# INTERVIEW: Defenx Plc & UK Bond Network

- Link: https://www.directorstalkinterviews.com/interview-defenx-plc-uk-bond-network/412733392
- Published: 2017-08-10T07:34:03+01:00
- Author: Giles Arbor

**Defenx Plc** (LON:DFX) CFO Philipp Prince and UK Bond Network CEO Christopher 
Maule talk to DirectorsTalk about seeking up to £2m via UK Bond Network alongside
a separate equity placing. Philipp explains why they chose the network over a more
traditional route to raise equity, why this point in time and what the proceeds 
will be used for, while Chris tells us what attracted the UK Bond Network to working
with Defenx and why this type of funding can better support a growing business.

 

**Placing, Subscription and issue of Secured Convertible Bonds to raise up to approximately
£3.37 million**

Additional Information

1. Introduction

Defenx plc (LON:DFX), the cyber-security software group, is pleased to announce 
its intention to conduct a placing of approximately 700,000 new ordinary shares 
of £0.018 each in the Company (the “Placing Shares”), at a price of 160 pence per
Placing Share (“Placing Price”), to raise approximately £1.12 million (before expenses)(
the “Placing”) and the intention of an existing shareholder of the Company, BV Tech(“
BV Tech”) to subscribe for up to an additional 156,250 new ordinary shares of £0.018
each at the Placing Price to raise up to an additional £250,000.

The Company is also proposing to issue secured convertible bonds (“Secured Convertible
Bond”) to raise up to £2 million (“Convertible Bond Issue”). The Convertible Bond
Issue is subject to, inter alia, the receipt of shareholder approval of the necessary
resolutions at a general meeting of the Company, notice of which is to be dispatched
on or about the date of this Announcement. If the requisite resolutions are not 
passed, the Convertible Bond Issue will not proceed.

The Placing Shares are being offered by way of an accelerated bookbuilding process(
the “Bookbuild”), which will be launched immediately following this Announcement
in accordance with the terms and conditions set out in the Appendix to this Announcement.
WH Ireland Limited (“WH Ireland”) will be acting as sole bookrunner in connection
with the Bookbuild. A further announcement will be made to confirm the completion
of the Bookbuild in due course.

2. Background to and reasons for the Fundraising and use of net proceeds

The Company intends to use the net proceeds from the Fundraising to invest in its
product portfolio, and its delivery and sales capability over the next 12 months
to accelerate growth in existing and corporate markets.

The Directors believe that with recent high-profile cyber attacks, such as the WannaCry
ransomware attack, cyber security is becoming a higher-priority board level issue
for companies to address and as such the corporate market is a significant opportunity
for the Company. The impact of ransomware on business and the challenges of protecting
mobile devices in the workplace, together with the implementation of the EU General
Data Protection Regulation (“GDPR”) in May 2018, are set to drive corporate investment
in cyber security. The Company is keen to capitalise on this current positive market
sentiment in order to raise additional funds to build on its existing IP base, to
better leverage its value, and to accelerate growth into corporate and non-Italian
markets which is expected to de-risk future revenues.

The funds raised from the Fundraising will be used to invest in the Company’s product
portfolio, broaden the development and operations teams to support the Group’s products,
and enhance the Group’s sales capacity, focusing particularly on the corporate sector.
The Company’s strategic partnership with BV Tech is expected to provide access to
corporate customers to whom the expanded product portfolio can be sold.

The Company intends to use the proceeds from the Fundraising to accelerate software
development spend, including:

· the development of corporate versions of its consumer products e.g. enterprise
security suite and mobile device management;

· building on Memopal Srl’s ‘MGFS’ technology e.g. end-2-end encrypted cloud backup;

· building privacy protection into its products e.g. addressing GDPR requirements;

· adding features and integrating products to provide 360° protection;

· accelerating the update cycle of its most popular mobile products; and

· building/acquiring complementary new functionality.

3. Details of the Placing

The Placing Shares will be offered by way of an accelerated bookbuilding process
which will launch immediately following this Announcement. The Placing Price represents
a discount of approximately 13.75 per cent. to the closing middle market price of
185.5 pence per Ordinary Share on 4 August 2017, being the Latest Practicable Date.

The New Ordinary Shares to be issued pursuant to the Placing will be conditionally
placed by WH Ireland, as agent of the Company, with certain existing Shareholders
and new institutional and other investors pursuant to the Placing Agreement. The
Placing is not conditional on the passing of any of the Resolutions, although it
is conditional, inter alia, on Admission and the Subscription Agreement being entered
into.

In addition, the Company has also granted the Broker Option to WH Ireland order 
to enable WH Ireland to deal with additional demand under the Placing, following
the closing of the Bookbuild where requests to participate in the Placing from institutional
investors and certain other investors are received during the period from such closing
to 4.30 p.m. on the date of this Announcement. The Broker Option is exercisable 
on more than one occasion at any time prior to 4.30 p.m. on the date of this Announcement.
Any Ordinary Shares issued pursuant to the exercise of the Broker Option will be
issued on the same terms and conditions as the Placing Shares placed under the Bookbuild.
The Broker Option may be exercised by WH Ireland, following consultation with the
Company, but there is no obligation on WH Ireland to exercise the Broker Option 
or to seek to procure subscribers for Ordinary Shares pursuant to the Broker Option.
The maximum number of new Ordinary Shares that may be issued under the Placing, 
including pursuant to the exercise of the Broker Option, is 981,250. Accordingly,
the maximum number of Ordinary Shares that may be issued under the Broker Option(
assuming 700,000 Ordinary Shares are subscribed under the Bookbuild) is 281,250.

Under the terms of the Placing Agreement, WH Ireland will receive commission from
the Company conditional on Admission and the Company will give customary warranties
and undertakings to WH Ireland in relation, inter alia, to its business and the 
performance of its duties.

In addition, the Company has agreed to indemnify WH Ireland in relation to certain
liabilities that they may incur in undertaking the Placing. WH Ireland has the right
to terminate the Placing Agreement in certain circumstances prior to Admission, 
in particular, in the event that there has been, inter alia, a material breach of
any of the warranties. The Placing is not being underwritten.

Following the issue of the New Ordinary Shares, the Company is expected to have 
approximately 12,719,042 Ordinary Shares in issue (assuming no exercise of the Broker
Option) and there are no shares held in treasury.

The New Ordinary Shares will, when issued, be credited as fully paid and will rank
pari passu in all respects with the existing Ordinary Shares of the Company, including
the right to receive all dividends or other distributions made, paid or declared
in respect of such shares after the date of issue of the New Ordinary Shares.

4. Details of the Subscription

BV Tech has indicated that it intends to subscribe for up to 156,250 New Ordinary
Shares at the Placing Price pursuant to the Subscription, assuming the full funds
are raised under the Placing. The Subscription is taking place on the same terms
and conditions as the Placing, other than in respect of settlement. BV Tech currently
holds 3,480,388 Ordinary Shares representing 29.34 per cent. of the Existing Ordinary
Shares. Following admission of the Subscription Shares, BV Tech will hold up to 
3,636,638 Ordinary Shares representing 28.59 per cent. of the Enlarged Share Capital,
assuming the full funds are raised under the Placing and Subscription. In the event
that the full funds are not raised under the Placing, the Subscription may be reduced
to ensure that BV Tech’s resultant shareholding in the Company is less than than
30 per cent.. The Subscription is conditional upon the completion of the Placing
and if the Placing does not proceed for whatever reason, then the Subscription will
also not proceed.

BV Tech is a related party of the Company for the purposes of the AIM Rules by virtue
of its status as a substantial shareholder of the Company, therefore the participation
by BV Tech in the Subscription is a related party transaction under the AIM Rules.
The independent Directors, being the Directors other than Raffaele Boccardo and 
Franco Francione, consider, having consulted with the Company’s nominated adviser,
Strand Hanson Limited, that the terms of the Subscription by BV Tech, reflecting
those of the Placing, are fair and reasonable insofar as the Company’s shareholders
are concerned.

5. Details of the Secured Convertible Bonds

(a) Summary

The Company is proposing to raise up to £2 million pursuant to the Convertible Bond
Issue, with the final amount to be determined by the auction process. Of this amount,
UK Bond Network has procured that £1.25 million of the Convertible Bond Issue has
been underwritten pursuant to the Bond Underwriting Commitment.

The Bonds will pay a coupon of between 8 per cent. and 10 per cent., with the exact
rate being determined by participating bond investors through UK Bond Network’s 
auction process. Interest under the Secured Convertible Bonds will be payable quarterly.

The Secured Convertible Bonds will be convertible into Ordinary Shares at the Conversion
Price of 200 pence per Ordinary Share, being a 25 per cent. premium to the Placing
Price.

The auction process to be carried out in connection with the Convertible Bond Issue
will be carried out by UK Bond Network, as agent of the Company, using its designated
website auction platform. There will be a pre-auction period commencing on or around
the date of this Announcement for Eligible Investors to review the Secured Convertible
Bonds offering, followed by a live auction period commencing at 9.00 a.m. on 14 
August 2017 and finishing at 4.30 p.m. on 30 August 2017.

Eligible Investors will be the only investors eligible to participate in the Convertible
Bond Issue. Eligible Investors will be required to self-certify themselves, in accordance
with the procedure required under FSMA, as being an investor falling into one of
these categories before participating. Eligible Investors who wish to participate
will need to register as a member of UK Bond network’s platform (www.ukbondnetwork.
com).

(b) Terms of the Secured Convertible Bonds

The Company will create and authorise the issue of up to £2 million unlisted Secured
Convertible Bonds (in multiples of £1 each) by entering into the Convertible Bond
Instrument upon completion of the auction. The Secured Convertible Bonds will mature
and be due for repayment in full on 31 August 2020. At the option of the Company,
the Secured Convertible Bonds may be repaid fully or partially at any time on or
after 31 August 2019 (being the second anniversary of the date of the Convertible
Bond Instrument), subject to the share price being at least 130 per cent. of the
Conversion Price for 20 consecutive Dealing Days.

The Company, Defenx SA, Memopal Srl and the Security Trustee will enter into an 
all assets debenture and guarantee and a security trust deed (each in customary 
form) to provide security in respect of the Secured Convertible Bonds.

The full amount of principal under the Secured Convertible Bonds, together with 
any interest accrued on them, may, at the option of the Security Trustee (acting
in its capacity as the Bondholders’ trustee), become immediately due and repayable
if an “Event of Default” occurs and is continuing. The Events of Default set out
in the conditions to the Convertible Bond Instrument include, inter alia, late payment
of any sum due under the Secured Convertible Bonds, or the insolvent liquidation
of the Company.

The Secured Convertible Bonds accrue interest daily, payable in quarterly instalments
by the Company. The rate at which interest will accrue will be between 8 per cent.
and 10 per cent. per annum with the exact interest rate payable to be determined
through the auction process conducted by UK Bond Network.

Each Bondholder will receive a certificate recording the details of their Secured
Convertible Bonds and, at any time before the Secured Convertible Bonds mature, 
Bondholders will have the right to convert the principal amounts of their Secured
Convertible Bonds then outstanding into Ordinary Shares.

The Conversion Price represents a 25 per cent. premium to the Placing Price. However,
the conditions attached to the Convertible Bond Instrument set out a number of different
circumstances in which this Conversion Price may be adjusted, including in the event
of any share capital reorganisation affecting the Ordinary Shares, or if an Event
of Default or a Takeover Offer occurs. Accordingly, as at the date of this Announcement,
it is not possible to ascertain exactly what effect any conversion of the Secured
Convertible Bonds may have on the interests of Shareholders, because the Conversion
Price (and therefore the number of Ordinary Shares into which the Secured Convertible
Bonds convert) may be subject to change. However, for illustrative purposes only,
if the maximum amount of £2 million is raised by the Convertible Bond Issue, and
each Bondholder were to convert their entire holding of Secured Convertible Bonds
into Ordinary Shares, then based upon the current Conversion Price the Company would
need to allot and issue 1,000,000 Ordinary Shares in satisfaction of such a conversion.

The Company gives certain customary representations, warranties, covenants and undertakings
to the Bondholders under the terms of the Convertible Bond Instrument and the associated
security documents, including as to matters relating to the Group and its business.

(c) Terms of the Bond Placing Agreement

Under the terms of the Bond Placing Agreement, for the purpose of procuring Eligible
Investors who will subscribe for the Secured Convertible Bonds, UK Bond Network 
has agreed to make available to the Company its website platform, upon which the
auction of the Secured Convertible Bonds to Eligible Investors is to be conducted.

Under the terms of the Bond Placing Agreement, completion of the Convertible Bond
Issue is conditional, inter alia, upon the requisite resolutions being passed at
the General Meeting referred to below under the heading “Notice of General Meeting”.

This means that unless such conditions are satisfied, the Convertible Bond Issue
will not complete.

The Bond Placing Agreement incorporates the customary representations and warranties
given by the Company under the Convertible Bond Instrument, including as to matters
relating to the Group and its business. The Bond Placing Agreement also contains
customary rights of termination which could enable UK Bond Network to terminate 
the Bond Placing Agreement in certain circumstances.

The Secured Convertible Bonds have not been made available to the public and have
not been offered or sold in any jurisdiction where it would be unlawful to do so.

(d) Terms of the Bond Underwriting Commitment

Pursuant to the terms of the Bond Underwriting Commitment, UK Bond Network has procured
that £1.25 million of the Convertible Bond Issue has been underwritten, subject 
to certain conditions.

The Directors consider the terms of the Convertible Bond Issue to be appropriate
in view of the reasons for the Fundraising and use of net proceeds as described 
above.

6. Current trading and outlook

As announced on 22 June 2017, year-to-date trading remains in line with management
expectations.

As seen in previous years, the Group’s business is heavily seasonal with the majority
of billings falling towards the end of the year, whereas certain costs, notably 
marketing contributions, are higher in the first half of the year. Whilst the Directors
believe that the strategic partnership with BV Tech will, in time, reduce this seasonality,
the Company’s results for 2017 are inevitably dependent on billings in the second
half of 2017 and driven predominately by the existing core business.

The Company and BV Tech are at an advanced stage of negotiations on a master services
agreement (“MSA”) pursuant to which BV Tech will (once entered into) develop software
for Defenx, which alongside the software distribution contract announced on 22 June
2017, forms part of the strategic partnership between both parties as envisaged 
at the time of BV Tech’s initial investment. The MSA will constitute a related party
transaction under the AIM Rules once entered into and further announcements will
be made in this regard as appropriate.

The core business, which is focused on the distribution of mobile and PC security
software to the Group’s channel partners, is maturing and new channel partners –
including Multi Time Srl and Arnavalle Telecommunications SL announced on 3 July
2017 – and products are now starting to support future growth. Meanwhile, the sales
and technical teams are making good progress with BV Tech, with whom a promising
pipeline of opportunities is developing.

Accordingly, the Directors remain confident that Defenx’s diversification into the
corporate market, supported by BV Tech, will yield significant profitable growth
over the medium term and that the results for 2017 will remain in line with expectations.

7. Notice of General Meeting

A notice convening a general meeting of the Company “General Meeting” to be held
at the offices of Taylor Vinters LLP, Tower 42, 33rd Floor, 25 Old Broad Street,
London EC2N 1HQ on 23 August 2017 at 12.00 p.m., at which resolutions authorising
the Convertible Bond Issue and giving the Directors general authorities to allot
shares will be proposed, will be dispatched shortly.

8. Irrevocable undertakings

BV Tech, Andrea Stecconi, Philipp Prince, Anthony Reeves and Leonard Seelig are 
expected to provide irrevocable undertakings to vote in favour of the resolutions
to be proposed at the General Meeting (“Resolutions”) in respect of their own beneficial
holdings of, in aggregate, 5,434,729 Existing Ordinary Shares, in aggregate representing
approximately 45.81 per cent. of the Existing Ordinary Shares.

9. Admission, Settlement and CREST

Application will be made to the London Stock Exchange for the admission of the New
Ordinary Shares to trading on AIM. It is expected that Admission of the Placing 
Shares will become effective at 8.00 a.m. on 11 August 2017 and that dealings in
the Placing Shares will commence at that time. It is expected that admission of 
the Subscription Shares will become effective by 8.00 a.m. on 1 September 2017 and
that dealings in the Subscription Shares will commence at that time.

The Articles permit the Company to issue shares in uncertificated form. CREST is
a computerised paperless share transfer and settlement system which allows shares
and other securities to be held in electronic rather than paper form. The Ordinary
Shares are already admitted to CREST and therefore the New Ordinary Shares will 
also be eligible for settlement in CREST.

10. Directors’ recommendation

The Directors consider the passing of the Resolutions and the completion of the 
Proposals to be in the best interests of the Company and its Shareholders as a whole.
Accordingly, the Directors recommend that all Shareholders vote in favour of the
Resolutions.

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