REG - RegTech Open Project - Update and Amendment to Shareholder Loan Agreement

REGTECH OPEN PROJECTAnnouncement

16/05/2024 07:00

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RNS Number : 6298O  RegTech Open Project PLC  16 May 2024

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF ARTICLE 7 OF
REGULATION 2014/596/EU, WHICH IS PART OF DOMESTIC LAW OF THE UNITED KINGDOM OF
GREAT BRITAIN AND NORTHERN IRELAND ("UK") PURSUANT TO THE MARKET ABUSE
(AMENDMENT) (EU EXIT) REGULATIONS (SI 2019/310) ("UK MAR"). UPON THE
PUBLICATION OF THIS ANNOUNCEMENT, THIS INSIDE INFORMATION (AS DEFINED IN UK
MAR) IS NOW CONSIDERED TO BE IN THE PUBLIC DOMAIN.

 

16 May 2024

 

 

RegTech Open Project plc

 
("RTOP" or the "Company" and, together with its subsidiaries and subsidiary
undertakings from time to time, as the context requires, the "Group")

 

General Update and Amendment to the Shareholder Loan Agreement

 

 

1.   Strategy update

·      As announced on 4 March 2024, RTOP has embarked on the following
four key strategic initiatives to drive revenue growth and accelerate growth
and profitability over the next 5 years (subject to growth funding being
available when applicable):

1.   Capture significant new sales opportunities driven by DORA operational
resilience regulation;

2.   Launch an additional scalable business line in InsurTech aimed at
corporate customers;

3.   Convert legacy product clients to subscription-based products;

4.   Monetise non-core assets.

 

·     Since the publication of its interim report on 28 March 2024, the
Company has made progress in all four of the key strategic initiatives set out
above, in readiness to execute at full speed when the planned growth funding,
where required, is in place. In particular, the Company:

o    has identified and begun the recruitment process for senior key hires
to deliver increased sales across our target geographies;

o    has technical and commercial proposals in place with an international,
multi-class Managing General Agent for piloting the InsurTech solution, with
our technical evaluation concluding that our current products constitute a
good basis for fulfilling this solution;

o    has defined its revised operational resilience subscription service
and is creating a customer communications plan with the intention to start
migrating the first customers from legacy products to subscription-based
products in the second half of the year;

o    has reviewed and revised its go-to-market strategy in China, including
potentially extending the existing GRC (governance-risk-compliance) offering
to cater for the local market needs;

o    is in the final stage of negotiations with a leading Italian provider
of ICT technology and services to banking and financial services, as a
value-added reseller for our core and selected non-core products.

 

2.   Funding update

At its admission to listing in August 2023, the Company had in place an
unsecured working capital loan agreement, made between the Company and RegTech
Open Project S.p.A. (a corporate entity ultimately beneficially wholly-owned
by Alessandro Zamboni) ("RegTech Italy") (the "Shareholder Loan Agreement"
 or the "SLA")"  under which RegTech Italy would provide a facility of up to
£8,000,000 to the Company (the "Loan"), drawable at the Company's request, to
cover the Group's total working capital requirements comprising of the
following tranches:

(i) up to £2,000,000 in cash to be drawn by 1 September 2023;

(ii) up to £500,000 in cash to be drawn by 30 September 2023 (which, together
with (i) above, is "Cash component A");

(iii) during the period commencing on 25 August 2023 and ending on 31 March
2024, up to £2,000,000, which may, at the election of the Company, be set-off
on a £-for-£ basis against certain payables of the Company (where such
payables shall be transferred to RegTech Italy to be settled) ("Payables
component");

(iv) save to the extent that the Company receives unrestricted cash amounts
from the exercise of any outstanding Warrants and/or alternative equity, debt
or hybrid financing and such unrestricted cash amounts are in the opinion of
the Board of Directors from time to time (the "Board") sufficient to enable
the Company to meet the Group's working capital requirements, during the
period commencing on 1 October 2023 and ending on 31 December 2024, up to
£3,500,000 in cash which may be drawn by the Company by giving RegTech Italy
no less than 20 Business Days written notice and subject to maximum monthly
drawings of £500,000 (until fully drawn) ("Cash component B").

On 6 December 2023 the Company announced that it had entered into an amendment
to the SLA (the "First SLA Deed of Amendment"), whereby the Company and
RegTech Italy had agreed to:

 

§    increase the maximum amount of payables that may be set-off on a
£-for-£ basis from "up to £2,000,000" to "up to £3,600,000", thereby
increasing the maximum amount of the loan made available by RegTech Italy to
the Company by way of the SLA from "up to £8,000,000" to "up to £9,600,000";
and

 

§     extend the period during which such set-off may be made from a
long-stop date "ending on 31 March 2024" to "ending on 31 December 2024".

 

The SLA provides that RegTech Italy is liable to pay a Late Drawdown Fee (the
"Late Drawdown Fee") to the Company in the event that RegTech Italy fails to
transfer or procure the transfer of any cash amounts of the Loan drawn by the
date specified in the SLA. The Late Drawdown Fee is calculated at a
compounding rate of 15% per annum of the relevant unfunded amounts of the Loan
under the relevant drawdown request (the "Drawdown Request") which shall
accrue from day to day on the basis of the actual number of days elapsed
between the date for the drawdown of the relevant amount of the Loan in the
relevant Drawdown Request and the date on which the Lender actually transfer
or procures the transfer of the full amount of the Loan, calculated on the
basis of a year of 360 days.

 

The table below summarises the current performance of the SLA, detailing both
cash and payables components and the corresponding accrued interest
payable/receivable to date.

 

 SLA components                                                              Original amount envisaged in the SLA disclosed in the Prospectus in £   Maximum amount envisaged under the SLA in £   Already drawn-down / assigned in £   Funded / assigned

                                                                                                                                                                                                                                        in £
 Cash component A                                                            2,500,000                                                               2,500,000                                     2,500,000                            1,727,146

 basic working capital

 SLA tranches (i) and (ii)
 Cash component B                                                            3,500,000                                                               3,500,000                                     3,000,000                            -

 growth capital

 SLA tranche (iv)
 Total cash component                                                        6,000,000                                                               6,000,000                                     5,500,000                            1,727,146

 SLA tranches (i), (ii) and (iv)
 Payables component((1))                                                     2,000,000                                                               3,600,000                                     831,497                              831,497

 SLA tranche (iii)
 Total cash and payables principal amounts                                   8,000,000                                                               9,600,000                                     6,331,497                            2,558,643
 Interest payable on cash component and payables component                                                                                                                                                                              81,019
 Interest receivable on outstanding cash amounts drawn but not yet received                                                                                                                                                             (269,857)
 Total loan liability (including interest payable and receivable)                                                                                                                                                                       2,369,805

 

Note: (1) An additional £603k of assignable payables is currently being
finalised subject to receiving confirmatory documentation and is not included
in the table above

 

Reasons for delays

The Directors have been told by Mr Zamboni that (i) RegTech Italy's ability to
advance monies to the Company under the SLA was dependent on RegTech Italy
receiving cash in return for selling shares in the Company via share purchase
agreements (the "SPAs"); (ii) under the SPAs, RegTech Italy had relied on
receiving c.£17m in cash from 12 independent third parties (the "Purchasers")
to enable it to comply with its obligations to the Company under the SLA;
(iii) the Purchasers subsequently failed to honour their obligations to
RegTech Italy under the SPAs; and (iv) as a result, RegTech Italy was unable
to fulfil its obligations to the Company under the SLA in accordance with the
payment schedules; see the Company's announcement of 29 September 2023 and
subsequent announcements.

 

Actions taken by RegTech Italy to continue to fulfil the SLA

Following the Purchasers' failure to honour their obligations to RegTech Italy
under the SPAs, RegTech Italy and its parent The AvantGarde Group S.p.A. (a
corporate entity ultimately beneficially wholly-owned by Alessandro Zamboni)
("TAG") took a number of steps: (i) RegTech Italy facilitated the sale by the
Purchasers of shares in the Company to third parties, with the cash proceeds
of those share sales being used by RegTech Italy to perform in part its
obligations under the SLA; (ii) TAG monetised some of the listed bonds in its
investment portfolio and entered into asset backed financing arrangements to
generate cash for RegTech Italy to lend to the Company under the SLA; and
(iii) RegTech Italy sought to negotiate a settlement with the Purchasers to
generate further cash proceeds that can be used to honour its obligations to
the Company under the SLA.

Subsequently, the Directors have been told by Mr Zamboni that TAG and RegTech
Italy agreed in principle a negotiated settlement with the Purchasers and
started the multi-phase execution process for such settlement on 4 April 2024.
Accordingly, RegTech Italy and Mr Zamboni represented to the Company that
phase 1 of the settlement process would result in RegTech Italy receiving and
advancing to the Company US$1.5 million by 14 June 2024 and that in phase 2 of
the settlement process RegTech Italy would advance a further US$1.0m to the
Company under the SLA during the summer of 2024. Both phase 1 and phase 2
payments to TAG/RegTech Italy are subject to final approval and execution of
completion documentation and activities.

 

Actions taken by the Company to raise alternative capital

The Board has considered a number of capital markets alternatives for raising
capital including through equity-linked instruments.  However, the Company
has not found counterparties willing to contract on terms acceptable to the
Company.

Nonetheless, the Board remains open to evaluating all possible options for
raising capital including a potential placing. Accordingly, the Company has
updated its strategy and investment case as outlined above and has been
actively seeking to engage with new fundamental investors. In this context,
the Company retains the option to transfer 2,250,000 warrants which it had
originally granted to RegTech Italy as a commitment fee in relation to the SLA
and may use this option to raise capital.

 

3.   Cash flow and working capital requirements

 

The Board continues to review and monitor the cashflow and working capital
requirements of the Group on a prudent basis and acknowledge the importance to
the Company of receiving funds under the SLA.

The Board continues to explore alternative financing options for RTOP to
mitigate the potential impact on the Group's working capital position that may
arise from further delays in receipt of the amount of funding drawn and
outstanding under the SLA.

The Board is continuing to work on the mitigation of risks relating to delays
in the receipt of funds drawn and outstanding under the SLA.

In addition to funding via the SLA and exploring alternative funding
arrangements as noted above, the Directors are managing the business in a way
designed to mitigate short-term working capital challenges which includes:

·      Driving cash generation through new business and uplifts to
existing customers. This includes:

 

·      implementation of price increases of c.10% to existing clients as
renewals fell due;

 

·      engagement with all existing customers to discuss the Company's
complete product and service offering with the aim of driving additional
incremental recurring and non-recurring sales;

 

·      proactively targeting new leads/opportunities through network,
outreach and promotional activities which includes recent work with the
Business Continuity Institute ("BCI") and existing partners such as
Everbridge.

 

·      Reducing the average monthly fixed cost base of the Company by
c.20% and implementing cash conservation and cost reduction measures
including:

 

·      implementation of payment plans with a number of suppliers aimed
at addressing historical debts;

 

·      aligning the timing of hiring replacement positions in line with
receipt of secured funding;

 

·      the deferment of a percentage of all Directors' salaries;

 

·      prudent management of all expenditure by the Directors.

 

4.  Amendment of the SLA dates

Further to the above noted delays of receipts of funding from RegTech Italy
under the SLA and representations from RegTech Italy in respect of anticipated
payments under the SLA resulting from the negotiated settlement between
TAG/Regtech Italy and the Purchasers, the Company has today entered into a
further amendment to the SLA with RegTech Italy (the "Second SLA Deed of
Amendment"), whereby the Company and RegTech Italy have agreed to:

§     extend the repayment due date for the principal amount plus
remaining accrued interest under the SLA from 31 December 2026 to 31 December
2027. Furthermore, each of the due dates for payment of accrued unpaid
interest have been extended by one year with the first of these repayment
dates which had been 1 January 2025 now being 1 January 2026; and

 

§     allow for the off-setting of interest payments as between RegTech
Italy and the Company under the SLA in relation to any Voluntary Prepayments
made by the Company.

 

The entry by the Company and RegTech Italy into the Second SLA Deed of
Amendment constitutes a material change to the terms of the SLA. Accordingly,
the Independent Directors (which excludes Alessandro Zamboni, who is a
"related party" (as such term is defined in International Financial Reporting
Standards as adopted in the UK)) have complied with the material related party
transaction requirements in DTR 7.3. The Independent Directors determined the
Second SLA Deed of Amendment to be fair and reasonable from the perspective of
the Company and the holders of ordinary shares of nominal value £0.20 each in
the capital of the Company ("Ordinary Shares") who are not a related party.

For the purposes of UK MAR, the person responsible for arranging release of
this announcement on behalf of RTOP is Ian Halliday-Pegg, Chief Executive
Officer.

 

- Ends -

 

Enquiries:

 

 RegTech Open Project plc

 Albert Ganyushin, Chairman   investors@regtechopenproject.co.uk

 Ian Halliday-Pegg, CEO

 

About Regtech Open Project plc

Regtech Open Project plc is a technology business specialised in Regulatory
Technology (RegTech) that has developed the Orbit Open Platform, an
award-winning proprietary software platform focused on Operational Resilience
(OR), which helps its customers navigate an increasingly complex and demanding
regulatory landscape, maintain a secure and stable operating environment,
whilst improving compliance with applicable regulations and standards, and
reducing the risk of business disruptions.

RTOPs shares are listed on the London Stock Exchange's main market under the
ticker "RTOP". For more information, please visit www.regtechopenproject.co.uk
(http://www.regtechopenproject.co.uk)

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