Related Party Transaction

RNS Number : 6612T

Deepverge PLC

26 November 2021

 

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION AS STIPULATED UNDER THE UK VERSION OF THE MARKET ABUSE REGULATION NO 596/2014 WHICH IS PART OF ENGLISH LAW BY VIRTUE OF THE EUROPEAN (WITHDRAWAL) ACT 2018, AS AMENDED.  ON PUBLICATION OF THIS ANNOUNCEMENT VIA A REGULATORY INFORMATION SERVICE, THIS INFORMATION IS CONSIDERED TO BE IN THE PUBLIC DOMAIN  

26 November 2021

DeepVerge plc  ("DeepVerge" or "Company")

Related Party Transaction

DeepVerge announces that it is proposing to settle for cash, obligations to certain Directors relating to their salaries which are currently contracted to be settled in shares in the Company. The Directors concerned have agreed, in the best interests of the Company and shareholders, to forego significant potential gains on these shares in return for a cash sum, which is calculated based on a 25% uplift on the original value of the salary obligations. This situation has arisen following a significant rise in the Company's share price since these arrangements were made in 2018.

Ross Andrews, Chairman of DeepVerge, said: 

"DeepVerge has been through transformational change since the appointment of Gerry and Camillus in 2018.  Under their leadership, the Company has been streamlined to focus on developing a successful revenue-generating environmental and healthcare business, with revenues increasing year-on-year by more than 300%. 

On behalf of the Board, I would like to recognise the hard work of Gerry and Camillus and their commitment to the business whilst agreeing to receive shares in lieu of a salary in 2018 and 2019, at a time when the Company was cash constrained,  as the Company was turned around and has grown.  Furthermore, as a demonstration of their commitment, they have offered to receive a cash payment at a significant discount to settle the shares that they are owed.  The Company is in a stable position, both financially and operationally, and under the continued guidance of its executive team, the Board believes that DeepVerge has a strong future ahead."

Background

On 16 July 2018, when the intention to appoint Gerard Brandon and Camillus Glover to the Company's board as Chief Executive Officer and Chief Operations Officer respectively was notified by the Company, the notification included details of remuneration arrangements for Mr Brandon and Mr Glover such that for the first year of their appointment, and in order to preserve the Company's cash balances, their  salaries were to be settled by the issue of ordinary shares in the Company ("Ordinary Shares"). The number of new Ordinary Shares to be issued was to be determined on a quarterly basis and issued at the volume weighted average mid-market closing price ("VWAP") of Ordinary Shares for the previous 90 days. Mr Brandon and Mr Glover elected to receive shares in lieu of salary for the period from the date of their appointment as directors, 8 August 2018 until 30 June 2019, being amounts of £102,500 and £92,250 respectively.  

In aggregate, the number of shares due to be issued to Mr Brandon and Mr Glover under the above arrangements are as follows:

Name	Value of salary for which shares were elected to be taken	Number of Ordinary Shares due in settlement of these arrangements †	Average price of shares to be issued (based on relevant 90 day VWAP calculations) †
Gerard Brandon	£102,500	1,255,118	8.17 pence
Camillus Glover	£92,250	1,129,606	8.17 pence
Total	£194,750	2,384,724

† adjusted for the 10:1 share consolidation in September 2020.

None of the shares due to Messrs Brandon and Glover have yet been issued.

As the issue of shares in lieu of salary is treated by taxation authorities in the United Kingdom (for Mr Brandon) and Ireland (for Mr Glover) as remuneration, income tax and national insurance (or Irish equivalent) contributions for both employer and employee fall due at the date of payment of the remuneration, based upon its value at that date.

The Company's mid-market Ordinary Share price at close of business on  25 November 2021 (the date the Company's Independent directors met to consider this matter) was 27.0 pence, which is a significant premium to the implied price at which the shares would be issued as set out in the table above.

To issue the shares as above would have the following effects on DeepVerge:

-  Employers' National Insurance (or Irish equivalent) of £40,717 would be payable by the Company;

-  DeepVerge would also have to remit income tax and Employees National Insurance contributions to the taxation authorities (and be reimbursed by the Directors concerned);

-  2,384,724 Shares would be allotted, at an effective blended issue price of which has the effect of diluting existing shareholders' holdings by around 1.1%.

It is therefore proposed that instead of settling these amounts by the issue of shares as contracted (which have a market value of £643,875), the Directors concerned waive their entitlements to the shares, and instead are paid the salaries to which these relate in cash via DeepVerge's payroll, at a premium of 25% - ie a total of £243,438  (compared to the original entitlement of £194,750) as set out in the table below.

If DeepVerge were to have issued these shares as at 25 November   2021 the value of the remuneration would be as follows, which is compared to the proposed settlement.

Name	No of shares due in settlement of salary	Deemed value of remuneration at 25 November 2021*	Proposed settlement (being a 25% uplift on the original contracted amounts)
Gerard Brandon	1,255,118	£338,882	£128,125 in cash
Camillus Glover	1,129,606	£304,994	£115,313 in cash
Total	2,384,724	£643,875	£243,438 in cash

*this is the gross value of the shares, being the number of shares in the 2^nd column multiplied by 27.0 pence, being the closing mid-market price of Ordinary Shares on 25 November   2021.

Issuing the 2,384,724 shares to which the Directors are entitled would result in a charge to the profit and loss account of £684,592 of which £643,875 would be a non-cash item (notwithstanding DeepVerge would be required to remit tax and national insurance contributions to the taxation authorities, and be reimbursed for the tax and employees national insurance contributions by the Directors concerned) and £40,717 would be a cash item (being the Employers' national insurance contributions).

It is proposed that, rather than settle these amounts by the issue of shares, the Directors concerned waive their rights to the shares, which would have a gross value of £643,875  and instead receive cash of £243,438 (being £128,125 for Mr Brandon and £115,313 for Mr Glover.)

The "net" cash cost of the proposed settlement amounts in total to £218,115  more than if the original contracted arrangement prevailed, comprising cash paid to the Directors less the incremental Employers' national insurance contributions. The Company concluded a £10 million fundraising in June 2021 and is able to meet the extra cash required to effect this settlement from its current resources. 

Related party transactions

Under the AIM Rules for Companies ("AIM Rules"), directors of the Company, Gerard Brandon and Camillus Glover are each a related party of the Company, and the intended amendment to the terms of the settlement of the deferred remuneration is treated as a related party transaction.

Under the AIM Rules, where a company enters into a related party transaction, the independent directors of that company are required, after consulting with the company's nominated adviser, to state whether, in their opinion, the transaction is fair and reasonable in so far as its shareholders are concerned.

The Independent Directors, being Ross Andrews, Dr Nigel Burton and Fionan Murray, have considered the terms of the settlement and note the following:

1)  In June 2021 the Company raised £10 milion in new equity and has the wherewithal to fund the £258,832 (including employer taxes) cash cost of this arrangement

2)  The incremental cash cost of paying these salaries now is significantly less than the tax and national insurance  that would be payable if the shares were issued

3)  The settlement effectively amounts to DeepVerge buying back 2,384,724 shares at a blended price of 10.85p per share, which is significantly less than the current share price, and as such saves a dilution to existing shareholders of around 1.1%.

4)  The Directors concerned are foregoing (gross) gains on the shares to which they would have been entitled of £449,125.

Having consulted with SPARK, the Company's nominated adviser, the Independent Directors of the Company believe that the terms of the settlement are fair and reasonable in so far as the Company's shareholders ("Shareholders") are concerned.

DeepVerge plc	Ross Andrews, Chairman	[phone]
SPARK Advisory Partners Limited (Nominated Advisor)	Neil Baldwin / Andrew Emmott	[phone]
Turner Pope Investments (TPI) Limited (Broker)	Andy Thacker / James Pope	[phone]

 

END

 

 

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