For immediate release                                                                             21 August 2017

Sphere Medical Holding plc

("Sphere", "Sphere Medical" or the "Company")

Proposed Investment and Cancellation

General Meeting

Proposed waiver of obligations under Rule 9 of the Takeover Code

Sphere Medical Holding plc (AIM: SPHR.L), an innovative point-of-care monitoring and diagnostic devices company, announces:

·    the proposed investment of up to £8 million in the share capital of the Company (the "Investment");

o certain funds managed by Woodford Investment Management Limited ("Woodford") and the Wales Life Sciences Investment Fund LP (the "Wales Fund") have conditionally agreed to invest the aggregate sum of £5 million by way of subscription for Convertible Preferred Shares

o other new and existing investors will have the opportunity to invest an additional aggregate sum of up to £3 million by way of subscription for Convertible Preferred Shares

o working capital will be used to focus on the continued development of the Proxima platform to maximise the total addressable market to USD $1 billion worldwide, compared to the USD $160 million of Proxima 4 for Europe only, whilst scaling back current commercial activities;

·    the proposed cancellation of admission of the Company's ordinary shares to trading on AIM (the "Cancellation") and re-registration of the Company as a private limited company (the "Re-Registration"); and

·    a General Meeting to approve the Cancellation, Investment and Re-Registration, including:

o the proposed approval from independent Shareholders for a waiver of obligations under Rule 9 of the Takeover Code in connection with the proposed Investment (the "Whitewash Resolution").

Shareholders should be aware that, if all the General Meeting resolutions (the "Resolutions") are not approved at the General Meeting, the Cancellation will not occur and the net proceeds of the Investment will not be received by the Company.In these circumstances, the Company would in all likelihood be forced to enter into an insolvency process.

Reasons for the Investment and Cancellation

The Board has conducted a review of the terms and conditions attaching to the Investment and of the benefits and drawbacks to the Company and its Shareholders in retaining its quotation on AIM. The Board believes that the Investment and the Cancellation are in the best interests of the Company, its creditors and its Shareholders as a whole. In reaching this conclusion, the Board has considered the following key factors:

·    in attempting to raise capital in the past few months, there was a lack of available finance to fund equity capital through the public markets to enable the Group to roll-out its strategy and support it in meeting its near-term working capital requirements;

·    a private company structure allows its substantial shareholder Woodford to invest a greater quantum in the Investment as there are certain fund restrictions for public market investments;

·    unless finance is secured, the Group's working capital will be exhausted in late September 2017. If the Company is not successful in obtaining the Investment, the Board believes it is very unlikely that an alternative source of funding will be found and hence it will in all likelihood be forced to enter into an insolvency process;

·    by undertaking the Investment and Cancellation, the Company will continue to be able to develop the Proxima platform under a revised business model which significantly reduces commercial operations in the short term; and

·    the Group's progress since launching Proxima 3 has not been reflected in the market price of the Company's Ordinary Shares.

After careful consideration and after taking professional advice, the Directors have concluded that accepting the conditions of the Investment is in the best interests of its Shareholders and that the costs and other disadvantages of remaining quoted on AIM outweigh the potential benefits and it is no longer in the best interests of the Company or its Shareholders to maintain the Company's admission to trading on AIM.

Conditional upon the Cancellation and the passing of the Resolutions, Woodford and the Wales Fund have agreed to invest the aggregate sum of £5 million by way of subscription of shares in the capital of the Company which will provide sufficient working capital for the Group for the next 12 months. The Group's secured lender, Silicon Valley Bank, has given its consent to the Investment, Cancellation and Re-Registration.

The Investment is conditional upon the Cancellation having occurred and the Resolutions being passed.

Background and Summary

The Company currently only has sufficient working capital to trade through to late September 2017. However, pursuant to the terms of the Subscription Agreement, Woodford have conditionally agreed to invest £4 million and the Wales Fund has conditionally agreed to invest £1 million by way of a subscription for Convertible Preferred Shares at 2.822 pence each (the "Initial Investment Round").

Other new and existing investors will have the ability to invest an additional aggregate sum of up to £3 million by way of a subscription of up to 106,307,583 Convertible Preferred Shares (set at the same valuation as the Initial Investment Round) (the "Second Investment Round") at any time in the period up to 4 October 2017. Woodford and the Wales Fund do not intend to participate in the Second Investment Round. The Investment is conditional upon: (i) the Cancellation; and (ii) the passing of the Resolutions (including the Whitewash Resolution).

In connection with the Investment, the Company has conditionally agreed to issue 283,486,888 Investment Warrants to the participants in the Investment pro rata to the number of Preferred Convertible Shares subscribed for in the Investment. Each Investment Warrant confers the right to subscribe for one Convertible Preferred Share. The Investment Warrants will be exercisable at a price of 2.822 pence per Convertible Preferred Share (subject to customary adjustment) for the period up to 31 October 2018. The Investment Warrants shall be freely transferable.

Each Convertible Preferred Share will have full voting rights and will be capable of conversion into one Ordinary Share at the direction of the holder.

As a result of a review of the terms of the Investment, which included inter alia the requirement for the Cancellation to allow a larger quantum of investment from its substantial shareholder Woodford, which it could otherwise not receive if remaining a quoted company, and of the benefits and drawbacks of being a quoted company, the Board has concluded that the Cancellation is in the best interests of the Company, its Shareholders and creditors and is therefore seeking Shareholder approval to cancel admission of its Ordinary Shares to trading on AIM pursuant to Rule 41 of the AIM Rules.

Shareholders should be aware that, if the Resolutions are not approved at the General Meeting, the Cancellation will not occur and the net proceeds of the Investment will not be received by the Company. If this were to happen, the Group would only have sufficient working capital to trade through to late September 2017 without taking any mitigating action and therefore the Company would in all likelihood be forced to enter an insolvency process.

The strategy of the Group following completion of the Investment

With the limited funds available, the Board believes that the best strategy for creating shareholder value over the next 2 to 3 years is to focus on the continued development of Proxima to maximise the total addressable market, while scaling back the current commercial activities. Continued development includes developing an automated version of Proxima, which is expected to simplify the route to obtaining FDA approval in the US. Product development also includes adding lactate to the panel of analytes, which is already well advanced, and expanding the sensor to host more analytes. These activities will significantly increase the total addressable market to USD $1 billion worldwide, compared to the USD $160 million of Proxima 4 for Europe only. Once the necessary product approvals have been obtained, the Company will assess its commercialisation options in Europe and the US.

As a result of the revised strategy, the level of operations is expected to reduce by around 35 per cent. and the overall monthly cash usage by around 40 per cent.  It is intended to continue to operate across the two sites in Harston, near Cambridge, and St Asaph, north Wales.

Woodford and the Wales Fund strongly support this strategy and wish to participate in the proposed Investment, underwriting £5 million thereof by way of a conditional commitment to the Initial Investment Round. The proposed Second Round Investment is open to all new and existing Shareholders for the period up to 4 October 2017, subject to a minimum participation of £5,000 each.

The Whitewash Resolution

Under the Takeover Code, Woodford and the Wales Fund (together the "Concert Party") are deemed to be acting in concert.  The members of the Concert Party, in aggregate are currently beneficially interested in 67,526,575 Existing Ordinary Shares, representing 47.6 per cent. of the existing voting shares of the Company. Following completion of the Investment, assuming no Convertible Preferred Shares are issued in respect of the Second Round Investment, the Concert Parties' aggregated voting rights in the Company will be 76.7 per cent, if none of the Investment Warrants are exercised or 87.7 per cent, if the Concert Parties exercise all the Investment Warrants.

The Panel on Takeovers and Mergers (the "Panel") has agreed to grant a waiver of Rule 9 of the Takeover Code in respect of each of Woodford and the Wales Fund (the "Panel Waiver"), subject to the Whitewash Resolution. To be passed, the Whitewash Resolution will require a simple majority of the votes cast on a poll by shareholders other than Woodford and the Wales Fund, and anyone acting in concert with them.

Shareholders should be aware that if the Resolutions are not approved at the General Meeting the Investment, Cancellation and Re-Registration will not occur. If this were to happen, the Group would only have sufficient working capital to trade through to late-September 2017 without taking any mitigating action resulting in the Company in all likelihood being forced to enter into an insolvency process.

Related party transaction

The participation by Woodford and the Wales Fund in the Investment constitute related party transactions under the AIM Rules for Companies by virtue of each of them being a substantial shareholder in the Company. The Directors independent of Woodford and the Wales Fund, being the Board as a whole (excluding Brenig Preest), consider, having consulted with Panmure Gordon, the Company's nominated adviser, that the terms of the related party transactions are fair and reasonable insofar as the Company's Shareholders are concerned.

Current trading

By 30 June 2017, 55 hospital departments engaged with Sphere Medical on Proxima 4 and requested evaluations, of which 38 had received a product demonstration. Furthermore, six customers placed orders within the first six months after launch.

The Board is pleased to report that the main issues surrounding the limitation on supply of Proxima 4 sensors announced on 2 May this year have been effectively addressed. This limitation constrained sales activity during the first half of this year. 

Our three distributors in continental Europe have all now received initial supplies of Proxima 4 and have received training.  Patient evaluations have also commenced in all three territories.

The Company is immediately scaling back its sales and marketing activities and commencing a restructuring in line with the new strategy.

Irrevocable Undertakings

Certain of the Directors have given irrevocable undertakings to the Company to vote in favour of the Resolutions (and to procure that such action is taken by the relevant registered holders) in respect of their beneficial holdings totalling 1,080,985 Ordinary Shares, representing approximately 0.8 per cent. of the Ordinary Shares in issue.

In addition, the Company has received letters of intent from certain institutional Shareholders to vote in favour of the Resolutions in respect of a total of 6,250,000 Ordinary Shares, representing approximately 4.4 per cent. of the Ordinary Shares in issue.

Importance of the Vote and Recommendation

Shareholders should be aware that, if the Resolutions are not approved at the General Meeting, the Investment, Cancellation and Re-Registration will not occur and the net proceeds of the Investment will not be received by the Company. If this were to happen, the Group would only have sufficient working capital to trade through to late September 2017 without taking any mitigating action.

The Directors, who have been so advised by Panmure Gordon, consider the terms of the Cancellation, Investment and Re-Registration to be fair and reasonable and in the best interests of the Shareholders, creditors and the Company as a whole. Accordingly, with respect to the Resolutions to effect the Cancellation, Investment and Re-registration to be proposed at the General Meeting, the Directors unanimously recommend that you vote in favour.

The Directors (other than Brenig Preest who has been precluded from voting on the matter by virtue of the fact he is a representative of the Wales Fund (being itself a member of the Concert Party) (the "Independent Directors") who have been so advised by Panmure Gordon, consider the terms of the Panel Waiver to be fair and reasonable and in the best interests of the independent Shareholders and the Company as a whole.

Accordingly, the Independent Directors unanimously recommend that you vote in favour of the Whitewash Resolution to be proposed at the General Meeting.

In providing advice to the Directors, Panmure Gordon has taken into account the Directors' commercial assessments of the Company in the event that the Proposals are not completed.

General Meeting and Circular

The General Meeting will be held at 12:00 noon on 8 September 2017 at the offices of Taylor Wessing LLP, 5 New Street Square, London EC4A 3TW. 

Further details of the Cancellation, Investment and Re-registration and notice of the General Meeting will be published in a circular which will be distributed to shareholders and made available on the Company's website shortly.

Expected Timetable

- Ends -

For further information, please contact:

Notes for Editors

About Sphere Medical (AIM: SPHR.L)

Sphere Medical is an innovative point-of-care medical device company. Its Proxima platform measures blood gases, electrolytes and metabolites at the patient's bedside and aims to improve patient care and reduce health system costs. For further information, please visit www.spheremedical.com.