Rex Bionics PLC Restructuring and New Investment (9776D)

TIDMRXB

RNS Number : 9776D

Rex Bionics PLC

03 May 2017

Rex Bionics Plc

("Rex Bionics" or the "Company")

   --    Restructuring and New Investment of GBP4.4 million 
   --    Collaborative Development Agreement for next generation REX 

3(rd) May 2017: Rex Bionics Plc (AIM: RXB), the pioneer of the REX(TM) Robot technology that enhances the mobility of wheelchair users, today announces that Rex Bionics Group ("Rex Group") companies have entered into various agreements, the combination of which will result in a major restructuring of the Rex Group (the "Proposed Transaction"), as indicated in the outline plan described in the Company's announcement of 13(th) March 2017.

These agreements are inter-conditional and are subject to approval by shareholders of the Company. Their effect would be that on completion of the Proposed Transaction ("Completion"), the Company would have a 36% shareholding in an Australian company that will own all the technology and assets that support the REX robotic mobility aid and can access funding to promote technological innovation in Australia. That company will have funding for, and will progress, the next phase of development of the REX technology in collaboration with McLaren Applied Technologies Ltd, the applied technologies division of the McLaren group of companies, and will be responsible for its subsequent commercialisation.

A shareholders' meeting (the "General Meeting") of the Company will be held on 22(nd) May 2017 to approve the resolution required to give effect to the Proposed Transaction. The Board recommends that shareholders vote in favour of the resolution, as all the Directors intend to do in respect of their own shareholdings, amounting in aggregate to 995,028 shares, representing 3.9% of the current issued share capital.

If shareholders do not approve the Proposed Transaction at the General Meeting, the Board considers that the Company would become unable to pay its debts as they fall due and will be forced to cease operating and/or enter into an insolvency procedure with immediate effect, in which case, shareholders would lose their entire equity investment.

Additional information relating to the shareholders' meeting will be contained in a circular to shareholders (the "Circular") which is expected to be posted tomorrow, 4(th) May 2017.

Summary of the Transaction

The principal agreements (the "Agreements") involved in the Proposed Transaction and their implications are described below. Further detail on the Agreements can be found in the Appendix to this announcement and in the Circular:

-- Asset Transfer Agreement between the Company and its wholly-owned Australian subsidiary Rex Bionics Pty Ltd ("Rex Pty"):

o This agreement provides for the transfer by the Company of essentially all of the Rex business and assets (but not cash) to Rex Pty as well as ownership of the entire issued share capital of Company's two other wholly-owned subsidiaries: Rex Bionics Ltd (New Zealand) and Rex Bionics Inc (United States) for a consideration of shares in Rex Pty.

o All intercompany debts will be waived or repaid on Completion.

-- Subscription Agreement (the "Subscription Agreement") between the Company, Rex Pty and funds ("the BML Funds") managed by BioScience Managers Pty Ltd ("BML"), a fund management company based in Melbourne, Australia:

o Under the terms of this agreement, the BML Funds will together make an initial investment in Rex Pty of AUD7.5 million (GBP4.4 million) and have also committed to make a further investment of AUD2.5 million (GBP1.5 million) at the same price per share (the "Second Investment"), subject to the achievement of specified performance milestones.

o At the time of any Second Investment by the BML Funds, the Company will have the right to make or procure an investment in Rex Pty up to its pro rata entitlement on the same terms as the BML Funds.

o Immediately following the initial investment, the Company will, on a fully undiluted basis, own 36% of the enlarged issued share capital of Rex Pty and the BML Funds will jointly directly own 64%.

o At the price per share paid by the BML Funds, the Company's holding in Rex Pty would be valued at approximately 10p per Company share, representing an 82% premium to the closing mid-market price of the Company shares on 2(nd) May 2017.

   --     Shareholders Deed between the Company, Rex Pty and the BML Funds: 

o This deed regulates the arrangements following Completion for the operation of Rex Pty and includes the right for the Company to appoint a director of Rex Pty.

-- Collaborative Development Agreement between Rex Pty and McLaren Applied Technologies Ltd, based in Woking, UK:

o This agreement is focused on the next phase of the design and development of the REX product whilst at the same time seeking to achieve a significant reduction in the manufacturing cost and improvements in the product's aesthetics and ergonomics. The joint development programme is expected to take approximately two years to bring the upgraded REX device to the point of transfer to manufacturing.

o Further funding is likely to be required to commercialise the new product, which could result in further substantial dilution of the Company's stake in Rex Pty. Were the Company unable to invest alongside the Second Investment, its interest in Rex Pty, on a fully undiluted basis, would reduce to 29.7%.

o Rex Pty will pay for McLaren's services, expertise and accessing its knowhow and other intellectual property through a combination of cash, funded through BML's equity investment in Rex Pty, the issue of certain warrants over shares in Rex Pty (the "McLaren Warrants"), and royalties payable at a low-to-mid single digit percentage level of future sales (with minimum royalty payments coming into effect from the second anniversary following the launch of the new product).

o Were McLaren to fully exercise the McLaren Warrants, this would decrease the Company's interest in Rex Pty to 35.3% and if the Company were unable to invest alongside the Second Investment, the Company's interest in Rex Pty would be diluted to 29.2%.

Effect of the Proposed Transaction on the Company

Fundamental Change of Business under AIM Rule 15

The Proposed Transaction constitutes a disposal resulting in a fundamental change of business under the AIM Rules for Companies and is, therefore, subject to the approval of the resolution by Shareholders at the General Meeting.

As the Company, following Completion, will not have other business streams apart from its minority investment in Rex Pty, with the effect that it will cease to own or control substantially all of its trading business and assets, the Company will be deemed to become an AIM Rule 15 cash shell under the AIM Rules.

Related Party Transaction

The investments by the BML Funds represent a related party transaction pursuant to Rule 13 of the AIM Rules, as BML is also manager of One Funds Management as Trustee for Asia Pacific Healthcare Fund II, an existing substantial shareholder in the Company. The Independent Directors (excluding Jeremy Curnock Cook who is not considered independent given his relationship as Managing Director of BML) having consulted with the Company's nominated adviser, Stifel Nicolaus Europe Limited ("Stifel"), consider that the terms of the BML Funds' investment to be fair and reasonable insofar as the Company's shareholders are concerned.

Board structure and corporate governance

Following Completion, responsibility for the strategic direction and day to day management of the Rex business will be assumed by the board and management of Rex Pty, although the Company will continue to provide strategic input through its representative on the Rex Pty board.

As a result of the Proposed Transaction, the Company will no longer have the scale of activities to justify its current organisational structure. The Board therefore intends to initiate an accelerated evaluation of structural options for the Company, including whether to continue trading of its shares on AIM, that would enable it to reduce its costs while nurturing shareholders' investment in the REX technology. As an AIM Rule 15 cash shell, the Company will therefore have six months to make an acquisition which represents a reverse takeover or seek the cancellation of its admission to trading on AIM.

It is intended that substantial reductions will be made to the Board. Crispin Simon, Chief Executive Officer, will resign from his role as Chief Executive immediately on Completion, but will serve as a non-executive director for a short transitional period. All of the existing Non-Executive Directors with the exception of David Macfarlane, Non-Executive Chairman, will resign immediately on Completion. Mr Macfarlane has agreed to continue in his current role, and will appoint at least one additional director following Completion.

Financial position of the Company post-Completion

Under the Subscription Agreement, and in addition to the potential of the Second Investment, the BML Funds have committed to providing ongoing base cost funding to the Company, through its investment in Rex Pty, with the quantum of such funds planned to allow the Company to continue in operation as a going concern for a period of three years following Completion. The amount of this funding expected to be received by the Company on Completion is approximately AUD721,000 (approximately GBP419,000) (the "Rex Pty Payments"). The terms of Rex Pty Payments include certain customary restrictions on the use of such funds.

In consideration of the funding described above, the Company, Rex Pty and BML have agreed a three-year period (the "Standstill Period") in which, subject to certain permitted transfers, the Company will be unable to distribute its shares in Rex Pty.

The Board believes that, taking into account the cash reserves available to the Company at Completion and the Rex Pty Payments, the Company has sufficient cash resources to meet the obligations and liabilities not assumed by Rex Pty at Completion (which include, but are not limited to, professional advisers' fees, fees payable to AIM, past and future tax liability, liabilities relating to the REX business but which accrued before Completion).

Trading Update

Further to the Interim Results Announcement and the March 2017 Announcement, the Company has made further good progress with its clinical trial programme; and product development (which includes the project with the US Army) and commercial activities have continued, albeit on a low investment basis.

Further details can be found in the Circular.

Waiver of payments to Directors

In the circumstances, the Non-Executive Directors, who are, in aggregate, owed a total of approximately GBP250,000 in salaries and director's fees, have agreed to waive repayment of these monies owed to them.

Crispin Simon, Chief Executive Officer, is owed a total of approximately GBP75,000 by way of unpaid salary and bonuses. In recognition of the work undertaken by him in finalising the Proposed Transaction, the Board has agreed that he will not waive such arrears, but he has agreed that these monies will only become repayable, if ever, without using any of the Rex Pty Payments provided by Rex Pty to meet the Company's ongoing expenses, when the Company is in a financial position to repay them (acting properly and fairly in relation to all its creditors). If ever the repayment of these monies would make any liquidation of the Company insolvent (or more so) Crispin would waive the repayment. Further, if the Company were restructured the Company has agreed to procure the transfer of this arrangement to its successor.

Nominated Adviser

The Company's nominated adviser, Stifel, has notified the Company of its intention to resign on 26(th) May 2017. In the event that no alternative nominated adviser has been appointed before that time, or other alternative arrangement had been made, the Company's ordinary shares will therefore then be suspended with no certainty that trading would resume at any time. If no new nominated adviser is appointed within one month of Stifel's resignation, the Company's admission to trading on AIM will be cancelled.

David Macfarlane, Chairman, commented "We are pleased to have signed these agreements which will enable the continued development of the REX technology. Rex has made a lot of progress in respect of product quality, clinical data and user satisfaction across a range of neurological conditions, and I warmly thank our shareholders, who have made this possible. I would also like to take this opportunity to thank our nominated adviser, Stifel, for its unstinting support over the past three years."

Crispin Simon, Chief Executive, commented "We were disappointed not to have been able to raise funds at the PLC level, so I am delighted that the alternative options we have been pursuing have borne fruit. The agreements we are announcing today will enable the continued development of the REX technology, ensure that shareholders retain an interest in the underlying assets, and allow Rex to continue to work towards its vision - that every day, thousands of people get relief with REX, from the pain, discomfort and inconvenience of severe neurological conditions."

APPIX: FURTHER DETAILS ON THE AGREEMENTS

-- Asset Transfer Agreement between the Company and its wholly-owned Australian subsidiary Rex Bionics Pty Ltd ("Rex Pty"): This agreement provides for the transfer by the Company of essentially all of the Rex business and assets (but not cash) to Rex Pty for a consideration of 2,551,286 shares in Rex Pty, bringing the Company's total shareholding in Rex Pty to 2,551,386 shares. The transfer will include ownership of the entire issued share capital of the Company's two other wholly-owned subsidiaries: Rex Bionics Ltd (New Zealand), which owns the majority of the Group's tangible and intangible assets, and Rex Bionics Inc (United States). All intercompany debts will be waived or repaid on Completion.

-- Subscription Agreement between the Company, Rex Pty and funds managed by BioScience Managers Pty Ltd, a fund management company based in Melbourne Australia: Under the terms of this agreement, the BML Funds will together make an initial investment in Rex Pty of AUD7.5 million (GBP4.4 million) in aggregate to acquire 4,535,797 shares, at a price per share of approximately AUD1.65. The BML Funds have also committed to make a further investment of AUD2.5 million (GBP1.5 million) at the same price per share (the "Second Investment"), subject to the achievement of specified performance milestones. At the time of the Second Investment by the BML Funds, the Company will have the right to make or procure an investment in Rex Pty up to its pro rata entitlement on the same terms as the BML Funds.

Immediately following the initial investment, the enlarged issued share capital of Rex Pty will amount to 7,087,183 shares, equating to an equity value of AUD11.69 million (GBP6.80 million) at the price per share paid by BML Funds. The Company will then, on a fully undiluted basis, own 36% of the enlarged issued share capital and the BML Funds will jointly directly own 64%. At the price per share paid by the BML Funds, the Company's holding in Rex Pty would be valued at approximately AUD4.21 million (GBP2.45 million), equivalent to approximately 10p per the Company share, representing an 82% premium to the closing mid-market price of the Company shares on 2(nd) May 2017.

The BML Funds have a mission to promote technological innovation in Australia, specifically including healthcare. As a result, the Company expects there to be significant investment in staff, facilities and development programmes in Australia. In other respects, it expects that the new Rex Pty management team will broadly follow the strategic approach to developing and commercialising the REX technology that has been pursued in recent times, notably the investment in clinical data generation and the development of Robot-Assisted Physiotherapy techniques and protocols, as well as a continued commercial focus on the US and Chinese markets.

-- Shareholders Deed between the Company, Rex Pty and the BML Funds: This deed regulates the arrangements following Completion for the operation of Rex Pty and includes the right for the Company to appoint a director of Rex Pty as well as standard pre-emption clauses.

-- Collaborative Development Agreement between Rex Pty and McLaren Applied Technologies Ltd, based in Woking, UK: This agreement is focused on the next phase of the design and development of the REX product that builds on the clinical and competitive advantages of the existing REX device whilst at the same time seeking to achieve a significant reduction in manufacturing cost and improvements in the product's aesthetics and ergonomics.

The joint development programme is planned to take approximately two years to bring the upgraded REX device to the point of transfer to manufacturing. Further funding is likely to be required to commercialise the new product, which could result in further substantial dilution of the Company's stake in Rex Pty. Were the Company unable to invest alongside the Second Investment, its interest in Rex Pty would reduce to 29.7%. If McLaren had fully exercised the warrants granted to it under this agreement (the "McLaren Warrants") by the time of the Second Investment, and if the Company were unable to invest alongside the Second Investment, the Company's interest in Rex Pty would be diluted to 29.2%. To the extent that any further funds are required to support completion of the development programme, while the Company would have some pre-emption protections while it holds more than 15% in Rex Pty, its interests in Rex Pty could be further diluted. Rex Pty will pay for McLaren's services expertise and accessing its knowhow and other intellectual property through a combination of cash, funded through BML's equity investment in Rex Pty, the McLaren Warrants (which, if fully exercised, before the Second Investment or if at the time of the Second Investment the Company were able to invest alongside the BML Funds at its pro rata entitlement, would decrease the Company's interest in Rex Pty to 35.3%), and royalties payable at a low-to-mid single digit percentage level of future sales (with minimum royalty payments coming into effect from the second anniversary following the launch of the new product).

Inside Information

This announcement contains inside information. The person responsible for arranging for the release of this announcement on behalf of the Company is Peter Worrall.

A copy of this announcement has been posted on the Company's website at www.rexbionics.com/.

For further information, please contact:

Rex Bionics Plc

Crispin Simon, Chief Executive Officer

[phone]

Stifel Nicolaus Europe Limited (NOMAD and Broker)

Jonathan Senior / Stewart Wallace / Ben Maddison

[phone]

Consilium Strategic Communications

Mary-Jane Elliott / Chris Welsh

[e-mail]

[phone]

About Rex Bionics Plc

Rex Bionics is the pioneer of the "REX" that provides robotic standing, walking and exercise support for wheelchair users; and was founded by two British engineers with first-hand experience of the needs of wheelchair users. REX is used by people who have suffered a spinal cord injury, stroke or other traumatic brain injury; and people with multiple sclerosis, muscular dystrophy and cerebral palsy.

We are working with physiotherapists to develop the concept and practice of Robot-Assisted Physiotherapy (RAP); and also offer REX P, for use in the home, enabling customers to walk and stand with their hands free - providing more work and recreation options.

Wheelchair users are at risk of developing numerous medical complications from extended periods of sitting. By enabling them to spend more time standing, walking and exercising, REX may offer significant health benefits, including improved sleep and maintenance of joint range, and a reduction in spasm, pain, common abdominal problems and prescription drug use.

Our commitment to engineering excellence is complemented by a commitment to clinical science and the RAPPER II clinical trial results show high levels of practicality, safety and user enthusiasm.

Our Vision is that every day, around the world, thousands of people get relief with REX, from the harm - the pain, discomfort and inconvenience - of neurological accidents and illnesses.

Rex Bionics was admitted to trading on the London Stock Exchange's AIM in 2014. REX is not registered for At-Home use in the United States of America.

Enquiries to ([e-mail])

This information is provided by RNS

The company news service from the London Stock Exchange

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May 03, 2017 02:01 ET (06:01 GMT)