CityFALCON

Key Information

Debt

Cityfalcon has the following debts outstanding:

1) Bounce Bank Loan - £33,500.

This loan is interest free for 12 months, and was taken out on the 22nd of May 2020. Following this period, interest accrues at 2.5%. The term of the loan is for 6 years, with repayment starting after the first 12 months.

2) Directors loans - £7,990 (loan) and £31,445 (deferred wage accruals).

These loans does not accrue any interest and is repayable on demand.

3) Due to employees - £23,863 (Salary Sacrifice Scheme).

This debt is increasing at a rate of circa £5k per month due to ongoing salary sacrifice into this loan scheme.

This debt accrues 15% interest in the first year (annually compounded), as calculated from April 2020, and 20% in the following years (annually compounded).

The employee debt will be repaid if the company either has positive cash flow, or receives a significant strategic investment which is permitted to repay such debt. Further details on the specifics of this debt can be found here: https://www.cityfalcon.com/blog/the-startup-jou...

Investor funds will not be used for the repayment of any debt listed above.

Future Fund

Seedrs is supporting companies who are intending to apply to the Government backed Future Fund. You can read more about the Future Fund here: https://www.seedrs.com/learn/blog/the-future-fu...

In order for a company to be eligible to seek matched funding from the Future Fund, this investment round must be on the convertible loan terms that have been prescribed by the Future Fund for this purpose. These terms differ to our normal ‘advanced subscription agreements’.

Given this product differs from most campaigns on Seedrs, we urge all investors, including regular Seedrs investors, to read the information below and ensure you understand the terms in full before making your investment.

1. Key Terms

You will see a term sheet attached to this Campaign in the Documents section which sets out the key terms of the convertible loan and you can see the full document prescribed by the Future Fund here: https://www.british-business-bank.co.uk/ourpart...

A summary of the key terms is set out below, but should be read in conjunction with the term sheet:

• Discount: 20%

• Interest: 8% per annum, non-compounding. On conversion events, the company can choose to repay the interest or convert it to equity (generally without the discount). See the Term Sheet for more details.

• Redemption Premium: An amount equal to 100% of the principal loan amount.

• Valuation Cap: £10,500,000.

• Qualifying Equity Financing. The convertible loan will automatically convert on an equity financing raising at least the total loan amount, at the lowest share price of equity financing less the Discount.

• Maturity Date: 36 months from signing convertible loan agreement.
o The default position is on the maturity date is that the loan will convert to equity unless the investor majority elect to redeem.
- If redeemed, the company will repay the principal together with the Redemption Premium.
- If converted, the conversion price will be at the most recent funding round share price less the Discount, provided that funding round happened after 20 April 2020 and was at least a quarter of the size of the convertible loan investment. If no such funding round has occurred, conversion will be at the share price of the last funding round prior to 20 April 2020 (no Discount).

• Other events of default or conversion: There are various other scenarios in which the convertible loan may convert or be repaid and investors should reference the term sheet:
o Non Qualifying Funding Round: The convertible loan can convert on an equity financing round which does not meet the size criteria of a ‘Qualifying Equity Financing”, at the election of the majority of investors under the loan. Please see the term sheet for how this conversion is priced.
o Exit: The convertible loan will automatically convert or be redeemed on an Exit, whichever would give investors the higher cash return. Please see the term sheet for how conversion is priced and payments on redemption in this scenario.
o Events of Default: The convertible loan is to be repaid on the events of default, such as liquidation or winding up. See the term sheet for more details.

2. Government matched funding

The company intends to apply to the Future Fund for matched funding on the total eligible amount invested in this funding round. The Future Fund will “match” the funding raised via Seedrs or other eligible sources, subject to a minimum investment of £125,000 and a maximum investment of £5m. The Future Fund is to be allocated on a ‘first come, first served basis’, so there is no guarantee that a company will receive the Future Fund matched funding.

This campaign is conditional upon receiving matched funding from the Future Fund. Seedrs will not complete the investment and transfer the funds raised until we have confirmation that the Future Fund matched funding application has been approved and that the Future Fund is ready to make the investment. If the application is denied, the campaign will be cancelled and funds will be returned to investors.

Because this campaign is conditional upon the matched funding, you will see that we have reflected the Future Fund investment as part of the round. It is distinguished in pink in the progress bar of the campaign. This is to give investors an indication of the potential total size of the funding round (and potential dilution on conversion), but to also distinguish it from regular investment through the Seedrs platform.

Seedrs does not charge any fees in relation to the Future Fund matched funding, application process or for acting as lead investor with respect to applications.

3. Conversion to equity

The convertible loan agreement prescribed by the Future Fund is equity focused and favours conversion of the loan to equity as the default position.

Redemption is only available in certain scenarios and is often subject to the vote of majority of the investors. Where a vote of investors is required, Seedrs will vote on behalf of any investors it represents as nominee.

There is a possibility that the convertible loan will convert in some scenarios without the consent of Seedrs (if we do not make up a majority of investors). It is also Seedrs’ position that this is primarily an instrument for investing in the equity of the fundraising business and our default position would be to vote in favour of converting the loans to shares in the company, unless there is a clear or compelling reason not to.

4. Risks

As always, investors should be aware of and accept the risks involved in investing in early stage and growth focused businesses: https://www.seedrs.com/pages/risk-warnings

In addition to the usual risk warnings included above, investors should be aware of and accept the following with respect to convertible loans:

• The convertible loan agreement is intended as bridge funding to a future funding round, but there is no guarantee that a company will be able to secure further funding.

• The Future Fund is to be allocated on a ‘first come, first served basis’ and there is no guarantee that a company will be successful in its application to receive the Future Fund matched funding.

• There is a risk that the Company may not have sufficient funds to repay the loan on the maturity date, pay interest when it becomes due or pay the redemption premium included in the terms.

• Convertible loans are unsecured obligations and in the event of a winding up or liquidation event will rank behind secured creditors of the Company.

5. Secondary market

Investors will not be able to sell their interest in the convertible loans on the Seedrs Secondary Market unless and until they have converted to shares in the company (and then only subject to eligibility and the terms and conditions of the Seedrs Secondary Market).

EIS Relief - past, current and future

As noted above, the convertible loan instrument is not compatible with EIS requirements, so no EIS applications will be made with respect to investments in the convertible loan.

The government has confirmed that investing in the convertible loan will not impact EIS relief previously claimed on investments in the fundraising company:

“The government has confirmed that such previous investments will not be affected where the convertible loan converts into shares. Where the convertible loan note redeems, we have been alerted that the government intends to make changes to the rules to clarify that this is compatible with such previous investments.”

However, investing in a convertible loan could impact your ability to claim EIS relief on future investments into the same company. The government has not clarified the position on this and has said it is a matter for HM Treasury and HMRC.

Seedrs is unable to provide tax advice. Tax treatment depends on individual circumstances and is subject to change.