Integumen : Placing and Subscription / Heads of Terms signed

16 July 2018

Integumen plc ('Integumen' or 'Company')

Placing and Subscription to raise £700,000, new Heads of Terms signed with Cellulac

The Company provides an update further to the announcement dated 6 July 2018, together with details of a revised transaction, associated fundraising and proposed changes to the board of directors of the Company ('Directors' or 'Board').

Placing and Subscription

The Company is pleased to announce that it has conditionally raised £700,000 in aggregate (before expenses), by way of a conditional placing ('Placing') of 30,769,240 new ordinary shares of 0.01 pence each in the capital of the Company (following the Sub-division (as defined below)) ('New Ordinary Shares') ('Placing Shares') to raise £200,000 (before expenses) and a conditional subscription for 76,923,075 New Ordinary Shares ('Subscription Shares') to raise £500,000 (before expenses). The Placing Shares and Subscription Shares will be issued at an issue price of 0.65 pence per share ('Placing Price'). The Placing Price represents a discount of approximately 24 per cent. to the suspended middle market price of 0.855 pence per existing ordinary share of one penny each in the capital of the Company (before the Sub-division) ('Existing Ordinary Share').

The Placing Shares and Subscription Shares represent approximately 25.7 per cent. of the Company's issued ordinary share capital (as enlarged by the issue of the Placing Shares, Subscription Shares, Consideration Shares and Fee Shares (as defined below)) immediately following admission of those shares to trading on the AIM market of London Stock Exchange plc ('AIM') ('Enlarged Share Capital').

Heads of terms for acquisition of a 9.35 per cent. stake in Cellulac plc ('Cellulac')

Integumen has signed non-binding Heads of Terms ('Investment Heads') to acquire 1,472,092 ordinary shares of one pennyeach in the capital of Cellulac ('Cellulac Shares') (representing 9.35 per cent. of the current issued share capital of Cellulac) from Gerard Brandon (736,046 Cellulac Shares) and Camillus Glover (736,046 Cellulac Shares) ('Investment').

The consideration for the Investment of £708,320 will be satisfied by the issue of 82,844,388 New Ordinary Shares ('Consideration Shares') at 0.855 pence per New Ordinary Share.

The Consideration Shares will comprise 27 per cent. of the issued ordinary share capital of the Company (as enlarged by the issue of the Consideration Shares), and 19.8 per cent. of the Enlarged Share Capital.

It is proposed that a formal share purchase agreement ('SPA') will be agreed and signed by no later than 2 August 2018, being the expected date of the GM (as defined below) at which resolutions will be proposed that will allow the Investment to proceed (see below). Completion of the SPA will be conditional upon the Placing Agreement becoming unconditional (other than as to the Second Admission (as defined below)).

It is expected that completion of the Investment will occur and the Consideration Shares allotted on or around 21 September 2018.

In addition, non-binding Heads of Terms ('Licence Agreement Heads') have been signed beween the Company and Cellulac in respect of a licence agreement ('Licence Agreement'), details of which are set out below.

New Chief Executive and Chief Operations Officer appointed

Gerard Brandon and Camillus Glover, who are, respectively, the current Chief Executive Officer and Chief Operations Officer of Cellulac, will take over the roles of Chief Executive Officer and Chief Operations Officer, respectively, at the Company. Further terms relating to such appointments are set out below.

Gerard Brandon joined Cellulac Limited (Ireland) as its Chief Executive Officer in May 2012 and assumed the same role for Cellulac plc in October 2013. In 1996 he became founder and CEO of Alltracel Pharmaceuticals PLC, where he built a team that oversaw numerous patents granted on refined cellulose. Alltracel was admitted to trading on AIM in 2001. In 2004, he was appointed as a Managing Partner for Farmabrand Private Equity. In 2009, he was appointed as an Executive Consultant to Eplixo Limited. He is a Fellow of the Ryan Academy of Entrepreneurs in Dublin.

Camillus Glover joined Cellulac Limited (Ireland) as Chief Financial Officer in May 2012 and assumed the same role for Cellulac plc in October 2013. He is a member of the Institute of Chartered Accountants Ireland. In 2003, he joined Alltracel as Commercial Director and was appointed Chief Operations Officer in 2005 until it was acquired in 2008 by Hemcon Medical Technologies ('Hemcon'). Between 2009 and 2012, he was VP of Global Business Development for Hemcon prior to joining Cellulac.

Licence Agreement Heads

The Company and Cellulac have signed the Licence Agreement Heads.

Under the terms of the proposed Licence Agreement:-

(1) Cellulac will grant Integumen an exclusive licence to sell Cellulac's Algzym-branded and white labelled products (including Omega 3 and bioplastic ingredients) and to license Cellulac's technology to third parties;

(2) the licence will be exclusive for the territories of the United States, Canada and Mexico;

(3) the licence will run for an initial period of five years and renew automatically thereafter unless terminated on not less than six months' notice; and

(4) Integumen and Cellulac will share revenues equally (after production costs) from Integumen's sales and licensing activities under the Licence Agreement.

The Board believes that the Licence Agreement will:

· enable Integumen to sell wholesale volumes of human grade food supplements into the food sector, protein enriched food into the animal feed sector, biodegradable plastic ingredients, all of which are to be provided by Cellulac, in addition to Integumen's existing personal care businesses;

· drive growth through the introduction of innovative products with higher volumes;

· diversify and create opportunities to drive higher volume multiple revenue streams;

· create a complementary range of consumer products for a 'Visible Youth' healthy lifestyle;

o (internal) human grade neutraceuticals, food supplements, and diet

o (external) topical cosmetics, over-the-counter (OTC) and professional skin care products

· allow the Company to capitalise on the shifting opinion around single-use plastics amongst consumers and policymakers by fulfilling the demand for products with biodegradable plastic packaging. Existing cosmetic packaging, oral care consumer products, and third-party products can in time be replaced with biodegradable plastic materials.

Information on Cellulac

Cellulac is a vertically integrated group of companies with operations in Ireland and with headquarters in the United Kingdom. Activities undertaken by Cellulac range from the production of natural oils and biodegradable plastic ingredients to expertise in consumer marketing in cosmetics, food and healthcare industries. The production division capabilities include process engineering, chemical engineering, biochemistry and polymer science.

Cellulac has been privately funded since 2012 from laboratory to the commercial scale production of Omega 3 at a third party facility in the UK. A site for larger scale commercial production has been identified at Dundalk in Ireland. Permitting, development work and collaborative engineering project design in preparation for retrofitting of existing equipment at the Dundalk facility has been ongoing since 2014. US and EU approvals have been secured for the sale of human grade Omega 3, based on the existing process of Cellulac in the UK. Cellulac aims to commence production at Dundalk in 2019, subject to funding.

Under the terms of the Licence Agreement Heads, Integumen will use £75,000 of the proceeds of the Placing and Subscription to provide support to Cellulac for product approval applications to be made for goods that Integumen will be selling.

Cellulac financial results

Based on Cellulac's unaudited accounts for the year ended 31 December 2017, Cellulac's profit after exceptional items was £419,000, with an EBITDA loss of £44,000 and earnings per share of 2.76 pence. Its unaudited net asset value at 31 December 2017 was negative £2,306,000.

Rationale for the Investment and Licence Agreement

The Board believes that the Investment and Licence Agreement have a compelling strategic and financial rationale as outlined in this announcement. In addition, they believe that the appointment of Gerard Brandon and Camillus Glover, as a well-established and experienced operations, commercial and consumer-focused management team, will strengthen the Board and help to drive the growth of Integumen.

Use of proceeds

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

- to continue to promote its existing product range;

- to fund product approval applications (£75,000) (as described above); and

- for general working capital purposes.

The Placing and the Placing Agreement

The Placing Shares will be issued at the Placing Price to clients of Hybridan LLP ('Hybridan'), raising £200,000 for the Company (before expenses).

Hybridan has entered into a placing agreement ('Placing Agreement') with the Company and SPARK Advisory Partners Limited ('SPARK') under which Hybridan 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 (as defined below) being duly passed at the GM by 2 August 2018, and Second Admission becoming effective on or before 8:00 a.m. on 24 September 2018 or such later time and/or date as the Company, Hybridan and SPARK may agree, but in any event by no later than 8:00 a.m. on 30 September 2018;

• the Placing Agreement having become unconditional in all respects and not having been terminated;

• the Company, Gerard Brandon and Camillus Glover entering into the SPA and it becoming unconditonal; and

• the Company and Cellulac entering into the Licence Agreement.

The Placing is not being underwritten.

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

2,153,860 of the Placing Shares ('First Placing Shares') will be allotted on 2 August 2018, with First Admission on 3 August 2018.

28,615,380 of the Placing Shares ('Second Placing Shares') are expected to be allotted, conditional on completion of the Second Subscription, on or around 21 September 2018, with Second Admission on or around 24 September 2018.

The Subscription

The Subscription Shares will be issued at the Placing Price, raising £500,000 for the Company (before expenses).

As part of the Subscription Tony Richardson and Ross Andrews have each agreed to subscribe for 1,538,462 and 1,538,462 New Ordinary Shares respectively. In addition, proposed director Gerard Brandon has agreed to subscribe for 7,692,307 New Ordinary Shares as part of the Subscription. Each of Tony Richardson, Ross Andrews and Gerard Brandon has agreed that their Subscription Shares shall be the subject of a lock in agreement, whereby those shares cannot be disposed before the date of Second Admission.

Of the Subscription Shares:

10,769,231 New Ordinary Shares (£70,000) (which includes the Subscription Shares allotted to Tony Richardson, Ross Andrews and Gerard Brandon) ('First Subscription Shares') will be allotted and admitted to trading on AIM on 3 August 2018; and

66,153,844 New Ordinary Shares (£430,000) ('Second Subscription Shares') will be allotted on or around 21 September 2018 and admitted to trading on AIM on or around 24 September 2018.

Fee Shares

4,615,384 New Ordinary Shares ('Fee Shares') will be issued at the Placing Price to a creditor to settle amounts owed to it.

Dealings

The First Subscription Shares, the First Placing Shares and the Fee Shares (totalling in aggregate 17,538,475 New Ordinary Shares) will be allotted following the GM. Application will be made for these to be admitted to trading on AIM, and admission is expected on 3 August 2018 ('First Admission').

The Second Placing Shares, the Second Subscription Shares and the Consideration Shares (totalling in aggregate 177,613,612 New Ordinary Shares) are expected to be allotted on our around 21 September 2018. Application will be made for these to be admitted to trading on AIM thereafter, with admission expected on or around 24 September 2018 ('Second Admission').

Related party transactions

As at 13 July 2018, Tony Richardson and Ross Andrews held 1,301,952 and 700,000 Existing Ordinary Shares respectively representing approximately 0.58 and 0.31 per cent. of the Existing Ordinary Shares respectively. As stated above, these Directors have indicated their intention to subscribe for Subscription Shares. Under the AIM Rules for Companies ('AIM Rules'), as directors of the Company, Tony Richardson and Ross Andrews are each a related party of the Company and the intended subscription by them for Subscription Shares 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. Having consulted with SPARK, the Company's nominated adviser, the independent directors of the Company (being all of the directors of the Company other than Tony Richardson and Ross Andrews) believe that the participation by Tony Richardson and Ross Andrews in the Subscription would be fair and reasonable in so far as the Company's shareholders ('Shareholders') are concerned.

Sub-division of share capital and amendment to the Company's articles of association ('Articles')

Under the Companies Act 2006, a company is unable to issue shares at a subscription price which is less than the par value of shares of the same class. This means that, as the par value of the Existing Ordinary Shares is currently one penny, the Company could not issue further Existing Ordinary Shares at a price of less than one penny per share. The Placing Price is 0.65 pence per share, and the Consideration Shares will be issued at 0.855 pence per share. Without a sub-division of the Existing Ordinary Shares, it will not possible for the Company to issue new equity capital.

It is therefore proposed to sub-divide each of the 223,685,232 Existing Ordinary Shares into one New Ordinary Share and one deferred share of 0.99 pence ('Deferred Share'). Resolutions to effect this sub-division ('Sub-division') will be proposed at the GM.

Immediately following the Sub-division, each Shareholder will hold one New Ordinary Share and one Deferred Share in place of every one Existing Ordinary Share previously held in the capital of the Company. The rights of the New Ordinary Shares will be, in all material respects, the same as the Existing Ordinary Shares. The Deferred Shares (the rights of which will be set out in the Articles) will have no economic value. The Company does not intend to make any application for the Deferred Shares to be admitted to trading on AIM or any other public market.

A resolution will be proposed at the GM to amend the Company's existing Articles to include provision in respect of the rights and restrictions attaching to the Deferred Shares and to reflect the sub-division of the Existing Ordinary Shares.

Proposed changes to the Board

Gerard Brandon and Camillus Glover, who are, respectively, the current Chief Executive Officer and Chief Operations Officer of Cellulac, will join the Board and take over the roles of Chief Executive Officer and Chief Operations Officer, respectively. Chris Bell, the current interim Chief Executive Officer of the Company, will remain as Chief Financial Officer and director upon First Admission. Tony Richardson, the current Non-Executive Chairman of Integumen, and Ross Andrews and Donald Nicholson, also Non-Executive directors of Integumen will also remain on the Board. Paul Kennedy and Helmut Schlieper will resign from the Board upon First Admission.

Gerard Brandon is proposed to be employed, conditional upon First Admission, as Chief Executive Officer of the Company. A letter of appointment has been agreed with the following key terms:

The appointment is for an initial period of 12 months, and thereafter is terminable by Integumen on not less than six months' written notice (and by Mr Brandon on not less than three months' written notice); the annual salary is £112,500 but will not be settled in cash. Instead, on a quarterly basis Mr Brandon may elect to have his accrued salary settled by the allotment to him of New Ordinary Shares at the volume weighted average mid-market closing price ('VWAP') of New Ordinary Shares for the previous 90 days. Mr Brandon is subject to certain non-competition and non-solicitation covenants for a period of six months following the termination of his employment.

Camillus Glover is proposed to be employed, conditional upon First Admission, as Chief Operations Officer of the Company. A letter of appointment has been agreed with the following key terms:

The appointment is for an initial period of 12 months, and thereafter is terminable by Integumen on not less than six months' written notice (and by Mr Glover on not less than three months' written notice); the annual salary is £101,250 but will not be settled in cash. Instead, on a quarterly basis Mr Glover may elect to have his accrued salary settled by the allotment to him of New Ordinary Shares at the VWAP of New Ordinary Shares for the previous 90 days. Mr Glover is subject to certain non-competition and non-solicitation covenants for a period of six months following the termination of his employment.

Warrant Issue

As part of their fee arrangements, warrants to subscribe for New Ordinary Shares at the Placing Price have been granted, conditional upon First Admission, to SPARK (over 5,846,154 New Ordinary Shares, which are exercisable in the two years following First Admission) and, conditional upon Second Admission, to Hybridan (over 1,846,154 New Ordinary Shares, which are exercisable from the date three months following Second Admission until the date five years following Second Admission).

General meeting

The Company proposes shortly to send out a notice ('Notice') convening a general meeting ('GM') to be held on or around 2 August 2018. At the GM it is expected that resolutions will be proposed ('Resolutions') to:

1) sub-divide each Existing Ordinary Share into one New Ordinary Share and one Deferred Share;

2) amend the Articles to allow the issue of the Deferred Shares;

3) authorise the Directors to allot, inter alia, the Consideration Shares, the Subscription Shares, the Fee Shares and the Placing Shares; and

4) disapply statutory pre-emption rights.

If the Notice is sent out by 17 July 2018, as is intended, and the Resolutions are passed at the GM on or around 2 August 2018, First Admission is expected to become effective on or around 3 August 2018. Second Admission is expected to become effective on or around 24 September 2018.

Tony Richardson (Chairman of Integumen) commented:

'The Board acknowledges the challenges Integumen has faced in generating returns for shareholders. We have been working hard to identify the best route forward and we believe acquiring a stake in Cellulac presents a number of opportunities to accelerate revenue generation. The economic and environmental drivers of biodegradable plastics are compelling driven by the global attitudinal shift against single use plastics, creating strong potential demand for Cellulac's products. We believe the actions we are taking will position us well for the future.

The wealth of experience and expertise that Gerard Brandon and Camillus Glover bring to their respective new roles of Chief Executive Officer and Chief Operations Officer at Integumen, I believe, will see accelerated growth across the business.'

Gerard Brandon (Chairman & CEO of Cellulac) commented:

'Cellulac has novel technology and IP with commercial traction. The marriage of this technology and Integumen's consumer presence online and in other retailers will create a supply source to customer supply chain of natural oils and biodegradable plastic ingredients to a number of sectors.

The environmental impact of single use plastics is well documented and increasing awareness of the harm it is causing to our planet has driven governments, companies and individuals to abandon the use of these materials and seek alternative solutions. We believe we are strongly placed to provide an effective and more eco-friendly solution.'

Information required under Schedule 2(g) of the AIM Rules

Save for the information in the 'Proposed changes to the Board' paragraph above, and as below, there are no further disclosures to be made in accordance with Rule 17, Schedule 2(g) of the AIM Rules in respect of the proposed appointments of Gerard Brandon and Camillus Glover.

Full name: Gerard James Brandon

Age: 56 years old

Gerard currently holds the following directorships/partnerships:

Aer Sustainable Energy Limited

Cellulac plc

Cellulac Limited

Pursuit Marine Drive Limited

VY Club Limited

Allensville Finance Inc

Belisario Limited

Directorships and partnerships held within the last five years:

n/a

Full name: Camillus Gerard Glover

Age: 57 years old

Camillus currently holds the following directorships/partnerships:

Aer Sustainable Energy Limited

Cellulac PLC

Cellulac Limited

Pursuit Marine Drive Limited

Willdo Limited

Cleft Management Company Limited

Directorships and partnerships held within the last five years:

n/a

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.