12 April 2019

 

Integumen PLC

 

("Integumen" or "Company")

 

Acquisition of RinoCloud Limited transforms Labskin AI platform;

Proposed Placing and Subscription of £2.518 million;

and

Notice of General Meeting

 

Integumen plc, (AIM: SKIN, is pleased to announce that the Company has conditionally agreed to acquire the entire issued share capital of RinoCloud Limited ("RinoCloud"), an integrated scientific data management services company, for £3,000,000, by the issue of 214,285,714 new Ordinary Shares at an issue price of 1.4 pence. Additionally, the Company announces a placing through its broker, Turner Pope Investments and a subscription which will together raise £2.518 million (before expenses) for the Company.

 

Gerard Brandon, Chief Executive Officer, commented:

 

"The proposed placing and acquisition of RinoCloud is transformational for our Labskin AI business and follows a five-month collaboration and three years of external development. The conversion of the business model from a physical laboratory to an automated, real-time, real-world digital data platform means we can quickly scale up to meet the growing demand for our cloud-based services. Our clients benefit from improved delivery of data directly to their scientist user-portal. Here they can monitor and adapt the testing process live from Labskin laboratories equipment or any third-party laboratory equipment, anywhere in the world. With strong growth seen in the first quarter of 2019, Labskin is at the forefront of animal-free testing for the healthcare, pharma and beauty industries. We believe that Integumen is leading a virtual microbiology testing revolution."

 

Strategic rationale for the RinoCloud acquisition:

 

·      Provides an end-to-end science-data management service enabling efficient scale up of Labskin AI - from the benchtop, to extracting value from team collaboration and smart analytics, through to delivering it as verified results to support client product development and marketing claims.

·      Transforms and elevates Labskin through an intelligence-led digital platform:

·      Live automated monitoring of Labskin growth using bench top and mobile probes with real time data flowing to analytics;

·      Software as a service (SaaS) provided over a secure private cloud infrastructure;

·      Historical data from Labskin manual tests feeding analytics;

·      Published data feeding into the artificial intelligence ("AI") model;

·      Data ingestion from specialist equipment to further teach the AI model (to recognise odours generated by skin tests);

·      An integrated front end for client teams to order, monitor and give and get feedback on tests;

·      A work management system to automate the work flows of work relating to tests; and

·      A secure store, share and collaborate platform which curates all data from tests and gives clients verified and verifiable data to support test results.

 

RinoCloud Limited

 

RinoCloud Limited, founded in Cambridge, UK, in 2016, is an integrated intelligent data service company focused on improving management of science data projects and provides technology services to curate data from generation, through to presentation to support papers, patents and prototypes.

 

The integrated data management service provided by the company evolved to incorporate two main activities:

 

-     RinoLab:  Science specific, hardware sensor monitoring, data ingestion, secure data store sharing and collaboration, and data analytics that support scientific research and development; and

-     RinoDrive:  General enterprise data management - involving data storage, sharing, and collaboration for situations where data security is a critical requirement.

 

Also announced today

 

1.   Measures to reduce the indebtedness of the Company by:

a.   the conversion of £421,000 of outstanding debt due to Venn into 30,071,428 new Ordinary Shares; and

b.   the conversion of the £400,000 principal of the Cellulac Loan Note (at 1.5 pence per Ordinary Share) into 26,666,666 new Ordinary Shares, the proceeds of which were recently used to acquire laboratory equipment in the enlarged Labskin laboratories in York, UK;

2.   The disposal of the Company's subsidiary, Visible Youth (and its subsidiaries) in line with the Strategic Review announced 29 August 2018, which eliminates circa £245,000 of future liabilities; and,

3.   The settlement of the legal dispute announced on 19 September 2018 with Enhance, Mercuriali, Donald Nicholson, a former Director of the Company and others.

 

Fuller details of all the Proposals are set out further below.

 

General Meeting

 

A notice convening the General Meeting to be held at the offices of Jeffreys Henry LLP at Finsgate, 5-7 Cranwood Street, London EC1V 9EE at 12.00 noon on 30 April 2019 at which various resolutions to effect the above proposals is being sent to shareholders later today.

 

Market Abuse Regulation (MAR) Disclosure

 

Certain information contained in this announcement would have been deemed inside information for the purposes of Article 7 of Regulation (EU) No 596/2014 until the release of this announcement.

 

Enquiries:

 

Integumen plc	Gerard Brandon, CEO	+44 (0) 7340 055 643
SPARK Advisory Partners Limited (Nominated Adviser)	Neil Baldwin/Vassil Kirtchev	+44 (0) 113 370 8974
Turner Pope Investments (TPI) Limited (Broker)	Andy Thacker	+44 (0) 20 3621 4120

 

 

About Integumen

 

Integumen is a vertically integrated business, collaborating their Labskin technology platform with partners in artificial intelligence, clinical research, medical device and life science. These collaborators are building their own technology on top of the Labskin AI backbone. Labskin allows skin-care, health-care, pharmaceutical manufacturers and cosmetic companies to test their products on human-like skin in a real-world environment with full access to multiple state-of-the-art partner technologies.

 

The Company combines data analytics with access to therapeutic operational expertise and offers solutions to our clients, from regulatory approvals, right through to marketing fully tested ingredients that have been certified on our Laboratory grown living human tissue.

The following is a direct extract from the Notice of Meeting which is being sent to shareholders today. A copy of the Notice is also available on the Company's website : www.integumen.com.

"Introduction and background

 

On 12 April 2019, the Company announced that it had signed conditional Acquisition Agreements to acquire the entire issued share capital of Rinocloud for £3,000,000, to be satisfied by the issue of 214,285,714 new Ordinary Shares at an issue price of 1.4 pence per Ordinary Share. Additionally, the Company announced a firm placing, a conditional placing and a subscription to raise, in aggregate, circa £2,518,000 (before expenses) for the Company, together with the issue of warrants over new Ordinary Shares on the basis of one warrant for every two Placing Shares or Subscription Shares subscribed.

 

At the same time, a number of other matters were proposed:

 

1.   Measures to reduce the indebtedness of the Company by:

a.   the conversion of £421,000 of outstanding debt due to Venn into 30,071,428 new Ordinary Shares; and

b.   the conversion of the £400,000 principal of the Cellulac Loan Note (at 1.5 pence per new Ordinary Share) into 26,666,666 new Ordinary Shares, the proceeds of which were recently used to acquire laboratory equipment in the enlarged Labskin laboratories in York, UK;

2.   The disposal of the Company's subsidiary, Visible Youth (and its subsidiaries), in line with the Strategic Review announced on 29 August 2018, which eliminates circa £245,000 of estimated future contractual liabilities; and

3.   The settlement of the legal dispute announced on 19 September 2018 with Enhance, Mercuriali, Donald Nicholson (a former Director of the Company) and others.

 

Collectively the Acquisition, the Placing, the Subscription, the Settlement (including the Disposal), the Venn Debt Conversion, the Loan Note Conversion and the other actions required to effect them (including the appointment of the Proposed Director), are referred to herein as the Proposals.

 

The purpose of this document is to provide information to Shareholders on the Proposals, to seek Shareholders' approval for resolutions which will allow the Proposals to proceed, and to provide the Directors' recommendations in relation to the Proposals. The Resolutions are contained in the Notice of General Meeting at the end of this document.

 

Acquisition of Rinocloud

 

The Company has signed conditional Acquisition Agreements with the shareholders of Rinocloud to acquire the entire issued share capital of Rinocloud for consideration of £3,000,000. The Acquisition was negotiated throughout January and early February of 2019 when the closing mid-market share price of Integumen did not exceed 1.0 pence.

 

The Consideration will be satisfied by the issue of 214,285,714 new Ordinary Shares at an issue price of 1.4 pence per new Ordinary Share.

 

Fionán Murray, the Managing Director of Rinocloud, is proposed to be employed by the Company, conditional upon Admission, as sales director. He will also be appointed as a Director of the Company and will remain as a director of Rinocloud. A letter of appointment has been agreed with the following key terms: Mr Murray's appointment is for an initial period of 12 months from Admission, and thereafter is terminable by the Company on not less than six months' written notice; the annual salary is £120,000. Mr Murray is subject to certain non-competition and non-solicitation covenants for a period of six months following the termination of his employment.

 

Completion of the Acquisition Agreements will be conditional upon Resolutions 1 and 2 in the Notice of General Meeting being passed without amendment, and Admission.

 

The Consideration Shares will comprise 44.98 per cent. of the Existing Issued Share Capital  and 22.48 per cent. of the Enlarged Issued Share Capital.

 

Vendor Placing

 

Rinocloud currently has two shareholders who are based overseas and who own, in aggregate, 7.70 per cent. of Rinocloud's share capital ("Selling Shareholders"). Turner Pope has entered into an agreement with the Selling Shareholders to place their 16,509,783 Consideration Shares with placees. In order to put these placees in the same position as subscribers in the Placing and Subscription, the Company has agreed to issue to the placees of these Consideration Shares one Placing Warrant for every two Consideration Shares placed.

 

Rinocloud Lock-In Agreement

 

All but two of the vendors of Rinocloud (being the Selling Shareholders referred to above) have agreed to enter into a lock-in agreement with the Company.

 

Under the Rinocloud Lock-In Agreement, the Rinocloud Locked-In persons (who hold, in aggregate, 92.3 per cent. of Rinocloud's share capital, and will hold 20.75 per cent. of the Enlarged Issued Share Capital) have agreed not to, and to procure that their related parties will not, dispose of any interests in Ordinary Shares held by them for 12 months following Admission. For the following 12 month period, the Rinocloud Locked-In Persons have agreed not to, and to procure that their related parties will not, dispose of any interest in Ordinary Shares held by them unless such disposals are effected through the Company's broker so as to ensure an orderly market in the Ordinary Shares. The restrictions on the disposal of Ordinary Shares contained in the Rinocloud Lock-In Agreement do not apply in certain limited circumstances, including disposals by way of acceptance of a recommended takeover offer for the entire issued share capital of the Company. Mr Fionán Murray, who will join the Integumen board will hold 86,783,068 new Ordinary Shares which represents 9.10 per cent. of the Enlarged Issued Share Capital.

 

Information on Rinocloud

 

Background

 

Rinocloud technology was developed in Cambridge, UK, in 2015 by Fionán Murray, Eoin Murray and Helena Dominguez Morales to attempt to improve management of science data projects and provide technology services to curate data from generation, through to presentation to support papers, patents and prototypes.

 

The integrated data management service provided by the company evolved to incorporate two main activities:

 

-     RinoLab:  Science specific, hardware sensor monitoring, data ingestion, secure data store sharing and collaboration, and data analytics that support scientific research and development; and

-     RinoDrive: General enterprise data management - involving data storage, sharing, and collaboration - for situations where data security is a critical requirement.

 

The company was incorporated in Ireland in 2016 with the backing of Enterprise Ireland. It is based in Cork, with its registered office at Unit 7, Riverside Grove, Riverstick. It manages an international R&D team of programmers and data scientists and supports early adopter clients in science, government and financial services.

 

Rinocloud undertook a seed financing round in December 2016 and April 2017 raising approximately €600,000 on a pre-new money valuation of €2.35 million, introducing Enterprise Ireland and other international investors as shareholders.

 

Background to relationship with the Company

 

Modern automated support from artificial intelligence technologies, has transformed the laboratory grown human skin equivalent (Labskin) test platform, into Labskin AI. This is a service that provides test results - in real-time - to skincare, wound care, pharma, health care and personal care companies. It facilitates and enables the saving of time, reduces product development lifecycles and offers the opportunity to reduce costs in overall product development.

 

During August to December 2018, the new Integumen management team had identified an opportunity in its Labskin business unit to convert what was then a £2,000 Labskin 'product' into a potential £25,000 to £50,000 'service offering' of tests to skincare, wound care, healthcare and pharmaceutical companies. The move was initially manual, although transformational, with the plan to automate using technology to continue the drive to increase efficiency and productivity, as well as facilitating the opportunity to offer even more services and increase the Company's sales footprint.

 

Scale-up

 

Integumen management set an objective to find an end-to-end technology solution, such that: (1) it would allow the Labskin team to set up tests and monitor, extract, manage and analyse data more efficiently; (2) it would allow clients to interact, order, provide feedback and collaborate securely with the Labskin team; and (3) it would be scalable allowing the creation of more services to more clients.

 

In early November 2018, management became aware of the work of Rinocloud and its vision of an end-to-end service where science data was managed - from the benchtop, to extracting value from team collaboration and smart analytics, through to delivering it as verified results to support research.  In practical terms, as it applied to the Labskin transformation, Rinocloud could monitor tests, store data from the tests, extract value from that data by allowing collaboration between Labskin and client teams, and by using machine learning to analyse patterns and anomalies, and to deliver the service in a secure infrastructure.

 

In the final quarter of 2018, a development collaboration agreement was put in place between Integumen and Rinocloud for technology services to further support the development of Labskin's transformation, and deliver:

 

·      Live automated monitoring of Labskin growth using bench top and mobile probes with real time data flowing to analytics;

·      Software as a service (SaaS) provided over a secure private cloud infrastructure;

·      Historical data from Labskin manual tests feeding analytics;

·      Published data feeding into the artificial intelligence ("AI") model;

·      Data ingestion from specialist equipment to further teach the AI model (to recognise odours generated by skin tests);

·      An integrated front end for client teams to order, monitor and give and get feedback on tests;

·      A work management system to automate the work flows of work relating to tests; and

·      A secure store, share and collaborate platform which curates all data from tests and gives clients verified and verifiable data to support test results.

 

Labskin AI

 

With a modern automated lab supported by the latest technologies, the transformational Labskin AI service provides test results, in real-time, to skincare, wound care, pharma, health care and personal care companies. It facilitates and enables the saving of time, reduces product development lifecycles and offers the opportunity to reduce costs in overall product development.

 

Following this critical collaboration and with traction in obtaining orders and sales, the Company approached Rinocloud with a view to acquiring the business.

 

Financials

 

Rinocloud's net asset value at 31 December 2018 was €584,580 in its unaudited, filed accounts for the financial year ended 31 December 2018. It posted turnover of €26,911 and posted profit before tax of €5,123 for this period.

 

Over the past two years, Rinocloud has developed a range of software services dedicated to data management - its security, storage, curation and analysis - that has generated interest from large blue-chip clients in Government, Financial Services, Healthcare and Scientific Research. Beta software deployments throughout 2017 have provided:

 

·      GDPR data management compliance for government;

·      Secure data collaboration between large financial services groups and their customers/distribution channels;

·      Secure data curation and collaboration for research and development groups; and

·      Big science data analysis using AI.

 

Rinocloud sites have grown into valuable reference sites that have generated €207,000 (£178,000) in revenue for the first quarter of 2019 with a momentum that points to stronger subsequent quarters. The Directors believe that existing client partnership discussions may result in the Rinocloud range of services being extended to their very large franchises, both locally and internationally, which would rapidly grow the Rinocloud footprint.

 

Over the last five years, Labskin has established itself as an approved supplier of products and services into a large portfolio of blue-chip skincare, pharma, personal care, wound care and health care clients across the US, EU and Asia. These existing sales, marketing and distribution channels provide the opportunity for cross selling complementary digital and physical testing services currently being rolled out as part of the Labskin AI eco-system. This incorporates the data management and analytic services already built into Rinocloud.

 

Disposal of Visible Youth Group and the Settlement

 

Visible Youth Limited

 

Visible Youth Limited is a non-trading holding company and is owned 100 per cent. by the Company. It does not produce consolidated accounts, and in the latest year for which accounts have been published, the financial year ended 31 December 2017, Visible Youth had no sales, posted no profit and its net asset value at 31 December 2017 was £1.00. It is the parent company of 100 per cent. owned subsidiaries Integumen, Inc. and Visible Youth Ireland.

 

Integumen, Inc.

 

Integumen, Inc., posted a loss before interest, taxation and amortisation of US$ 389,061 for the financial year ended 31 December 2017 on turnover of US$ nil. At 31 December 2017 it had net liabilities of US$ 4,846,962, primarily relating to amounts due to Integumen plc ($4,117,004). An impairment charge of £2.295 million was made against Integumen, Inc., in the Company's consolidated accounts for the financial year ended 31 December 2017.)

 

Visible Youth Ireland

 

This is a dormant company which has not traded since incorporation and had net assets of €2 at 31 December 2017.

 

Background to disposal of Visible Youth

 

The Company originally acquired the business and assets, which now principally constitute the Visible Youth Group, from Enhance under the Enhance APA in 2016. Donald Nicholson joined the Integumen board in April 2017 upon the Company's IPO. He was engaged, through his management company Mercuriali, as a consultant to the Visible Youth Group.

 

Following the IPO, it was intended that Visible Youth as a brand would launch six consumer-focused products, targeting the facial skincare segment (anti-ageing), pending the grant of additional patents.

 

In September 2017, Integumen signed a licence agreement for Botox Booster IP, as an addition to the Visible Youth product portfolio, for co-rights to various patents and know-how related to enhancing and extending the cosmetic benefits of botulinum toxin (commonly known as Botox) treatments as well as dermal fillers and rosacea. It was also announced that the aforementioned first six Visible Youth consumer products had completed formulation, stability and compatibility testing. At the time, it was expected that the Visible Youth consumer range would be launched in 2018.

 

In the Company's 2017 interim report, the continued investment in Visible Youth was re-iterated and that product launch was planned to occur in 2018. As a result of the Stoer acquisition in the final quarter of 2017, it was announced that the Stoer marketing, distribution and infrastructure channels would be used for the Visible Youth product range. Parts of the proceeds of the placing that the Group undertook in December 2017 were used to continue the commercialisation of Visible Youth.

 

In April 2018, the Company announced it was in talks to acquire Cellulac, and that pending further funding, development activities beyond existing products at Visible Youth were reduced, and emphasis was now targeted on maintaining the Company's patent and trademark portfolio. 

 

In the Company's final consolidated results for the financial year ended 31 December 2017, issued on 16 July 2018, an impairment provision of £2.295 million was made in relation to the carrying value of Visible Youth, which was written down to £0.5 million.

 

In the interim results for the six months ended 30 June 2018 ("2018 Interim Results"), issued on 29 August 2018, it was reported that, since the appointment of new management, a strategic review of the different businesses within the Group had been completed. As a result the Board sought to divest the Group of under-performing assets or those requiring significant funding, and an impairment provision of £0.5 million was made in the accounts in anticipation of this outcome.

 

On 18 December 2018, the Company announced the completion of the disposal of TSPro GmbH, in line with that strategy. This resulted in the elimination of £1.19 million of short and long-term liabilities from Integumen.

 

It was reported in the 2018 Interim Results that Visible Youth's sales and marketing efforts had failed to meet expectations, and that since the Company's IPO in April 2017, Visible Youth had not launched any products. Whilst the Board believed hyaluronic acid was in high demand, it also believed its exploitation required significant additional development expenditure. The decision was made to explore the divestment of Visible Youth with a number of potential buyers, who were understood to have an appetite for the intellectual property and the range of products that would be derived from further development. These potential buyers include Donald Nicholson who resigned from the Board at that time.

 

After two early stage discussions with US and European skin care producers, there was insufficient interest to pursue negotiations further. The options that remained were to wind down Visible Youth Group or consider the offer from Donald Nicholson. As this latter option eliminated future committed costs within current agreements within the Visible Youth Group until the end of their full term this was deemed to be the most beneficial outcome for the Company.

 

The Visible Youth business is currently carried in the Company's books at a value of £441,000.

 

Background to the legal dispute

 

It was announced on 19 September 2018 that the Company had received a formal demand for immediate payment of certain amounts due, and claimed to be due, to Donald Nicholson and Mercuriali (a company of which Mr Nicholson is a director, and which is a majority shareholder in Enhance), for services provided to the Company together with debts owed by Integumen, Inc. to third parties. At the time the Company reported:

 

"Whilst the Board acknowledges that certain of the claimed amounts are owed to Mr Nicholson and Mercurali, it notes that Mr Nicholson, on behalf of himself and Mercuriali, previously agreed that these amounts are not due to be paid before 9 July 2019.

 

In addition, the formal notice seeks payment of debts owed by Integumen, Inc., one of Integumen plc's subsidiaries, to third parties. The Company believe these demands for immediate payment are without merit, and it will strongly contest such claims if pursued."

 

Discussions have been ongoing with Mr Nicholson on behalf of Mercuriali, Enhance and various creditors of the business of the Visible Youth Group since that time.

 

The Company has now reached a series of legal settlements with these parties. These Settlement Agreements are summarised in paragraphs i to iii of Part II of this document.

 

The effect of all of these agreements is to dispose of the three companies in the Visible Youth Group to Enhance for £1.00, and to discharge the Company's obligations to all known existing and contracted liabilities associated with members of the Visible Youth Group. At the time at which the Company originally acquired the assets now comprising the Visible Youth Group, it guaranteed the due and punctual performance, observance and discharge by Integumen, Inc. of all of Integumen, Inc.'s obligations.

 

The accounting effect of the Settlement Agreements upon Completion is that Integumen will record a book loss on disposal of circa £430,000 ostensibly representing intangible assets which had a value of £441,000 in the Group management accounts to 31 December 2018.

 

Financial effect of the Disposal and the Settlements

 

As part of the Disposal & Settlement Agreement and the other Settlement Agreements, Integumen has agreed to pay off an aggregate of £569,397 of liabilities of the Visible Youth Group, comprised as to £238,473 to be settled in cash, and £330,924 to be satisfied by the issue of 23,637,429 Settlement Shares.

 

A summary breakdown of these amounts is set out below:

 

Name	Cash (£)	Value of Settlement Shares (£)	Total (£)
Enhance	£66,800	£118,147	£184,947
Mercuriali	£31,878	-	£31,878
Donald Nicholson	£8,000	£55,000	£63,000
Other creditors	£131,795	£157,777	£289,572
Total	£238,473	£330,924	£569,397

 

As a consequence of the Settlement, the Company will no longer be responsible for circa £10,000 of existing liabilities which had hitherto been guaranteed by the Company, and aggregate claims made of around £250,000 by these various creditors, notwithstanding the Company disputes certain of these claims.

 

In addition, as a consequence of the Settlement Agreements, the Group will remove around a further circa £245,000 of estimated future contractual liabilities. This reflects the committed costs within current agreements within the Visible Youth Group until the end of their full term.

 

Related Party Transaction

 

As Donald Nicholson was a director of the Company up until August 2018, he is deemed to be a related party under AIM Rule 13. Donald Nicholson is the major shareholder in Mercuriali (which is itself a major shareholder in Enhance) and also a director of Enhance. Enhance owns 29,488,144 shares in the Company (representing 6.19 per cent of the Existing Issued Share Capital). The disposal of the Visible Youth Group to Enhance as part of the Disposal & Settlement Agreement, and settlement of amounts due to Enhance, Mercuriali and Donald Nicholson (albeit at amounts which are less than their book value) is therefore a related party transaction under AIM Rule 13.

 

Having consulted with SPARK, the Company's nominated adviser, the Directors consider that the terms of the relevant Settlement Agreements are fair and reasonable insofar as Shareholders are concerned.

 

Placing and Subscription

 

The Company is proposing to raise circa £2,518,000 in aggregate (before expenses), by way of a Placing and Subscription of 179,918,788 new Ordinary Shares. This comprises a Firm Placing of 151,347,360 new Ordinary Shares (to raise £2.118 million) and a Conditional Placing of 10,714,286 new Ordinary Shares (to raise £0.15 million) and a Subscription of 17,857,142 new Ordinary Shares (to raise £0.25 million). The Placing Shares and Subscription Shares will be issued at the Issue Price. This price represents a discount of approximately 18.8 per cent. to the closing middle market price of 1.725 pence per Ordinary Share on 11 April 2019, being the business day prior to the announcement of the Placing and Subscription.

 

The Placing Shares and Subscription Shares will represent approximately 18.88 per cent. of the Enlarged Issued Share Capital immediately following Admission.

 

The Placing Shares and Subscription Shares will be issued free of all liens, charges and encumbrances and will, when issued and fully paid, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive dividends and other distributions declared, made or paid following Admission. The Placing and Subscription are not being underwritten.

 

The Company has not received any advance assurance from HMRC as regards whether the Placing Shares or Subscription Shares will be capable of being a "qualifying holding" for the purposes of investment by venture capital trusts ("VCTs") or whether placees or subscribers will be able to obtain Enterprise Investment Scheme ("EIS") reliefs in respect of the Placing Shares and Subscription Shares. However, the shares the subject of the Conditional Placing have been placed conditional upon the Company evidencing to the satisfaction of relevant placees that the Conditional Placing Shares will be capable of being a "qualifying holding" for the purposes of investment by VCTs and/or that relevant placees will be able to obtain EIS relief.

 

Neither the Company, the Directors nor any of the Company's advisers give any warranty, undertaking or other assurance that any tax reliefs will continue to be available and not withdrawn at a later date. The actual availability of qualifying status for VCT and EIS relief would be contingent upon certain conditions being met by both the Company and the relevant investors.

 

Shareholders and proposed investors must take their own professional advice in order that they may fully understand how the relief legislation may apply in their individual circumstances and rely on it.

 

Application will be made to the London Stock Exchange for the admission of the Placing Shares and Subscription Shares to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 2 May 2019 (or such later date, being not later than 8.00 a.m. on 9 May 2019, as the Company, Turner Pope and SPARK may agree) at which time it is also expected that the Placing Shares and Subscription Shares will be enabled for settlement in CREST.

 

In addition, placees in the Placing and Subscription will be issued with one warrant for every two Placing Shares or Subscription Shares subscribed. The Placing Warrants are exercisable at 2.0 pence per new Ordinary Share during the period from Admission until 2 May 2021. The Placing Warrants are freely transferable and will be issued in certificated format. It is anticipated that certificates for the Placing Warrants will be posted by 9 May 2019. No application will be made for the Placing Warrants to be admitted to trading on AIM.

 

Cornerstone investor

 

Helium Rising Stars Fund ("Helium"), which currently owns 43,762,295 Existing Ordinary Shares (representing 9.19 per cent. of the Existing Issued Share Capital), is a follow-on cornerstone investor in the Placing, investing a further £400,000 for 28,571,428 new Ordinary Shares. Following Admission, Helium will hold 72,333,723 Ordinary Shares, representing 7.59 per cent. of the Enlarged Issued Share Capital.

 

Placing Agreement

 

Turner Pope has entered into the Placing Agreement with the Company and SPARK under which Turner Pope has agreed to use its reasonable endeavours, as agent for the Company, to procure placees for the Placing Shares.

 

The Placing is conditional upon, inter alia:

 

·      the Resolutions being duly passed at the GM;

·      Admission becoming effective by no later than 8.00 a.m. on 2 May 2019 or such later time and/or date as the Company, Turner Pope and SPARK may agree, but in any event by no later than 8.00 a.m. on 9 May 2019;

·      the Placing Agreement having become unconditional in all respects and not having been terminated in accordance with its terms;

·      in the case of the Conditional Placing Shares only, the Company evidencing to the satisfaction of relevant placees that the Conditional Placing Shares will be capable of being a "qualifying holding" for the purposes of investment by VCTs; and

·      the receipt of the proceeds of the Subscription by the Company.

 

If any of the conditions are not satisfied, the Placing Shares will not be issued.

 

The Placing Agreement contains warranties from the Company in favour of Turner Pope and SPARK in relation to, inter alia, the accuracy of the information in this document and other matters relating to the Company and its business. In addition, the Company has agreed to indemnify Turner Pope and SPARK in relation to certain liabilities they may incur in respect of the Placing. Turner Pope and SPARK each have the right to terminate the Placing Agreement in certain circumstances prior to Admission, in particular, in the event of a material breach of the warranties.

 

In addition, under the terms of the Placing Agreement, the Broker Warrants will be issued to Turner Pope.  The Broker Warrants will be exercisable at the Placing Price at any time up to the date three years following Admission. No application is being made for the Broker Warrants to be admitted to trading on AIM.

 

Subscription

 

The Subscription Shares will be issued at the Issue Price, raising £250,000 for the Company. Subscribers have subscribed directly with the Company for these shares, which are issued on the same terms and conditions as the Placing Shares.

 

Venn Debt Conversion

 

Venn is owed £421,000 by the Company. This relates to liabilities that were assumed by the Company when it acquired Innovenn (UK) Limited from Venn at the time of the Company's IPO in April 2017. It has been agreed that under the terms of the Venn Debt Conversion Agreement this debt will be converted into 30,071,428 new Ordinary Shares at the Issue Price, conditional upon Admission.

 

Venn currently holds 42,244,672 Ordinary Shares, comprising 8.87 per cent. of the Existing Issued Share Capital, though it has been a substantial shareholder (as defined by the AIM Rules) in the previous 12 months meaning that it has held over 10 per cent. of the Company's issued share capital. Following Admission, Venn will hold 72,316,100 Ordinary Shares comprising 7.59 per cent. of the Enlarged Issued Share Capital.

 

Venn has agreed that any disposal of Ordinary Shares held by them for the two years following Admission will be effected through the Company's broker so as to ensure an orderly market in the Ordinary Shares.

 

As Tony Richardson, Integumen's Chairman, is the Chief Executive of Venn, he is not considered to be independent for the purposes of considering and negotiating the Venn Debt Conversion Agreement. Gerard Brandon, Camillus Glover and Ross Andrews are considered to be independent directors of the Company ("Independent Directors") for the purpose of considering the Venn Debt Conversion under Rule 13 of the AIM Rules.

 

Having consulted with SPARK, the Company's nominated adviser, the Independent Directors consider that the terms of Venn Debt Conversion Agreement are fair and reasonable insofar as Shareholders are concerned.

 

Loan Note Conversion

 

It was announced on 5 March 2019 that the Company had acquired specialised hi-tech laboratory equipment from Cellulac in return for issuing the Cellulac Loan Note. Under the terms of the instrument constituting the Cellulac Loan Note, Cellulac has the right, prior to 26 February 2021, to convert the Cellulac Loan Note into new Ordinary Shares at the time of the next corporate transaction by the Company that involves the issue of new Ordinary Shares in the Company at no less than 1.5 pence per Ordinary Share.

 

Cellulac has confirmed that it will exercise its subscription rights and convert this loan note into 26,666,666 new Ordinary Shares, conditional upon Admission.

 

Cellulac currently holds 11,538,461 Ordinary Shares, comprising 2.42 per cent. of the Existing Issued Share Capital. Following Admission, Cellulac will hold 38,205,127 Ordinary Shares comprising 4.01 per cent. of the Enlarged Issued Share Capital.

 

Lock-in arrangement

 

The Loan Note Conversion Shares will be subject to a lock-in on the same terms as the Rinocloud vendors.

 

Fee Shares

 

The Fee Shares will be issued at the Issue Price to a creditor as part settlement of amounts owing to it.

 

Settlement and dealings

 

Application will be made to the London Stock Exchange for the Placing Shares, the Subscription Shares, the Consideration Shares, the Settlement Shares, the Loan Note Conversion Shares, the Fee Shares and the Venn Debt Shares (totalling in aggregate 476,722,882 New Ordinary Shares) to be admitted to trading on AIM. It is expected that Admission will occur and that dealings will commence at 8.00 a.m. on 2 May 2019.

 

Placees and subscribers who elect to receive their Placing Shares or Subscription Shares in CREST will have their CREST account credited with their Placing Shares or Subscription Shares following Admission, which is expected to be on 2 May 2019.  For Placees and subscribers who elect to receive the Placing Shares or Subscription Shares in certificated form, definitive certificates in respect of the Placing Shares or Subscription Shares are expected to be sent to Shareholders by 9 May 2019.

 

The Placing Shares, the Subscription Shares, the Consideration Shares, the Settlement Shares, the Loan Note Conversion Shares, the Fee Shares and the Venn Debt Shares will be issued free of all liens, charges and encumbrances and will, when issued, rank pari passu in all respects with the Existing Ordinary Shares, including the right to receive dividends and other distributions declared, made or paid following Admission.

 

Use of proceeds

 

The Company plans to use the net proceeds of the Placing and Subscription as follows:

 

-       Sales and Marketing for Labskin/Rinocloud                                    £0.21 million

-       Settlement of historic liabilities associated with Visible Youth        £0.23 million

-       Legacy professional fees                                                                £0.23 million

-       General working capital purposes                                                  £1.64 million

             Total                                                                                                £2.31 million

 

General Meeting

 

A notice convening the General Meeting to be held at the offices of Jeffreys Henry LLP at Finsgate, 5-7 Cranwood Street, London EC1V 9EE at 12.00 noon on 30 April 2019 at which the Resolutions will be proposed, is set out at the end of this document.

 

Resolutions

 

A summary and brief explanation of the Resolutions to be proposed at the General Meeting is set out below. Please note that this is not the full text of the Resolutions and you should read this section in conjunction with the Resolutions contained in the Notice of General Meeting at the end of this document.

 

 

Resolution 1, which will be proposed as an ordinary resolution, is to authorise the Directors to: (a) allot the Placing Shares, the Subscription Shares, the Consideration Shares, the Settlement Shares, the Loan Note Conversion Shares, the Fee Shares and the Venn Debt Shares; (b) grant the Placing Warrants and the Broker Warrants; and (c) allot or grants rights to subscribe for a further 318,000,000 New Ordinary Shares up to an aggregate nominal value of £31,800.

 

Resolution 2, which will be proposed as a special resolution and which is subject to the passing of Resolution 1, dis-applies statutory pre-emption rights, provided that such authority shall be limited to: (a) the allotment of the Placing Shares, the Subscription Shares, the Consideration Shares, the Settlement Shares, the Loan Note Conversion Shares, the Fee Shares and the Venn Debt Shares; (b) the grant of the Placing Warrants and the Broker Warrants; and (c) the allotment or grant of rights to subscribe for a further 48,000,000 New Ordinary Shares up to an aggregate nominal value of £4,800.

 

Resolution 3, which will be proposed as an ordinary resolution and which is subject to the passing of Resolutions 1 and 2 and to completion of the Acquisition, proposes the appointment of Fionán Murray as a director of the Company.

 

The authorities contained in Resolutions 1 and 2 replace those granted to the Directors at the most recent Annual General Meeting.

 

Action to be taken

 

Whether or not you intend to be present in person at the General Meeting, you are strongly encouraged to complete, sign and return your Form of Proxy in accordance with the instructions printed thereon so as to be received, by post or, during normal business hours only, by hand, to Neville Registrars, Neville House, Steelpark Road, Halesowen B62 8HD, as soon as possible but in any event so as to arrive by not later than 12.00 noon on 26 April 2019 (or, in the case of an adjournment of the General Meeting, not later than 48 hours before the time fixed for the holding of the adjourned meeting.)

 

Appointing a proxy in accordance with the instructions set out above (and in the Form of Proxy) will enable your vote to be counted at the General Meeting in the event of your absence. The completion and return of a Form of Proxy will not preclude you from attending and voting in person at the General Meeting, or any adjournment thereof, should you wish to do so.

 

Recommendation

 

The Directors unanimously recommend that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as they intend to do in respect of their own beneficial holdings amounting, in aggregate, to 95,625,571 Ordinary Shares, representing approximately 20.07 per cent. of the Existing Issued Share Capital.

 

Yours faithfully

 

 

Tony Richardson

Chairman

DEFINITIONS

The following words and expressions shall have the following meanings in this document unless the context otherwise requires:

 

''Admission''	the admission to trading on AIM of the New Ordinary Shares in accordance with Rule 6 of the AIM Rules;
''AIM''	the AIM market operated by the London Stock Exchange;
''AIM Rules''	the rules for AIM companies as published by the London Stock Exchange from time to time;
"Acquisition"	the conditional acquisition of the entire issued share capital of Rinocloud under the terms of the Acquisition Agreements;
"Acquisition Agreements"	the conditional agreements dated 12 April 2019 in relation to the Acquisition (i) between the Company and Fionán Murray, Colin O'Sullivan, James O'Sullivan and Jon Carroll and (ii) between the Company and all the remaining shareholders of Rinocloud;
"Articles"	the Company's articles of association;
''Board'' or ''Directors''	the directors of the Company;
''Broker Warrants''	warrants issued to Turner Pope to subscribe for an aggregate of 8,142,857 new Ordinary Shares at an exercise price equal to the Issue Price per Ordinary Share at any time between Admission and 2 May 2022;
"Cellulac"	Cellulac plc, a company registered in England and Wales with registered number 08625818, or its subsidiary Cellulac Limited (as the context requires);
"Cellulac Loan Note"	the nil coupon, two year, convertible redeemable loan note issued by the Company to Cellulac Limited on 4 March 2019;
''certificated"/ "in certificated form"	a share or other security which is not in uncertificated form (that is, not in CREST);
"Company'' or ''Integumen"	Integumen plc, a company registered in England and Wales with registered number 10205396;
"Completion"	completion of the Acquisition Agreements and the Settlement Agreements, respectively;
"Conditional Placing"   "Consideration"	the conditional placing of 10,714,286 new Ordinary Shares;   the consideration for the Acquisition, comprising the Consideration Shares;
"Consideration Shares"	the 214,285,714 new Ordinary Shares to be issued as consideration for the Acquisition at the Issue Price;
''CREST''	the computerised settlement system to facilitate transfer of title to or interests in securities in uncertificated form operated by Euroclear UK & Ireland Limited;
"Debt Conversion"       "Directors"	the conversion of the £821,000 of debt into 56,738,094 new Ordinary Shares under the Venn Debt Conversion and the Loan Note Conversion;   the directors of the Company at the date of this document;
"Disposal"	the disposal of Visible Youth to Enhance under the terms of the Disposal & Settlement Agreement;
"Disposal & Settlement Agreement"	the agreement dated 12 April 2019 between (1) the Company, (2) Integumen, Inc. (3) Enhance, (4) Donald Nicholson, (5) Samuel Asculai and (6) Drasko Puseljic, for the Disposal and settlement of certain liabilities of the Visible Youth Group, details of which are set out in paragraph (i) of Part II of this document;
"Enhance"	Enhance Skin Products, Inc.;
"Enhance APA"	an asset purchase agreement between, amongst others, the Company, Integumen, Inc. and Enhance and dated 2 October 2016, pursuant to which Integumen, Inc. acquired substantially all of its assets and certain liabilities relating to the Visible Youth product;
''Enlarged Issued Share Capital''	the entire issued ordinary share capital of the Company immediately following Admission;
''Existing Issued Share Capital''	the entire existing issued ordinary share capital of the Company comprising the Existing Ordinary Shares;
''Existing Ordinary Shares''	the 476,450,802 Ordinary Shares in issue at the date of this document;
"Fee Shares"	the 2,142,857 new Ordinary Shares to be issued to a creditor as part settlement of amounts outstanding;
"Firm Placing"   ''Form of Proxy''	the firm placing of 151,347,360 new Ordinary Shares;   the form of proxy for use at the General Meeting which accompanies this document;
''General Meeting'' or "GM"	the general meeting of the Company, notice of which is set out at the end of this document, and any adjournment thereof;
"Group"	the Company, its subsidiaries and subsidiary undertakings;
"Integumen, Inc."	Integumen, Inc., a Delaware Corporation with registered number 6108396, which is a subsidiary of Visible Youth;
''Issue Price''	1.4 pence, being the issue price of the Placing Shares, the Subscription Shares, the Consideration Shares, the Fee Shares, the Settlement Shares and the Venn Debt Shares;
"Loan Note Conversion"	the exercise by Cellulac Limited of the subscription rights under the Cellulac Loan Note and the issue of the Loan Note Conversion Shares;
"Loan Note Conversion Shares"	the 26,666,666 new Ordinary Shares to be issued to Cellulac Limited following exercise of the subscription rights under the Cellulac Loan Note;
"London Stock Exchange''	London Stock Exchange plc;
"Mercuriali"	Mercuriali Limited, a company incorporated in England and Wales, with registration number 06345397;
"New Ordinary Shares"	together the Placing Shares, the Subscription Shares, the Consideration Shares, the Venn Debt Shares, the Settlement Shares, the Fee Shares and the Loan Note Conversion Shares;
''Notice of General Meeting''	the notice of the General Meeting, which is set out at the end of this document;
"Ordinary Share(s)"	ordinary share(s) of 0.01 pence each in the capital of the Company;
"Placing"	the placing of the Placing Shares under the terms of the Placing Agreement (comprising the Conditional Placing and the Firm Placing);
"Placing Agreement"	the agreement dated 12 April 2019 between (1) the Company, (2) Turner Pope and (3) SPARK;
''Placing Shares''	together the 162,061,646 new Ordinary Shares to be issued by the Company pursuant to the Conditional Placing and the Firm Placing;
''Placing Warrants''	warrants issued to subscribers in the Placing, the Subscription and the Vendor Placing to subscribe for an aggregate of 98,214,285 new Ordinary Shares at an exercise price of 2.0 pence per Ordinary Share at any time between Admission and 2 May 2021;
"Proposals"	the Placing, the Subscription, the Acquisition, the Venn Debt Conversion, the Loan Note Conversion, the appointment of the Proposed Director and the Settlement (including the Disposal);
"Proposed Director"	Fionán Murray;
''Registrars''	Neville Registrars Limited;
''Resolutions''	the resolutions to be proposed at the General Meeting, as set out in the Notice of General Meeting;
"Rinocloud"	Rinocloud Limited, a company registered in Ireland with registered number 581277;
"Rinocloud Lock-In Agreement"	the lock-in agreement dated 12 April 2019 between (1) the Company, (2) SPARK (3) Turner Pope and (4) certain shareholders of Rinocloud (being Fionán Murray, Eoin Murray, Helena Dominguez Morales, Enterprise Ireland; James O'Sullivan, Colin O'Sullivan, Jon Carroll, Munster Pensioneer Trustees Limited, Susan Murray, James Corcoran, Joseph Murray, Ron Immink and Shenzhen Intebridge Cambridge Technology Investment Fund LLP) (together "the Rinocloud Locked-In Persons");
"Settlement"	the settlement of the legal dispute with Enhance, Mercuriali, Donald Nicholson and other creditors of the business of the Visible Youth Group, under the terms of the Settlement Agreements (which includes the Disposal);
"Settlement Agreements"	the various settlement agreements which collectively constitute the Settlement, details of which are set out in paragraphs i to iii of Part II of this document;
"Settlement Shares"	the 23,637,429 new Ordinary Shares to be issued in aggregate under the Settlement Agreements;
"Shareholder(s)''	holder(s) of Ordinary Shares;
''SPARK"	SPARK Advisory Partners Limited, the Company's nominated adviser;
"Subscription"   "Subscription Shares"     "Turner Pope"	the subscription for the Subscription Shares by investors;   the 17,857,142 new Ordinary Shares to be issued by the Company pursuant to the Subscription;   Turner Pope Investments (TPI) Ltd, the Company's broker;
''UK'' or ''United Kingdom''	the United Kingdom of Great Britain and Northern Ireland;
''uncertificated'' / ''in	a share or security recorded in the Company's register of
uncertificated form"	members as being in uncertificated form, title to which may be transferred by means of CREST;
"Vendor Placing"	the placing by Turner Pope of 16,509,783 new Ordinary Shares on behalf of certain shareholders of Rinocloud;
''Venn"	Venn Life Sciences Limited, a company registered in Ireland with registered number 518691;
"Venn Debt"	the amount of £421,000 owed by the Company to Venn;
"Venn Debt Conversion"	the conversion of the Venn Debt into the Venn Debt Shares under the terms of the Venn Debt Conversion Agreement;
"Venn Debt Conversion Agreement"	the agreement dated 11 April 2019 between (1) the Company and (2) Venn to convert the Venn Debt into the Venn Debt Shares;
'Venn Debt Shares''	the 30,071,428 new Ordinary Shares to be issued in settlement of the Venn Debt;
"Visible Youth"	Visible Youth Limited, a company registered in England and Wales with registered number 06496564, a subsidiary of the Company;
"Visible Youth Group"	together Visible Youth, Visible Youth Ireland and Integumen, Inc.; and
"Visible Youth Ireland"	Visible Youth Ireland Limited, a company registered in Ireland with registered number 610921, and a subsidiary of Visible Youth."