New Funding, Directorate Changes & RPTs

26 June 2012

MERCHANT HOUSE GROUP PLC

("MHG" or "the Company")

Issue of Equity, Issue of Convertible Loan Notes, Working Capital Facility

Directorate Changes

Related Party Transactions

MHG, the financial services group, announces an injection of funding of up to £2 million through the issue of equity, an issue of convertible loan notes and a working capital loan. Of this, £250,000 has been received for the convertible loan notes and £1.35 million has been guaranteed for the working capital loan. The equity funding is subject to FSA approval. MHG has also strengthened its management team through the appointment of two new directors.

Issue of Equity

MHG has agreed, subject to FSA approval, to issue 1,000,000,000 new ordinary shares of 0.01 pence each at 0.04 pence per share ("Placing Shares") to Beia Investment Partners LLP ("Beia") raising £400,000 (before expenses). If issued, the Placing Shares would represent 17.57 per cent. of the enlarged issued ordinary share capital of the Company and, consequently, FSA approval has been applied for to allow Beia to own more than 9.99 per cent. of the enlarged issued share capital of the Company. None of the Placing Shares will be subscribed for and issued until FSA approval has been obtained. Whilst agreements have been entered into, funds in respect of the Placing Shares have not yet been transferred to the Company pending FSA approval.

In addition, MHG will issue (irrespective of FSA approval) 86,666,666 new ordinary shares of 0.01 pence each at 0.04 pence per share ("Fee Shares") having a value (based on the mid-market price of an MHG ordinary share of 0.04 pence as at the close of business on 19 April 2012 (being the date prior to which the Company's ordinary shares were suspended from trading on AIM)) of £34,666. The Fee Shares are being issued to Beia Capital Limited ("BCL") to pay a corporate finance fee in the sum of £34,666 in respect of the refinancing arrangements detailed in this announcement.

Application will be made for admission to trading on AIM of the Fee Shares representing, in aggregate, 1.85 per cent. of the enlarged issued share capital of the Company. The Fee Shares will, when issued, rank pari passu with the existing ordinary shares in the Company.

Following the issue of the Fee Shares, the issued share capital of the Company will comprise 4,690,361,459 ordinary shares of 0.01 pence each.

Background to Beia and BCL

Beia is an investment vehicle established to manage the investments of its principals and its investment partners.

BCL is an independent financial services firm that serves clients from across the globe. With principals based in London and Dubai, BCL provides its clients with strategic advice, helps raise capital, invests its own funds in early stage and turnaround SMEs, and provides advice and management services to investors seeking direct investment opportunities in UK commercial real estate.

James Keane is the sole director of BCL and owns 60 per cent. of its issued share capital. He is a non-participating member of Beia.

Stephen Drew, Pamela Drew and Simpatico Investments Limited are all shareholders of BCL and participating members of Beia.

Issue of Convertible Loan Notes

Beia has subscribed for a 5-year convertible loan note with a 6.5 per cent. coupon, convertible at the option of the noteholder at 0.04 pence at any time until 10 May 2017, which provides the Company with additional proceeds of £250,000 before costs. The loan notes are convertible at Beia's option. The loan notes are secured and transferable. The subscription monies have already been paid to the Company by Beia. If all of the convertible loan notes were converted, Beia and BCL would together own 11.76 per cent. of the resulting issued share capital of the Company as it would be following conversion and after issue of the Fee Shares (but prior to the issue of the Placing Shares).

Issue of Non-Convertible Loan Notes and grant of Working Capital Loan

The Company has entered into an agreement with BCL whereby the Company will seek to issue and BCL will seek to place for subscription £1,350,000 nominal value secured non-convertible loan notes 2017 in the Company. The interest rate is negotiable and will be announced when agreed. If not subscribed for in full, BCL will either subscribe for the shortfall itself or be obliged to make a loan to the Company for the shortfall. The notes, any loan made by BCL and the 6.5 per cent. convertible loan notes will rank pari passu as secured obligations of the Company unless the Company, BCL and Beia agree otherwise. 

Use of the funds raised

Funds will be used to provide working capital and to fund the growth of the Company's business.

Trading update

The Company's trading has been adversely affected by the events of the past few months. However, the Board is pleased with the resilience of the business and with the continuing opportunities available to us. The Company expects to update shareholders in detail as part of the Chairman's statement accompanying the accounts for the year ended 31 December 2011.

Publication of these results is expected on or before 31 July 2012.

Directorate changes

In conjunction with the financing detailed above, MHG is pleased to announce the following appointments to the board of MHG with immediate effect:

James Keane has been appointed Managing Director of the Company. James has more than 17 years' private equity, asset management and capital markets experience. Prior to founding BCL in 2009, he was director of fund raising at Rasmala Investment Bank, a leading Middle Eastern investment bank, and previously held senior sales and capital markets positions at JPMorgan and Deutsche Bank.

James Richard Keane, aged 41, holds or has held the following directorships and partnerships:

James Keane currently owns 76,395,154 MHG ordinary shares. After the issue of the Fee Shares detailed above (and prior to the issue of the Placing Shares and any ordinary shares issued on conversion of the convertible loan notes), James Keane will have a beneficial interest in 128,395,154 ordinary shares of the Company, representing approximately 2.74 per cent. of the enlarged issued share capital. If all of the Placing Shares are issued, James Keane will have a beneficial interest in 128,395,154 ordinary shares representing 2.26 per cent. of the enlarged issued share capital.

Stephen Drew has been appointed as Non-Executive Deputy Chairman of the Company. Stephen has more than 30 years of asset management experience. Stephen previously held positions at St Martins Property Group, the UK based real estate investment vehicle of the State of Kuwait, and Eagle Star Asset Management (now Threadneedle). Stephen is a shareholder of BCL and a participating member and partner of Beia.

Stephen William Drew, aged 54, holds or has held the following directorships and partnerships:

Stephen Drew currently owns 108,061,821 MHG ordinary shares. After the issue of the Fee Shares, detailed above, and prior to the issue of the Placing Shares and any ordinary shares issued on conversion of the convertible loan notes, Stephen Drew will have a beneficial interest in 121,061,821 ordinary shares of the Company, representing approximately 2.58 per cent. of the enlarged issued share capital of the Company. If all of the Placing Shares are issued and prior to the issue of any ordinary shares issued on conversion of the convertible loan notes, Stephen Drew will have a beneficial interest in 621,061,821 ordinary shares representing 10.91 per cent. of the enlarged issued share capital.

Save as set out in this announcement, there are no other disclosures in respect of this appointment that fall to be made under Rule 17 or paragraph (g) of Schedule 2 to the AIM Rules for Companies.

Related party transactions

The issue of the Placing Shares to Beia, if FSA approval is given, and the guarantees by BCL relating to the non-convertible loan notes, if effected, will constitute related party transactions under AIM Rule 13 in so far as James Keane and Stephen Drew will be directors of the Company at that time as Messrs Keane and Drew are interested in Beia and BCL as explained above.

The MHG directors consider, having consulted with Cairn Financial Advisers, the Company's nominated adviser, that the terms of these transactions are fair and reasonable in so far as the Company's shareholders are concerned.

Christopher Day, Chief Executive, commented: "We are delighted to receive backing for the group, particularly as the Company has faced a challenging last four months. We can now face the future with confidence and I welcome our new directors to the board."

James Keane commented: "The Company has expanded very quickly on a thin capital base during a challenging period. We believe that there is great value in the Company's core business divisions and we are pleased to provide financing to help drive future revenue growth and shareholder value."

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