 

Stockdale is acting as broker and bookrunner to the Company in relation to the Placing and Admission. Stockdale will receive a commission in relation to its services to the Company in the Placing. As stated above, a Placee will not be treated as a client of Stockdale in respect of transactions entered into under these Terms and Conditions. The value of shares and the income derived therefrom may go down as well as up. Past performance of investments is not a guarantee of future returns. An investment will be made on the basis of the contents of these Terms and Conditions and the Announcement.

 

Please note that all references to times and dates in these Terms and Conditions are references to UK time. All times and dates in these Terms and Conditions and the Announcement may be subject to amendment. Stockdale shall notify Placees of any changes.

 

Terms and expressions defined in the Announcement (unless expressly provided to the contrary) have the same meaning in these Terms and Conditions.

 



 

APPENDIX II

RISK FACTORS

The nature of the insurance underwriting business, the regulatory regime applicable to corporate members of Lloyd's and the consequence of past years' underwriting losses at Lloyd's will give rise to a number of specific risk factors. The following list is not exhaustive but is intended to draw investors' attention to certain aspects of the risks involved.

 

Underwriting of insurance risks

The underwriting of insurance risks is, by its nature, a high-risk business. The Group's insurance business assumes the risk of loss from persons or organisations that are directly exposed to an underlying loss.  Insurance risk arises from this risk transfer due to inherent uncertainties about the occurrence, amount and timing of insurance liabilities. Underwriting risk comprises four elements: 

 

(a) Event risk - the risk that individual risk losses or catastrophes lead to claims that are higher than anticipated in plans and pricing;

 

(b) Cycle risk - the risk that business is written without full knowledge as to the (in)adequacy of rates, terms and conditions;

 

(c) Pricing risk - the risk that the level of expected loss is understated in the pricing process; and

 

(d) Expense risk - the risk that the allowance for expenses and inflation in pricing is inadequate.

 

As part of its overall risk mitigation and capital management strategy, the Group purchases quota share reinsurance to seek to mitigate its insurance risk. The Group's stop loss programme complements the Group's quota share reinsurance seeking to protect the Group's capital from adverse results from the portfolio of syndicate participations. However, the Group's reinsurance may not mitigate all these underwriting risks.

 

Unpredictable and multiple losses

 

The portfolio of Helios' syndicate participations expose it to claims arising out of unpredictable natural and other catastrophic events, such as hurricanes, windstorms, tsunamis, severe winter weather, earthquakes, floods, fires and explosions, as well as ''man-made'' disasters, such as acts of war, terrorism, piracy and political instability, the emergence of latent risks, changes in law and the interpretation of law or precedent (including in relation to the measurement of damages), as well as social and political changes, and fluctuations in the global investment markets and the capacity of the global insurance market.  The incidence and severity of catastrophes are inherently unpredictable and the Group's losses from such catastrophes could be substantial.   Although the Group attempts to manage its exposure to such events through the selection of the syndicates in which it participates, a single catastrophic event could affect multiple geographic zones or the frequency or severity of catastrophic events could exceed its estimates.

 

Cyclicality of insurance business

 

The insurance and reinsurance business historically has been a cyclical industry with significant fluctuations in operating results due to competition, catastrophic events, general economic and social conditions and other factors.  This cyclicality has produced periods characterised by intense price competition due to excessive underwriting capacity (soft market conditions) as well as periods when shortages of capacity resulted in much more favourable premium levels (hard market conditions).  Accordingly, the performance of the Group's business is likely to be affected by this cyclicality to a certain extent. 

 

Funds at Lloyd's

 

As members of Lloyd's, relevant members of the Group are required to contribute funds of an approved form that are lodged and held in trust at Lloyd's as security for a member's underwriting activities, known as ''funds at Lloyd's'' ("FAL"). A member's funds at Lloyd's may contain only those assets that Lloyd's prescribes as acceptable assets, which include debt securities, bonds and other money and capital market instruments, shares, cash and cash equivalents, letters of credit and guarantees.  In addition, the Group is also required to contribute funds to the Lloyd's central fund.   To the extent that Lloyd's suffers a material exposure in its asset base when compared with its liabilities, members may at any such time as required by Lloyd's be called upon to invest further capital into Lloyd's portfolio of funds, including both the FAL and the central fund which, as a result, may cause the Group to incur a material increase in its operating expenses and, as a result, a material adverse impact on its financial results and financial condition.

 

Changes implemented to the list of acceptable assets for purposes of FAL may also adversely impact the Group, as, the Group would be required to post different assets, which may be more expensive to obtain and maintain or which may place an undue restriction on the Group's capital resources.

 

Lloyd's also has the power to reduce the Group's underwriting capacity or to prohibit the Group from underwriting if at any time the value of the Group's total funds at Lloyd's falls by more than 10% from the funds required at the last ''coming into line'' exercise and such shortfall is not made up by the Group. ''Coming into line'' refers to a bi-annual procedure currently undertaken in June and November each year which requires members of Lloyd's to demonstrate that they have sufficient eligible assets to meet their current underwriting liabilities and to support future underwriting before they may underwrite for the next following year of account.  Any such event is likely to have a material adverse effect on the Group's reputation, financial condition and results of operations.

 

Performance of Syndicates

 

Investors should be aware that the categories of business written and the structure of the syndicate's reinsurance programme, and accordingly risks and rewards vary from syndicate to syndicate. Should a syndicate as constituted for a given year of account make a loss upon closure, or if a syndicate as constituted for a given year of account has funding difficulties, its managing agent may make a cash call on its members for the year of account concerned which, if not met promptly from other funds, can be satisfied by drawing down on the members' FAL.   Cash calls for "working capital" can also be made early in the year of account by the managing agent of a syndicate, for example to meet liquidity pressures.  There is no guarantee that the Company would have the funds needed to meet such liabilities in which case it may be necessary for the Company to raise additional capital via equity or debt.

 

Failure of loss limitation methods

 

Managing agents will seek to limit the exposure of their managed syndicates to insurance and reinsurance losses through a number of loss limitation methods including internal risk management and security procedures as well as through the purchase of outwards reinsurance protection.

 

Notwithstanding the risk mitigation and underwriting controls employed by syndicates, one or more catastrophic or other loss events or a greater frequency of losses than expected could result in claims that substantially exceed the expectations of the Group, and which could have a material adverse effect on the financial condition or results of operations of the Group, possibly to the extent of eliminating the funds at Lloyd's supporting the underwriting of the Group's corporate members and any statutory surplus.

 

Reinsurance protection

 

As part of its overall risk mitigation and capital management strategy, the Group purchases stop loss and quota share reinsurance to seek to protect the Group's capital from losses from its syndicate portfolio. Market conditions beyond the Group's control determine the availability and cost of appropriate reinsurance and the receipt of future reinsurance recoveries. Additionally, a change in regulation could affect the availability or price of reinsurance.

 

Any significant changes in reinsurance pricing may result in the Group being forced to incur additional expenses for reinsurance, reducing its capacity on syndicates, having to obtain reinsurance on less favourable terms or not being able to or choosing not to obtain reinsurance thereby exposing the Group to increased retained risk.  Any of these could have a material adverse effect on the Group's financial condition and results of operations.

 

Capital requirements

 

The Solvency II Directive was implemented on 1 January 2016. Solvency II introduces a harmonized EU-wide insurance regulatory regime. In particular, it imposes a risk-based capital regime, sets out requirements for the governance, risk management and regulatory supervision of insurers and introduces certain disclosure and transparency requirements. Each syndicate's  Solvency Capital Requirement (''SCR'') under Solvency II is determined in accordance with the syndicate's internal model.  It is a regulatory requirement that the model captures all material risks that have been identified. However, it is subject to the limitations of all complex models and is subject to the accuracy, completeness and integrity of the data input into the model. It is also necessary for estimates, assumptions and judgments to be made by the syndicate's management where data are incomplete or ambiguous. Accordingly the SCR, as modelled by the syndicate's internal model, may not provide an accurate projection of the capital that the syndicate  will, in fact, need in the future.

 

The Lloyd's market

 

The Group relies on the efficient functioning of the Lloyd's market. If, for whatever reason, members were to be restricted or otherwise unable to write insurance through the Lloyd's market, it could have a material adverse effect on the Group's business and results of operations.  In particular, any damage to the brand or reputation of Lloyd's, whether such damage is caused by financial mismanagement, fraudulent activity or otherwise, or any loss of any international licences in relation to the insurance or reinsurance business may have a material adverse effect on the Group's ability to write new business and/or its reputation. In addition, any increase in tax levies imposed on Lloyd's participants in the relevant jurisdictions around the world in which they offer insurance or reinsurance or any challenge to the amount of tax paid by such Lloyd's participants may result in the Group incurring a higher tax charge.

 

The PRA is the prudential regulator for Lloyd's and has responsibility for promoting the financial security and soundness of Lloyd's and its members. Lloyd's is required by the PRA to establish and maintain appropriate controls over the risks affecting the funds of members which it holds centrally and to assess the capital needs of each member operating on its market, in order to satisfy an annual solvency test for the PRA.  Were the PRA to impose more stringent requirements on Lloyd's this may result in higher capital requirements or a restriction on trading activities for its members, including entities within the Group. If Lloyd's fails to satisfy its solvency test in any year, the PRA may require Lloyd's to cease trading and/or its members to cease or reduce their underwriting exposure, which may result in a material adverse effect to the Group's reputation, financial condition and results of operations.

 

Value of capacity

 

The Board attributes a value to the Group's portfolio of syndicate capacity in determining the adjusted net asset value per Ordinary Share ("Humphrey Value").  This value of the capacity is based on the weighted average price of the capacity traded in the Lloyd's capacity auctions which is dependent on the demand for capacity in these auctions.  If the weighted average prices for syndicates reduce significantly, it is likely that adjusted net asset value per Ordinary Share will reduce and that the Board will have to impair the value of the capacity held on the Group's balance sheet.  This may have a material adverse effect on the financial results of the Group.



 

DEFINITIONS

 

The following definitions apply throughout this announcement unless the context otherwise requires:

 

Act

the Companies Act 2006, as amended;

 

Admission

admission of the Placing Shares to trading on AIM and such admission becoming effective in accordance with the AIM Rules for Companies;

 

AIM

the AIM market operated by the London Stock Exchange;

 

AIM Rules for Companies

the rules of AIM as set out in the publication entitled 'AIM Rules for Companies' published by the London Stock Exchange from time to time;

 

Announcement

this announcement (including the appendices to this announcement)

 

Application Form

the application form to be used by Qualifying Non-CREST Shareholders in connection with the Open Offer;

 

Articles

the articles of association of the Company

 

certificated or in certificated form

the description of a share or other security which is not in uncertificated form (that is not in CREST);

 

Circular

the circular in respect of the Open Offer, including a notice of general meeting, expected to be posted to Shareholders in early October 2016;

 

Closing Price

the closing middle market quotation of an Ordinary Share as published by the London Stock Exchange;

 

Company or Helios

Helios Underwriting PLC a company incorporated in England and Wales with registered number 05892671 and having its registered office at 5th Floor 40 Gracechurch Street, London, United Kingdom, EC3V 0BT;

 

CREST

the relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the Operator (as defined in the CREST Regulations);

 

CREST member

a person who has been admitted by Euroclear as a system member (as defined in the CREST Regulations);

 

CREST participant

a person who is, in relation to CREST, a system participant (as defined in the CREST Regulations);

 

CREST Proxy Instruction

the appropriate CREST message made to appoint a proxy, properly authenticated in accordance with Euroclear's specifications;

 

CREST Regulations

the Uncertificated Securities Regulations 2001;

 

Enlarged Share Capital

the issued share capital of the Company immediately following Admission, assuming the Placing Shares and the maximum number of Open Offer Shares are allotted;

 

EU

the European Union;

 

Euroclear

Euroclear UK & Ireland Limited;

 

Excluded Overseas Shareholders

other than as agreed by the Company and Stockdale or as permitted by applicable law and regulation, Shareholders who are located or have registered addresses in a Restricted Jurisdiction;

 

Existing Ordinary Shares

the 10,621,297 Ordinary Shares in as at the date of this Announcement;

 

FCA

the Financial Conduct Authority;

 

FSMA

the UK Financial Services and Markets Act 2000, as amended;

 

Group

the Company and its subsidiary undertakings at the date of this announcement (as defined in sections 1159 and 1160 of the Act);

 

Issue Price

£1.50 per New Ordinary Share;

 

London Stock Exchange

London Stock Exchange plc;

 

New Ordinary Shares

up to 5,624,259 new Ordinary Shares to be issued by the Company pursuant to the Placing and the Open Offer;

 

Open Offer

the conditional invitation by the Company to Qualifying Shareholders to apply to subscribe for Open Offer Shares at the Issue Price on the terms and subject to the conditions to be set out in the Circular in respect of the Open Offer and in the case of Qualifying Non-CREST Shareholders only, the Application Form;

 

Open Offer Entitlements

an entitlement to subscribe for Open Offer Shares, allocated to a Qualifying Shareholder under the Open Offer;

 

Open Offer Shares

the 2,124,259 New Ordinary Shares to be offered to Qualifying Shareholders under the Open Offer;

 

Overseas Shareholders

Shareholders with registered addresses outside the UK or who are citizens of, incorporated in, registered in or otherwise resident in, countries outside the UK;

 

Ordinary Shares

ordinary shares of 10 pence each in the capital of the Company;

 

Placees

the persons who are invited to and who choose to participate in the Placing by agreeing to subscribe for Placing Shares in accordance with the Terms and Conditions;

 

Placing Shares

the up to 3,500,000 Placing Shares to be issued by the Company under the Placing;

 

Placing

the placing of the Placing Shares with the Placees pursuant to the Placing Agreement;

 

Placing Agreement

the agreement dated 29 September 2016 between the Company and Stockdale Securities Limited relating to the Placing;

 

Qualifying CREST Shareholders

Qualifying Shareholders whose Existing Ordinary Shares on the register of members of the Company on the Record Date are in uncertificated form;

 

Qualifying Non-CREST Shareholders

Qualifying Shareholders whose Existing Ordinary Shares on the register of members of the Company on the Record Date are held in certificated form;

 

Qualifying Shareholders

holders of Existing Ordinary Shares on the register of members of the Company at the Record Date with the exception (subject to certain exceptions) of Excluded Overseas Shareholders;

 

Record Date

the record date for the Open Offer, which is expected to be announced shortly;

 

Regulatory Information Service

has the meaning given in the AIM Rules for Companies;

 

Restricted Jurisdictions

each of Australia, Canada, Japan, South Africa, the United States and any other jurisdiction in which the making of the Open Offer would be unlawful;

 

Shareholders

holders of Existing Ordinary Shares;

 

Stockdale

Stockdale Securities Limited, a company incorporated in England and Wales with registered number 00762818 and having its registered office at Beaufort House, 15 St. Botolph Street, London, EC3A 7BB;

 

uncertificated

recorded on a register of securities maintained by Euroclear in accordance with the CREST Regulations as being in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST;

 

UK or United Kingdom

the United Kingdom of England, Scotland, Wales and Northern Ireland;

 

US or USA or United States

the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia; and

 

£ or sterling pounds

sterling, the legal currency of the United Kingdom.

 

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
END
 
 
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