3rd Aug 2005 07:00
Merchant House Group PLC03 August 2005 03 August 2005 Merchant House Group PLC (the "Company") Placing Proposed issue of Secured Convertible Loan Notes and warrants Proposed Capital Reorganisation Proposals regarding the loss of capital Highlights • Conditional placing of £500,000 of secured convertible loan notes • Proposed capital reorganisation and capital reduction • Proposed issue of warrants • EGM to be held on 25 August 2005 • Circular being despatched to Shareholders today Press Enquiries: Merchant House Group PlcPeter Redmond 020 7332 2200 Shore CapitalAlex Borrelli 020 7408 4090 The Chairman, in his statement for the year ended 31 December 2004, explainedthat the Company needed to raise additional capital to enable it to support itsbusiness and explained that it was not practical to do so at or above 5p pershare, the current par value of the Company's Ordinary Shares. In view of thefact that the Companies Act 1985, as amended, precludes the issue by a companyof shares below their par value, it is necessary to seek approval ofshareholders of the Company (''Shareholders'') to effect a reorganisation of theCompany's share capital in order to reduce the par value of the shares. The Company today announces that it has secured the required funding via aconditional placing of £500,000 of Secured Convertible Loan Notes (''SCLN''),conditional only on the passing of resolutions at the EGM to be held on 25August 2005 to approve the issue of the SCLN, to reduce the par value of theCompany's Ordinary Shares, to cancel the Company's share premium account and toauthorise the Directors to allot Ordinary Shares free from statutory pre-emptionrights. The disapplication of pre-emption rights will be sufficient to enablethe Company to issue up to a further £2 million nominal of New Ordinary Shares(as defined below) under the powers granted by the resolutions up to the date ofthe Annual General Meeting in 2006. The Company will also issue warrants in connection with this placing as set outin the paragraph headed ''Warrants'' below. During the period up to the EGM, the Directors may effect a further placing, ona restricted basis, of unsecured convertible loan notes and/or New OrdinaryShares. Such additional unsecured convertible loan notes would be on the sameterms as to conversion and interest as the SCLN but would not carry theadditional rights to be granted to holders of the SCLN, as described later inthis letter. As the Company's net assets are half or less of its called-up share capital andas required by Section 142 of the Companies Act 1985 (''the Act''), the Companyis obliged to convene an Extraordinary General Meeting to give Shareholders theopportunity to discuss the Company's financial position. The notice of the EGMtherefore includes a reference to Section 142 of the Act in this regard. The Directors believe that the proposals described represent the appropriatesteps to be taken to deal with this situation. Shareholders should be awarethat, without the approval of the Capital Reorganisation (as defined below), theCompany will be unable to complete the proposed placing of the SCLN and that, inlight of the concerns set out in the ''Fundamental Uncertainty'' paragraph ofthe auditors' report to the Company's financial statements for the year ended 31December 2004, the Directors would then have to review the Company's financialposition. The Directors also propose resolutions to cancel the Deferred Shares (as definedbelow) to be created and also its share premium account so that the Company cancommence the payment of dividends when it becomes appropriate. The CapitalReorganisation, more fully described below, will facilitate this as the Companycurrently has no distributable reserves. A notice of the Annual General Meeting for the year ended 31 December 2004 (''AGM'') is included with the document; the AGM will take place immediately beforethe EGM on 25 August 2005. Current trading and prospects The Chairman in his statement for the year ended 31 December 2004, explainedthat the disruption created by the late withdrawal from a potential reverseacquisition in July 2004 continued through the second half of the year resultingin significant operating losses and that, despite an improved level of activityin 2005 to date, the Company had continued to incur losses. Since the issue of that Statement on 30 June 2005, the Company has successfullycompleted as financial adviser the flotation of Byotrol plc on AIM with anassociated fundraising of £3 million before expenses. The flotation was wellreceived, with Byotrol's shares currently trading at a premium. The Companyearned significant fees as a result and will have a continuing stake inByotrol's future, both through a warrant in its shares and, the Directorsanticipate, a continuing advisory role. Together with other mandates completed or close to completion, this willcontribute to a substantial increase in turnover in the current trading period.With continuing work in progress and projects in the pipeline, the Directorsbelieve that they can look forward with greater confidence to the future. The Company is, the Directors believe, beginning to make good progress after adifficult year. The additional resources provided by the SCLN issue will, theybelieve, enable them to strengthen the corporate team and broaden the range ofservices offered to corporate clients. In addition to its present activities,the Company will continue to seek complementary investment opportunities toaugment these activities. Details of the Secured Convertible Loan Notes Conditional on the passing of the resolutions at the EGM, the Company will issue£500,000 2010 Secured Convertible Loan Notes, convertible into New OrdinaryShares at 2p per share and bearing interest at 1 per cent over Barclays BaseRate. The SCLN will be payable as to half immediately on the passing of theResolutions and the balance 65 days after issue. The SCLN will be convertible atany time up to the redemption date being five years from the date of issue. The SCLN would, if converted in full, be convertible into 25,000,000 NewOrdinary Shares representing 58.03 per cent of the issued share capital asenlarged by such conversion. Conversion will not be permitted if the holder orholders would thereby trigger an obligation under Rule 9 of the City Code onTakeovers & Mergers and any conversion will, if relevant, be subject to priorFSA approval of the holder as a controller in respect of Merchant Capital Plc,the Company's FSA regulated corporate finance subsidiary. The holders of the SCLN will have the right to nominate 2 non-executivedirectors to the Board for so long as the holders of the SCLN, acting in concertwith other Shareholders, hold SCLN and other Ordinary Shares in the Companywhich, assuming the SCLN were converted into Ordinary Shares, would in aggregateexceed 20 per cent of the issued share capital of the Company from time to time.The right of appointment is reduced to one director if the aggregate holdingdescribed falls between 10 and 20 per cent of the Company's issued share capitaland to none if the percentage falls below 10 per cent. The SCLN will be secured by a first debenture over all the assets andundertaking of the Company other than charges given by the Company over a rentdeposit and a credit card facility (''the Debenture''). After the issue of the SCLN, the Company will not, without the consent of theholder of the Debenture, issue any other loan notes or New Ordinary Shares orother transferable securities, other than in relation to the grant of options todirectors and executives of the Company, for as long as the percentageshareholding of the holders of the SCLN acting in concert would, assuming fullconversion into New Ordinary Shares, amount to 29.9 per cent or more of theresulting ordinary share capital of the Company. Redemption of the SCLN by the Company can be affected prior to the redemptiondate if the amount of SCLN outstanding is £50,000 or less. The holders of the SCLN are entitled to receive from the Company copies of theCompany's audited and interim results and circulars or notices issued toShareholders, but shall not have any right to attend or vote at general meetingsof the Company. The SCLN contain provisions that enable the SCLN then outstanding to beimmediately payable if any principal or interest shall not be paid in fullwithin 30 days after the due date, or if the Company is in material breach ofthe conditions, or suffers or commits an insolvency event. Working capital The Directors, having made due and careful enquiry, are of the opinion that,following the placing of the SCLN, the working capital available to the Companyis sufficient for its present requirements, that is, for at least the nexttwelve months. Warrants As noted above, in connection with the placing of the SCLN, warrants will beissued over 15 per cent of the fully diluted ordinary share capital of theCompany calculated at the date of issue of the warrants assuming full conversionof the SCLN, the exercise of any options in issue at the present date and anyplacing of shares made or agreed at the same time as the issue of the SCLN. Thewarrants will be exercisable at 2p per New Ordinary Share within three years oftheir date of issue and will be fully transferable. Capital Reorganisation At present, the authorised share capital of the Company is divided into225,000,000 Ordinary Shares of 5p each. It is proposed that each of the existingissued and unissued ordinary shares of 5p each be subdivided into one newordinary share of 0.5p (''New Ordinary Share'') and one deferred share of 4.5p(''Deferred Share'') and each of the unissued shares be subdivided into ten NewOrdinary Shares (''Capital Reorganisation''). The Deferred Shares would have norights to vote or to participate in dividends and would carry limited rights onany return of capital (whether on a liquidation or otherwise). Application willbe made to the Court to cancel these Deferred Shares. The Capital Reorganisationwill require the approval of Shareholders. Full details in relation thereto areset out in the resolutions forming part of the notice of the EGM at the end ofthis document. The Companies Act 1985 imposes limitations on the use of a company's capitalreserves (including its share premium account) which prevent it from beingdistributed to Shareholders. A company may, however, with the approval of itsshareholders in general meeting and the confirmation of the Court, reduce itsshare premium account and use the reserve so created to eliminate theaccumulated deficit on the profit and loss account in its balance sheet (''Capital Reduction''). As at 31 December 2004, the Company had in its share premium account a capitalreserve of £l,333,940. It is proposed that the share premium account becancelled along with the Deferred Shares so as to reduce the brought forwarddeficit in the revenue reserves. It is important to note that the CapitalReorganisation, by itself, has no effect on the Company's cash position. The Company will, if the requisite Shareholder approval is given, make suchapplications to the Court as will be necessary to obtain the Court'sconfirmation of the Capital Reduction. Extraordinary General Meeting Set out at the end of the document is a notice convening the ExtraordinaryGeneral Meeting of the Company to be held at the offices of Bircham Dyson Bellat 50 Broadway, Westminster, London SW1H 0BL at 11.15 a.m. on 25 August 2005 atwhich the following resolutions will be proposed: • Resolution 1 is a special resolution to approve the subdivision of the issued share capital. • Resolution 2 is a special resolution to approve the subdivision of the unissued share capital. • Resolution 3 is a special resolution to amend article 3 of the Articles of Association of the Company. • Resolution 4 is a special resolution to approve the Capital Reduction. • Resolution 5 is an ordinary resolution to approve the allotment of relevant securities under section 80 of the Act. • Resolution 6 is a special resolution to approve the allotment of relevant securities under section 95 of the Act. • Resolution 7 is an ordinary resolution to approve the issue of the Secured Convertible Loan Notes and the warrants. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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