Proposed acquisition of Cheque Exchange Limited, (CEL)

Placing of up to 6,538,462 New Ordinary Shares of 1p each, fully paid, at a minimum of 13, and £2.25 million of Convertible Loan Notes 2012 at par to raise £3.1 million before expenses.

Request for suspension of shares from trading

 

Introduction

Hertford International (AIM: HIG, "Hertford"), a company that currently specialises in the pre-paid debit card market, is pleased to announce the proposed Acquisition (the "Acquisition" or "Transaction") of Cheque Exchange Limited ("CEL"), a profitable nation-wide cheque cashing and money remittance business from Provident Financial Plc (LSE: PFG,"Provident"). The proposed Acquisition, for the purposes of the AIM Rules, would constitute a reverse take-over and, as such, requires the approval of shareholders at a General Meeting. The proposed Acquisition is, inter alia, conditional on the reaching of a renewed agreement with MoneyGram for which CEL has held the super agency since 2000, the passing of such relevant Resolution(s) at a General Meeting and the Admission of the whole of the enlarged issued share capital to trading on AIM. A circular to shareholders setting out the details of the proposed Acquisition is expected to be posted to shareholders in the near future.

Until such time as the full details of the transaction can be provided to shareholders in the form of a circular the Company has requested its shares to be suspended from trading on AIM.

The total consideration is £3 million to be settled with an initial cash payment of £1.25 million due on 30 January 2009, a further payment of £1.25million on 31 July 2009 and the balance of £500,000 due to be paid in two equal annual instalments of £250,000 in January 2010 and 2011.

Funding for the proposed acquisition has been secured by Hertford through a combination of issuance of shares in an underwritten placing and convertible loan notes. The Placing has been underwritten and the Convertible Loan Notes have been entered into by Dexapoint, currently a significant shareholder. The independent directors consider, having consulted with the Company's nominated adviser, that the terms of the transaction are fair and reasonable insofar as its shareholders are concerned. Further details of the convertible loan notes and the underwriting agreement can be found below.

Subject to shareholder approval and certain other conditions, completion of the Transaction is expected to be in January 2009.

This acquisition will provide Hertford with an established operational infrastructure, a sales force, and positive cash-flow. It also presents the opportunity to reduce the cost of some currently outsourced services and will enable the Company to acquire a distribution network which will be utilised to sell existing and other planned Hertford products and services.

 

Importantly, as part of this transaction, Hertford has signed, subject to successful completion of a pilot currently being run, a three year deal, to be the exclusive provider of door-to-door cheque cashing services through the Provident network, potentially targeting over 1.7 million home consumer credit customers.

Commenting on the proposed acquisition, Lewis Findlay, Chief Executive of Hertford said, "This is a transformational deal for Hertford. The addition of Cheque Exchange Limited, a cash generative business, provides Hertford with an established customer base, an outstanding distribution network, and healthy diversification of our product base. We believe that Cheque Exchange currently represents approximately 5% of the entire UK third party cheque cashing market, as well as being the largest independent MoneyGram agent. We look forward to building upon this superb business, and are confident that Hertford can substantially increase this market share, as well as capitalising upon further significant opportunities to cross-sell a range of complementary products and services, including a new suite of Crewcard Network pre-paid debit card products which will be launched imminently."

He added, "There can be no doubt that in these credit squeezed times, individuals often find the ability to cash a cheque, or borrow money in the short term, immensly helpful with managing their finances. Many third party cheque cashing operators are currently stating that they have seen significant growth in these areas in recent months.

Chris Gillespie (Managing Director of Consumer Credit Division ) said "We are delighted to be transferring control of Cheque Exchange Limited to Hertford International, as we believe their management have demonstrated to us their ability to grow Cheque Exchange Ltd.  We look forward to working with them in future."

 

Contacts:

Hertford International Group Plc Tel: +44 (0) 20 3178 4444

Paul Marks, Non-Executive Chairman

Lewis Findlay, Chief Executive Officer www.hertfordinternationalgroup.com

 

Zimmerman International Limited Tel: +44 (0) 20 7060 1760

Graeme Thom

Charity Walmsley/ Mira Shukanayeva www.zimmint.com

 

Hythe Securities Tel: +44 (0) 20 7713 6688

Menaz Metha

Tavistock Communications Tel: +44 (0) 20 7920 3150

Jeremy Carey

Matt Risdale www.tavistock.co.uk

 

Further information

About Cheque Exchange

CEL was incorporated in 1994 with the purpose of enabling persons without a bank account to cash cheques issued to them as 'payee' following upon legislation which made the cashing of cheques more regulated. CEL is a founder member of the British Cheque Cashers Association which was formed to introduce codes of practice in order to encourage banks to offer these facilities. CEL's business model is the provision of simple financial solutions through a nationwide agency network. The principal business was third party cheque cashing. In January 2000 CEL took on the UK super agency for MoneyGram and has grown a nationwide agency network around 750 agents of which approximately 500 outlets support MoneyGram and around 420 support third party cheque cashing with some agents doing both. MoneyGram is an international payment services operation with more than 157,000 outlets in 180 countries or territories.

CEL is profitable having made a profit before taxation of £257,918 for the year ended 31 December 2007 on net assets for the same period of £459,919.

Background

At the time of the Company's admission to AIM in December 2007 the Directors indicated that they would pursue a strategy of seeking opportunities in new technologies, payment systems or value added services. The Directors were also of the view that the admission would provide them with access to development capital and, in consequence, allow them to make complementary acquisitions. It is the opinion of the Directors that the proposals meet their essential criteria.

Reasons for and benefits of the Acquisitions

The Directors believe that the addition of CEL as a cash generative business, will significantly improve the cash flow of the enlarged group. This fact, together with the Company's impending launch of the new Crewcard Network products, will permit the Company to offer a range of products and services similar to those currently offered by other consumer financial companies.

Furthermore, the addition of CEL and its retail network supported by its business development managers should help the Company maximise customer acquisition and increase revenue.

The Directors also believe that, in addition to CEL's distribution platform providing an enhanced retail presence, CEL may provide the enlarged group with an opportunity to bring in-house some services currently being out-sourced.

Moreover, the Directors see opportunities to:

• strengthen the existing CEL management team;

• increase its product and servicing offering;

• recruit more busines development managers; and

• expand its retail network.

Current Trading and Trends

CEL is continuing to trade profitably. Hertford's first six months as a public company, have resulted in a limited amount of trading as it wished to ensure that it's suite of products were both compliant from financial and regulatory standpoints whilst, at the same time, being user friendly from a customer's point of view.

Hertford's business strategy is to seek potential partners or synergous acquisitions to strengthen and enhance the value of it's customer proposition. The Directors believe that CEL meets these criteria of providing a significant prospect to grow shareholder value.

The total number of employees of Hertford and CCN, including the Executive Directors, at the date of this document is 15. CEL employs approximately 60 staff which will bring the number of employees of the Enlarged Group to approximately 75.

Intellectual Property

The enlarged group will use copyrights, trademarks, websites, domain names and confidential information in carrying on its business from time to time. Other than registered trademarks and domain names neither Hertford nor CCN has any material intellectual property of its own, which is consistent with CCN's business model. CCN is therefore dependent on the intellectual property, software and processing facilities to be provided to it by its partners and suppliers. CCN intends to develop intellectual property rights in marketing and branding materials it produces and commissions as time goes on. Don't we already have this?

Four registered trademarks, currently in the name of Provident Financial plc, will be acquired by CEL as part of completion of the proposed Acquisition of CEL, namely N&N®, Simple Finance Solutions®, JustCash® and JCash®. Other than this CEL does not have any material intellectual property.

Reasons for the Fund Raising and use of the Proceeds

The Directors believe that the Company has benefited from the higher profile resulting from its admission to AIM last December and that this will continue to enhance its commercial relationships. The funds raised are intended to be used to fund the acquisition, accelerate the implementation of the Company's development strategy and provide additional working capital.

Committment by Dexapoint

The Company has raised conditionally £0.85 million, before expenses, through a placing of up to 6,538,462 New Ordinary Shares of 1p each, fully paid, at a minimum of 13p ("Placing Shares"). The Placing Shares will rank parri passu with the existing ordinary shares ("Ordinary Shares"). The Placing Shares will represent 13.29 per cent of the enlarged issued share capital. Additionally the Company has raised conditionally £2.25 million, before expenses, through the issue of £2.25 million of Convertible Loan Notes 2012 at par.

Dexapoint, which at the date of this document, is interested in 10.91 per cent. of the Company's Ordinary Shares and has Convertible Loan Notes and attached warrants outstanding, has underwritten the fund raising up to £3.1m. through a combination of Convertible Loan Note and Placing Shares. Dexapoint has undertaken not to exercise any of its rights of conversion or warrants attached to its various new agreements, if as a result of such conversion it (together with persons acting in concert with it, as defined in the Code) would hold 30% or more of the entire issued share capital of the Company after conversion without obtaining a waiver ("Whitewash") from the obligations of Rule 9 of the Code for Dexapoint to extend offers to the other shareholders as required by the Code.

Dexapoint has signed an undertaking to subscribe for up to 5,666,667 shares at a placing price of 15p per share (the "Undertaking") in the case no other placees can be found. In the case of other parties subscribing for shares Dexapoint shall be allowed to subscribe at such price as may be agreed but in no case shall be forced to subscribe for more than 6,000,000 shares. In the event that Dexapoint is obliged to honour its Undertaking, in full, Dexapoint would hold a total of 10,321,666 ordinary shares representing up to 21.65 per cent of the enlarged issued share capital. Attached to the Undertaking are warrants that entitle Dexapoint to subscribe for 1,888,889 at 15p plus one additional share for every six shares underwritten pursuant to the Undertaking but limited to a maximum number of 944,445.

Additionally Dexapoint has signed a 10% Convertible Loan Note agreement 2012 in the amount of £1,000,000 ("Loan I") and a 10% Convertible Loan Note agreement 2012 in the amount of £1,250,000 ("Loan II")(together the "Loans"). Both Loans carry attached warrants which can be exercised for 5 years. The Loans are convertible at a price of 13p per share between the dates of the agreements until 31 December 2009, at a price of 15p per share from 1st January 2010 to 31 December 2010 and at a price of 17p per share from 1st January 2011 to 31 December 2012.

Loan I can be drawn down at any time in any amounts until 31 December 2009. The warrants attached to Loan I give Dexapoint the right to subscribe for 500,000 shares at a price of 20p per share, 1,666,667 shares at a price of 15p per share and one share for every four shares converted pursuant to Loan I at a price of 15p per share. Loan II may only be drawn down subject to HIG having acquired CEL, in one amount and from 1 February 2009 to 31 August 2009. The warrants attached to Loan II give Dexapoint the right subscribe for 500,000 shares at a price of 20p per share, 2,083,333 shares at a price of 15p per share and one share for every four shares converted pursuant to Loan I at a price of 15p per share.

Dexapoint's Undertaking and holding of the new Convertible Loan Note entitles it to rights to a maximum of ordinary shares totaling 35,217,949 which, if exercised, together with other existing options and warrants, would increase its aggregate holding to 45,010,832 and represent 53,9 per cent of the Company's enlarged issued share capital.

Lock-ins and Orderly Market Arrangements

At the time of the Company's admission to AIM and in accordance with Rule 7 of the AIM Rules for Companies each of the Directors (other than Lewis Findlay who was not a director of the Company at that time), certain shareholders and applicable employees agreed, subject to certain limited exceptions (as permitted by the AIM Rules), not to dispose of any of their interests in Ordinary Shares for a period of twelve months from 24 December 2007. They also agreed during the period 24 December 2008 and 24 December 2009 only to dispose of any interest in Ordinary Shares held by them through the Company's broker(s) in a manner which maintains an orderly market in the Ordinary Shares. Lewis Findlay , who has purchased shares in the Company, has signed a similar lock-in and orderly market agreement to run from the date of admission.

Dividend Policy

The Directors do not intend that the Company will pay a dividend in the foreseeable future but they will consider the payment of future dividends as and when the growth and profits of the Company available for distribution allow.

Employee and Director Share Options

The Directors consider that share options are an important part of the Company's remuneration policy. Accordingly, the Company established the Share Option Scheme. Options under the Share Option Scheme have been granted to Directors and employees totaling 11.26 per cent. of the Enlarged Issued Share Capital assuming the issue of 5,666,667 Ordinary Shares in the Placing at the date of Admission, and the Directors intend and will have authority (subject to the passing of the Resolutions) to increase this pursuant to the rules of the Company's share option schemes at the date of Admission in due course.

Settlement and Dealing Arrangements

Monies received from placees in respect of the Placing Shares will be held in accordance with the terms of the placing letters issued to such placees by 22 January until such time as the Placing Agreement becomes unconditional in all respects. If the Placing Agreement does not become unconditional in all respects by 22 January 2008, or such later date as the Company and ZAI may agree, being no later than 30 January 2009, monies received from placees will be returned to placees at the relevant placees' sole risk without interest.

Following Admission, share certificates representing the Placing Shares are expected to be dispatched by post to placees who do not wish to receive shares in uncertificated form, by no later than [9] February 2009, at the relevant placees' sole risk. No temporary documents of title will be issued in connection with the Placing. Pending the dispatch of definitive share certificates, instruments of transfer will be certified against the register of members of the Company. The CREST accounts of placees who have duly elected to receive their Ordinary Shares in uncertificated form are expected to be credited to the designated CREST account by [28] January 2009.