Circio Holding ASA (CRNA) Earnings Call Transcript & Summary

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[Foreign Language] Over to you, Lubor.

Thank you very much, Erik. As Erik was saying, we spend -- we have been through a very thorough process to evaluate many different options to arrive at Atlas, and there were a lot of different factors that were speaking in favor of them. And I will not repeat them again. So just saying that Atlas has emerged as a very good option for Targovax, providing the financing that we needed in this current situation, which were available to us. So what is this financing? And I would like you to walk through again with some of the mechanics. And I will try to answer many questions that have come in the meantime since we announced this financing at our quarterly presentation some weeks ago. So let me go to the next slide. Just to recap again, we're looking at a convertible bond financing of up to NOK 300 million. There is a 2% fee for this trans facility that we paid to Atlas. As we said, we can draw this money in different tranches when we want, at a time that we want. The sizes are variable, and I will explain in a minute why they have different sizes. The first tranche at NOK 37.5 million is larger than all the other tranches because we will pay that transaction fee from the proceedings of that first tranche. Overall, we can draw up to 12 tranches in a period of 36 months. As I said, 1 tranche every 3 months, but there is no obligation to do so. If there's no need for another tranche, then we don't need to draw it and then we can delay it as much as we want. That was very important for us that we stay in control of the entire convertible bond on financing. The investor cannot force us to take any tranche or take any convertible bond. So we only -- we decide when we need to grow more money and then we will contact [indiscernible] to draw more from this convertible bond facility. So let me then walk you through how this would work when we call the tranche. So again, we decide that we want to draw money from this facility. We inform the investor. In the next step, we will receive the cash from the investor at 90% of the nominal value. As you can see, each bond had NOK 2.5 million as value, and we will receive NOK 2.3 million in return. Then, of course, we need to issue the bonds and depending, of course, how much we draw from in each tranche at the terminal months. As I said in the first -- the first tranche of NOK 37.5 million would be, meaning that we would have 15 convertible bonds, regularly, mostly NOK 25 million, and then it would have 10 different convertible bonds. Very important for us. There aren't no strings attached to these convertible bonds. There are no warrants that we need to issue with them. There's no interest rate and there's also no collateral. So these are very clean bonds. And then, of course, very importantly, the investor can convert the bonds to shares at any time that they decide. There is a mechanism how to determine the conversion price and the number of shares for each bond, and I will go through that in more detail in the next slide. Very importantly, of course, for us that once the investor has shares that the trading is controlled and that they will sell those shares on the open market in controlled fashion. And Atlas fully understood that point and agreed to a maximum trading limit of 25% in any given way that they want to trade. And very important, of course, to us, and I think to all our shareholders is that there is no short selling allowed except for one exception, which we're going to talk about in much more detail later in the presentation. So let's move on. And then, of course, this can be repeated every time, and like we call a tranche. And so this could be every 3 months or it could be much less frequent. So let me move on to some questions that we have received, and we'll address them one by one. So the first question is what is the transaction fee? As I said before, it is a 2% fee for the entire amount that we -- is available to us. So at NOK 300 million, that's NOK 6 million, and it will be paid from the first -- from the proceeding of the first tranche. So we were able to reduce the cash need from us and then really raise the money for the fee through issuing more convertible bonds. When we'll recall the first tranche? So clearly, of course, very importantly, our goal would be mid-March, but that, of course, depends on the approval. First of all, we need, of course, the approval of this agreement. We cannot call the tranche without getting a positive vote in the AGM on the 9th of March. We, as a management, are not authorized to enter into this agreement without the support of your shareholders. So clearly, first, we need to have a positive vote at the AGM so that we can enter into this agreement, then there will be a few more technicalities to complete for registration and then we will call the tranche, and most likely this all be done by mid of March. Will you make an announcement? Absolutely. Of course, we'll be very transparent in every step of this process. Each time we ask for a tranche, we will inform all the shareholders how much a tranche will be and how many bonds we will have to issue. And then, of course, also when Atlas will convert bonds into shares, we will issue a press release every time they decide -- so this will be a very transparent process. We'll keep you very much informed of every single step in this converted bond facility. So maybe that's an important point for you and a shareholder. What is actually the net proceeds from the first tranche? And I think it's very important we walk you through this. So as we said, we would anticipate to ask for a tranche of [ NOK 37.5 million ] that will create -- we have to issue then 15 convertible bonds of NOK 2.5 million each. The reason why we're asking for such a high tranche at the beginning is because we need to pay the transaction fee. So that's why it's a little bit more than the other tranches. And as you can see, there's a subscription fee of 8%, though we get -- we paid NOK 3 million as well. So in the end, the total net proceeds from this NOK 37.5 million tranche is NOK 28.5 million, which we then received in our banking amount. And what happens when Atlas receives the convertible bonds? Basically, Atlas is a financial investor. They are expected to convert according to the shares over time. And Atlas is not expected to be a long-term shareholder. Meaning, that bonds for a variable amount of time. But once they convert the bonds into shares, they will start trading shares on the open market, and you will see more shares floated in the stock exchange. So just move on to some other questions. So how are the bonds converted to shares? I think that's very important and that has some implication also later for the one exception to the short selling bond. Atlas will send a conversion notice to Targovax and then we issue immediately -- a stock issue notice to you to inform you that Atlas wants to convert the convertible bonds into shares. So we'll initiate the share transfer process. Very importantly, unfortunately, this is not an instant process. It takes some time. So what is the conversion notice? The conversion is basically a simple letter saying Atlas, how many convertible bonds they want to convert? What is the conversion price? And therefore how many shares do we need to issue for those bonds? Maybe very important how is this conversion price calculated because that really determines the number of shares we have to issue for each convertible bond. And basically, it is the arithmetic mean of the value-weighted average price of 3 days out of 15 days. So you have to imagine this following way. Atlas will send us the conversion notice and then they will specify the price. The price will be taken out of 3 days of the prior 15 trading days. So they can choose the 3 days that -- from those 15 days, then we take the mean -- the arithmetic mean and then this will determine the share price -- at the conversion price what we need to convert the convertible bonds. What does that mean? Will Atlas get a discount on our share price? No. The price is 100% of the VWAP average. But what can happen is following. Since they can select the 3 days out of the 15 days, of course, there can be a variation. And depending on how share price moves, they will either lead to a discount, the same price or even at a higher price. It really depends how the share price is moving through in the 15 days. Of course, in an up market where the share price is moving, it can be that the share price is lower. If our share price will be flat and stable, then they would get the same conversion price as the trading price that day. So it really depends a little bit on the fluctuation of our share price. So now very important, I think we're moving to a different topic. As I mentioned earlier, it's like other trading limits for Atlas. Clearly, we are concerned that they -- once they convert bonds, I mean you can imagine 2.5 million bonds will then be converted to shares at the current price that would lead to a number of above 2.5 million shares. And we wanted to make sure that these shares will be sold in an orderly fashion without much impact on our share price. We try to limit this by limiting their trading volume, and they agreed to that. So they will never trade more than up to 25% in any given week that they are trading. What happens if they exceed that 25% limit? Then very simply, they need to buy back the shares that they sold too much. So then they will have to buy back on the open market shares back because sometimes it's very difficult for them to predict directly how much 25% will be in a week. So we felt out that this was a fair mechanism to compensate if there is any miscalculation on their behalf. Is Atlas allowed to short sell shares? That was, of course, a very important point, and we will go into that more detail now. No, there's a clause in the investment agreement contract which we'll share with you that they will not -- they are not allowed to sell shares short, but there is one exception for short-term hedging. So let me now explain you that exception. Basically, as I said before, they send us a conversion notice when they want to basically convert the bonds into shares. When we get that notice, we will issue the process to get them the shares. Unfortunately, that process is not instantly. It doesn't have the push a button. So in this period, that they don't have the [indiscernible]. They can actually already start coming to us. So this explains some of the EBITDA on the next slide. So what Atlas [indiscernible] would be violation of our pact, and that it is where they are doing short selling would be excluded from and of conversion price of the shares. So as I said before, the conversion price is determined by the 3 out of 15 trading days. No day with a short selling is allowed to be included in those 3 days. So that would exclude them from using those days and determining the conversion price of future shares. So I think it's very important that I explain to you again the process, how do we covert shares and how does that affect the short survey by Atlas, if at all. So let me go through this portions again. So Atlas will inform us that they want to convert the bonds into shares. And during that point -- actually, sorry, -- sorry, let me back up, sorry. As long as Atlas holds convertible bonds, they cannot short sell anything. They're not allowed to short sell our shares at all. So what happens when Atlas sends us the conversion notice? At that point in time, they are basically saying, I want to convert my bonds into shares and are basically theoretically in possession of shares, but they don't physically have them into account. At this point in time, they want to start selling the shares, take advantage of certain positive development of our stock market in our shares. Again, here, the short selling, we had a trading limit applies -- 25% trading limit applies and this applies also to all its affiliates and subsidiaries. So we, of course, are very much interested in having the shares transferred to them as soon as possible. So we will immediately, of course, first, of course, issue a press release through your shareholders to inform you, of course, that this process is taking place, and we'll immediately work with our agents to transfer them the shares as soon as possible. Unfortunately, as I said, this is not instantly, it's not electronically possible. There's a few steps in between, also a registration of the shares with the stock market. So unfortunately, this takes a little bit of time. In our experience or what we've been told this can take up to 2 or 3 business days. We, of course, will make everything possible to reduce that time to what is technically possible to make it as short as possible. During this time that we are processing their applications to convert into shares and us issuing the shares, they again continue to sell within the trading limits that we have agreed. Then finally, we will successfully transfer the shares and then no short selling is allowed anymore. And then, of course, they only have to sell their shares that they have in their possession with the same trading limits. I hope that makes it clear. The intent is that there is no short selling at all, but because we cannot transfer their shares to them instantly when they convert bonds into shares, we have allowed them selling once do they have sent us the conversion notice. And this process can be repeated every time they want to convert bonds into shares. I hope with that, I have answered a lot on clarity. So let me finish with a few more questions that we received. Why has the investment agreement not be disclosed to your information? As you all know, we -- when we announced the EGM, we sent out the EGM notice and we published a bond agreement. There's also an investment agreement. This was not published. Why was it not published? Because it's not standard to publish full agreements between parties because they may contain business-sensitive information. We understand that a lot of shareholders are very interested in what is written in this agreement because not everything that we have said to you can be found in the bond agreement. So we had to enter the bond agreement with Nordic trustee because they're managing the bond process for on behalf of Atlas, and then there is agreement with Atlas as well. We fully understand that shareholders want to get full clarity on the investment agreements that they ask, of course, better we will disclose the investment agreement. And we have agreed with Atlas that we can disclose our commercial section of the agreement and we'll make it available later today on our website so that people can read the relevant sections, which we have discussed in this meeting today so that you have a full picture of the entire agreement and the entire conditions with Atlas. There was a question, are the bonds tradable? No, the bonds are not tradable. Atlas is the principal holder of the bonds, and there are for organizational purposes, administrative purposes, likely to be able to assign those bonds to their affiliates. And so that is allowed and we will also disclose in the document later today who are these affiliates are. So there will be their name. This was a very limited number of affiliates that can -- that we have this sponsor signed. Any other transfer to any other party would need to have our approval first. Of course, very important, I think people are concerned about short selling or for short term hedging by Atlas, should you be concerned? We are very mindful of this is a difficult situation or a difficult position by our shareholders. We hope you understand that this is unfortunately a technical necessity that we had to allow them in a very short period where technically short selling is possible because the transfer of share is not instantly. We have renegotiated or continued to negotiate with Atlas to improve and tighten up our position so that really there aren't any exceptions. And a new wording in the bond agreement has been introduced to make this clearer and also an investment agreement. And so we will issue a slightly revised bond agreement today to make it clear that we have tried to take the best and have done the best to improve the conditions for Targovax shareholders and reduce the possibility of short-term hedging. So of course, Erik touched on this in the beginning, and I'm going to give details why Atlas and why convertible bond structure. And again, we have value at many different options throughout the year, I mean, 2022, of course, and then also early '23. And we believe that the current convertible bond financing is the best financial instrument available to Targowek at this point in time. As I will say, the market is very irrational for public biotech companies, not just in Norway, but worldwide, by the way specifically. And again, we believe that Atlas provides a lot of the flexibility and criteria that Targowek needs right now in order to continue its good work on all the -- on the research programs. I think with that, I complete the question session and invite now questions from the audience. As Erik was saying, question in English will be answered by me in English and question Norwegian to be answered by Erik.

Thank you, Lubor. We have gotten several questions in already. We start with the English ones. As far as I can read from the bond agreement, there was no explicit point to prohibit the bonds to be sold exchange or transferred. Do you have any assurance in writing that prohibits the sale transfer exchange of the convertible bond away from Atlas or it affiliates?

Yes, as explained, that's correct. In the bond agreement, this topic is not dealt within a bond agreement, but it's covered in investment agreement. This section will be shared later today. And as I said, they are able to assign the bonds to their affiliates and subsidiaries but not to any other party that would need our approval first.

Thank you. If the bonds cannot be held by anyone other than the affiliates of Atlas special operations, how do you define affiliates? And do you have, in any way, ensure since what happens if Atlas special operation itself changes ownership management or wants to change its strategy?

As we said, there is a limited number of affiliates, which we are aware of. And this will -- the name of the affiliates will be shared later today in the agreement. That doesn't mean the investment agent. So we very well know who these companies are and who these affiliates are. The second part of the question is a bit of difficult to answer. Of course, there is a provision in the contract that assigns this contract to any successor of Atlas special operations that need to maintain the same conditions of this agreement. So we have taken care of that, should Atlas should be acquired, the conditions of this agreement remain in force.

Thank you. Does the investment agreement in any way regulate the situation where the conversion into shares would increase the holding of shares by more than 1/3 outstanding shares in Targovax? If so, how is this regulated?

Yes. I think it's very important to understand how this convertible bond will work. I mean when we call a tranche, we will issue bonds. So Atlas will hold bonds actually. And only when they -- and so they will never really don't hold any shares. But when they convert the bonds into shares, I mean, our assumption is that they will convert, I don't know, between 1 and 3 or 1 in 4 bonds every time. We have no idea when. We will find out this later. That would definitely not represent any of our shares. And since they are not going to hold those shares long term or selling, it is not anticipated that they will hold such a high number of shares.

Thank You. And one more is, as Atlas cannot convert shares based on 3 days with a lower share price in a 15 days period, the conversion price could therefore as be affected by sales in the market by Atlas or its affiliates even if it's still limited to selling 25% of a week's volume. In my opinion, you should everything clause in the bond agreement that Atlas is not involved in trading of the shares in the 15-day period than despite the conversion price.

Yes. That's a very good point. And of course, I'll say I'm happy to debate topic with Atlas to redetermine a fair determination of this conversion price, we negotiate many different options. And the solution that you see is the best that we could negotiate for Targovax at this point of time.

Thank you. And then we move on to questions in Norwegian. Then it's Erik. [Foreign Language]

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[Foreign Language] Thank you all. Thank you, Lubor. Bye-bye.