Regulatory News

Hertsford Capital PLC ("Hertsford" or "Company")

Proposed Acquisition of OTAQ Group Limited

Proposed Waiver of Rule 9 of the Takeover Code

Share Consolidation

Placing of 2,608,694 new Consolidated Shares of 15p each

at a price of 57.5 pence per new Consolidated Share

and

Notice of General Meeting

Hertsford Capital plc (LON:HERT), announces that it has conditionally agreed to purchase the entire issued and to be issued share capital of OTAQ Group Limited ("OTAQ") and its subsidiaries ("OTAQ Group").

Highlights

·Acquisition of OTAQ for a consideration of £12.4 million, to be satisfied through the issue of 21,539,904 Ordinary Shares at 57.5 pence each (equivalent to 11.5 pence per ordinary share prior to the Consolidation)

·OTAQ designs, develops and supports marine technology products and solutions for the global aquaculture and offshore oil and gas industries. Their marine technology portfolio includes an acoustic deterrent system, designed to protect marine-based aquaculture sites from seal predation, with multiple systems deployed in Scotland, Chile, Finland and Russia.

·The strategy of the Enlarged Group is to build a business of significance within the aquaculture industry focussed on helping salmon farmers become more effective and helping them overcome challenges in their operations. Over time, the Enlarged Group intends to have a range of products designed to meet these needs that are based on a common infrastructure and a cloud-based information system. The strategy is to design, develop, install and support these products on an 'Infrastructure as a Service' basis on long-term rental contracts.

·To reflect the new direction of the Company, the Board is proposing to change the name of the Company to "OTAQ PLC"

Fundraising Highlights

·A conditional placing to raise approximately £1.5 million (before expenses) by the issue 2,608,694 Ordinary Shares at 57.5 pence per Consolidated Share (the "Issue Price").

·Subject to, inter alia, shareholder approval and admission to trading on the Standard segment of the Official List, the Acquisition of OTAQ and the Placing are expected to complete and trading will recommence on 31 March 2020.

A circular is being posted today to shareholders (the "Whitewash Circular") which sets out in more detail the background and reasons for the acquisitions, the placing and subscription, and certain other proposals and also includes a notice of General Meeting. A General Meeting of the Company is being convened for 10:00 a.m. on 27 March 2020 at the offices of Fladgate LLP, at 16 Great Queen Street, London, WC2B 5DG. The acquisition of OTAQ will constitute a reverse takeover for the purposes of the Listing Rules and will require the publication of a prospectus ("Prospectus"), prepared in accordance with the Prospectus Regulation Rules and setting out further information on the Proposals and the Enlarged Group and which will be published prior to Admission. The Prospectus will be posted to Shareholders prior to Admission as soon as it is available. The Whitewash Circular and the Prospectus will be available when published on the Company's website:http://hertsford-capital.com

1.  Introduction

The Board of Hertsford announced on 12 February 2020 that it was in discussions to acquire OTAQ Group Limited and requested a suspension in trading of its share capital on the London Stock Exchange.  OTAQ designs, develops and supports marine technology products and solutions for the global aquaculture and offshore oil and gas industries. Their marine technology portfolio includes an acoustic deterrent system, designed to protect marine-based aquaculture sites from predation, with multiple systems deployed in Scotland, Chile, Finland and Russia.

The Company today announces the proposed acquisition of OTAQ, to be satisfied by the allotment and issue of 21,539,904 Consideration Shares.  Following Admission, up to a further 1,481,912 new Consolidated Shares may be issued to the Directors of OTAQ upon the acquisition of OTAQ Shares following the exercise of the Options. The Acquisition values the issued share capital of OTAQ (excluding the Option Shares)  at £12.4 million and, including the Option Shares, at £13.2 million.  The Company has also agreed a fundraising through Dowgate Capital Limited to raise £1.5 million from the issue of 2,608,694 Placing Shares pursuant to the Placing.

Following the issue of the Consideration Shares, the Concert Party Placing Shares, the Concert Party Warrant Shares and the Option Shares, the members of a Concert Party will own, or be entitled to subscribe for, in aggregate up to a maximum of 36.36% of the Enlarged Share Capital of Hertsford, based on the assumptions as set out below.  The Acquisition is therefore conditional, among other things, upon the approval by Independent Shareholders of the waiver granted by the Panel of the obligation that would otherwise arise on any member of the Concert Party to make a general offer to Shareholders pursuant to Rule 9 of the Takeover Code.  Accordingly, the Board has convened a General Meeting at the offices of Fladgate LLP, 16 Great Queen Street, London WC2B 5DG on 27 March 2020 at 10.00 a.m. to approve the Proposals, including the Whitewash Resolution.

At the same time as the Acquisition, the Placing and the Waiver Proposal, the Board is proposing other consequential actions, including the consolidation of the ordinary share capital of the Company, with every five ordinary shares of £0.03 each to be consolidated into one ordinary share of £0.15 each and the authority to allot and issue new shares in connection with the Acquisition and Placing.  If the Acquisition proceeds, the Board plans to change the Company's name to "OTAQ PLC" and the Company's accounting reference date to 31 March to align with that of OTAQ.

Prior to Admission, the Company will publish the Prospectus, prepared in accordance with the Prospectus Regulation Rules, and setting out further information on the Proposals and the Enlarged Group.  The Prospectus will be available at the Company's website: http://hertsford-capital.com as soon as practicable following its publication.

2.  Background to the Acquisition and information on OTAQ

The Company listed on the standard segment of the Official List of the Main Market of the London Stock Exchange on 26 November 2018 as an investment vehicle with the aim of making acquisitions in the technology sector.

As stated in its initial prospectus, the Company is a cash shell which has focused on acquiring companies that provide specialised, mission-critical software solutions for specific industries such as business security, agriculture, renewable energy or sports. The Board believes that OTAQ meets this criterion as it designs, manufactures and supplies high technology products.

The Existing OTAQ Group supplies products to two industries:

(a)  aquaculture and in particular salmon farming, principally in Scotland and targeting growth in Chile in the near future; and

(b)  offshore oil and gas, predominantly in the North Sea.

The Existing OTAQ Group has aquaculture equipment operating in diverse geographical areas including Scotland, Chile, Scandinavia and Russia and is working with potential clients in Ireland, Australia and Canada.

Sealfence, the current core aquaculture product that the Existing OTAQ Group supplies, principally through fixed term rental contracts, significantly improves yields for the salmon farming industry by reducing the frequency of predator attacks using acoustic technology.  The International Salmon Farmers Association 2018 Report states that salmon farming represents almost $15.4 billion. This is compared with the global fish farming industry of $138.5 billion. Through recent acquisitions, the Existing OTAQ Group now also has expertise in underwater cameras, laser measuring devices and high integrity electrical connectors currently used by the offshore oil & gas and other markets.

OTAQ has a number of products in the early stages of development including a plankton/algal bloom early detection system and an active biomass measurement system.  It is not expected that commercial production of the plankton/algal bloom system technology will be possible for at least two years.  Although the Existing OTAQ Group still makes a small number of aquaculture equipment sales, it restructured its business model during 2015 to one focussed primarily on supplying its equipment on fixed term rental contracts with the Existing OTAQ Group responsible for installation and servicing.

The audited consolidated financial information of the Existing OTAQ Group for the year ended 31 March 2019 show total revenues of £1.577 million, EBITDA of £0.05 million and an operating loss of £0.343 million.

The unaudited interim financial information of the Existing OTAQ Group for the six months ended 30 September 2019 show total revenues of £1.757 million (including £0.704 million revenues from OTAQ Offshore and OTAQ Connectors), EBITDA of £0.315 million, an operating loss of £0.046 million and a loss before taxation of £0.143 million.

3.  Details of the Acquisition and the Placing

On 10 March 2020, the Company entered into the Main SPA with certain shareholders of OTAQ pursuant to which the Company agreed to purchase approximately 86% of the issued share capital of OTAQ, to be satisfied by the allotment and issue of 5,218 Consideration Shares for every share of OTAQ and permitting the Company to purchase the entire issued share capital of OTAQ pursuant to Drag Along Provisions in OTAQ's articles of association.  OTAQ has commenced the Drag Along Process, which will be completed prior to Admission. As a result of these actions, Hertsford will purchase the entire issued share capital of 4,128 OTAQ Shares at Completion. Following Admission and pursuant to the terms of the Acquisition, and when the Options are exercised and the resulting OTAQ Shares are purchased by the Company the Company will be obliged to issue up to a further 1,481,912 Option Shares to acquire such OTAQ Shares.

Completion of the Acquisition is conditional upon:

(i)  the approval of the Whitewash Resolution by Independent Shareholders;

(ii)  the approval of the other resolutions put to the Shareholders at the General Meeting;

(iii)  the Placing Agreement becoming unconditional save for Admission;

(iv) there being no material adverse change in the business, operations, assets, liabilities, condition (whether financial, trading or otherwise), prospects or operating results of the Company or OTAQ; and

(v)  Admission becoming effective by not later than 8.00 a.m. on 31 March 2020 (or such later time and/or date (not being later than 9 April 2020) as Dowgate and the Company may agree.

The Company has also entered into the Placing Agreement with Dowgate which, as placing agent for the Company, has conditionally placed the Placing Shares at the Issue Price to raise approximately £1.5 million before expenses. 

The Placing Shares will represent approximately 8.54 per cent. of the Enlarged Share Capital immediately after Admission.

Pursuant to the terms of the Acquisition and the Placing:

(i)  each shareholder of OTAQ has undertaken not to dispose of any of their Consideration Shares until the earlier of (i) 150 days after Admission (defined below) and (ii) the date on which Hertsford announces its preliminary results for the period ended 31 March 2020 (Lock-in Period); and

(ii)  each shareholder of Hertsford who is also a shareholder in OTAQ has undertaken not to dispose of any of their holdings of Existing Ordinary Shares during the Lock-in Period; and

(iii)  those members of the new Board who will be shareholders on Admission (being myself, Phil Newby, Sarah Gills and George Watt) and Jagjit Mundi, the retiring Chairman of OTAQ, have agreed not to dispose of any of their holdings of Ordinary Shares, Consideration Shares, Placing Shares or Option Shares (as applicable) for a period of twelve months from the date of the Acquisition and they will be subject to orderly market provisions for a further twelve months thereafter.

Nothing in the undertakings referred to in (i) (ii) or (iii) above shall prevent a Shareholder from agreeing to accept an offer for the Company's shares either before or after its announcement, or from accepting a general offer for the Company during the Lock-in Period.

4.  Proposed Board Changes

On Completion, but subject to Admission, Harry Hyman and Rodger Sargent will resign as Directors of the Company.  Alex Hambro will assume the role of non-executive Chairman of the Company and Sarah Gills will continue as a non-executive Director.

The following individuals will join the Board:

Philip Newby (Chief Executive-designate)

Phil joined OTAQ in June 2014 as commercial director and was appointed chief executive in March 2016.  From 1993 to 1996 Phil was general manager of Unique Systems LLC an offshore equipment rental business operating in the Middle East and India. From 1996 to 2011 Phil was chief executive of Trelleborg Offshore Barrow-In-Furness Limited, a business that supplied flowline and cable protection to the offshore oil and gas industry. Phil joined Unique Systems Russia LLC which was  developing umbilical systems for commercial diving operations.

Simon Walters (Chief Financial Officer-designate)

Simon has been Finance Director of a number of Listed and AIM-quoted companies including Shani plc, Bilston & Battersea Enamels plc, AFC Energy plc and Neville Porter plc.  Since 2003, Simon has provided finance director services to a portfolio of listed and unlisted companies in various sectors, currently through Headline FD Limited, of which he is a director.

George Watt (Non-Executive Director-designate)

George started his career with KPMG where he qualified as a chartered accountant and worked for 10 years in the UK and the United States. He then joined STV Group plc in 1999 where he spent 20 years as chief financial officer before retiring from the board in 2019. George is currently non-executive chairman of Spaceandpeople PLC, an AIM quoted destination media and retail solutions specialist operating in the UK and Germany, and has held other non-executive director positions in the technology sector.

5.  Change of Name

The Directors will resolve, in accordance with the Articles and conditional upon Admission, to change the name of the Company to "OTAQ PLC", with such change of name to become effective upon the issue of a certificate of incorporation on change of name by the Registrar of Companies. It is intended for the Company's website address to be changed to www.otaq.com.

6.  Change of Accounting Reference Date

The Directors will resolve, in accordance with the Articles and conditional upon Admission, to change the Company's accounting reference date (which is currently 30 June) to 31 March by shortening the current accounting reference period.

7.  The Concert Party

Certain of the shareholders of OTAQ are considered to be "acting in concert" for the purposes of the Takeover Code (as such term is defined in the Code).  Under the Takeover Code, a concert party arises where persons acting together pursuant to an agreement or understanding (whether formal or informal) co-operate to obtain or consolidate control of, or frustrate the successful outcome of an offer for, a company subject to the Takeover Code. Control means an interest or interests in shares carrying, in aggregate, 30 per cent. or more of the voting rights of the company, irrespective of whether the holding or holdings give de facto control.  

By virtue of presumption 9 of the definition of acting in concert in the Takeover Code, shareholders in a private company, such as OTAQ, who sell their shares in that company in consideration for the issue of new shares in a company to which the Takeover Code applies, are all presumed to be acting in concert.  However, the Panel has agreed to rebut presumption 9 of the definition of acting in concert in respect of the majority of OTAQ's shareholders.

As a result, the Concert Party consists of three groups:

(i)  the directors, senior management and consultants of OTAQ and their families;

(ii)  Dowgate, which acts as broker to both companies, together with its directors, controller(s), families and associates of the directors of Dowgate; and

(iii)  those Directors of Hertsford who have shareholdings in OTAQ, together with their families and associates.

For the purposes of Rule 9, the Takeover Panel considers the Concert Party to be a single entity. In aggregate, the Concert Party is interested in 38.58 per cent of the share capital of OTAQ and 10.06 per cent of Hertsford's existing Share Capital in each case prior to the exercise of the Options and/or Warrants.  Certain members of the Concert Party have also undertaken to subscribe for Concert Party Placing Shares amounting to 210,094 Consolidated Shares pursuant to the Placing.

8.  Dispensation from the requirement to make a general offer under the Takeover Code

Immediately following the issue of the Consideration Shares and the Concert Party Placing Shares, the Concert Party will have acquired interests in Ordinary Shares carrying, in aggregate, 32.47 per cent. of the Enlarged Share Capital.  However, the maximum percentage which the Concert Party could hold, following the subsequent issue to members of the Concert Party of the the Concert Party Warrant Shares and the Option Shares, would result in a maximum aggregate holding of 36.36 per cent of the then Enlarged Share Capital on the basis of the Assumptions (as defined below). Accordingly, without a waiver of the obligations under Rule 9 of the Takeover Code, the Concert Party (and any party deemed to be acting in concert with the Concert Party) would be obliged to make a general offer to Shareholders under Rule 9 of the Takeover Code.

Pursuant to the Code, it is necessary to provide an illustration of the Concert Party's maximum potential interest in Ordinary Shares based on certain assumptions, namely that: (i) Completion occurs and the Consideration Shares are issued; (ii) no Placing Shares are issued other than the Concert Party Placing Shares; (iii) the issue of the Concert Party Warrants Shares occurs at the earliest opportunity (and that no other Warrant Shares are issued) and (iv) the issue of Option Shares occurs in full at the earliest opportunity (Assumptions).  The Assumptions result in 29,871,911 Consolidated Shares in issue, of which the Concert Party's maximum potential interest in the Ordinary Shares would be 10,862,223 Consolidated Shares, representing 36.36 per cent of the then Enlarged Share Capital based on the Assumptions.

The Panel has, however, agreed to grant a waiver of the obligation of the Concert Party to make a general offer under Rule 9 of the Takeover Code that would otherwise arise as a result of the issue to them of the Consideration Shares, Concert Party Placing Shares, Concert Party Warrant Shares and Option Shares, subject to Independent Shareholders approving the Whitewash Resolution (Resolution 1) on a poll at the General Meeting. To be passed, the Whitewash Resolution will require a simple majority of the votes cast on a poll by Independent Shareholders. Shareholders should note that if the Whitewash Resolution is passed by Shareholders at the General Meeting and the Proposals completed, the Concert Party, or any individual member thereof, will not be restricted from making an offer for the Company.

9.  Independent advice provided to the Independent Director

The Concert Party includes three Directors of the Company, Harry Hyman, Rodger Sargent and Sarah Gills, who are also shareholders in OTAQ.  Under the Takeover Code this precludes them from providing with any opinion or recommendation in respect of the Waiver Proposal and the Whitewash Resolution. As members of the Concert Party they are also excluded from voting in their capacity as Shareholders on the Whitewash Resolution.

In addition, there are a number of other Shareholders that also hold shares in OTAQ.  The Company has agreed with the Panel that such persons are not Independent Shareholders and so are not eligible to vote on the Whitewash Resolution.  The Independent Shareholders have an interest in 19,697,488 Existing Ordinary Shares representing approximately 61.55 per cent. of the Existing Ordinary Shares.

As required by The Takeover Code, Alex Hambro, the Independent Director, has obtained competent independent advice regarding the merits of the transaction which is the subject of the Whitewash Resolution, the controlling position which it will create, and the effect which it will have on Shareholders generally. Accordingly, EGR, as the Company's independent financial adviser, has provided formal advice to the Independent Director regarding the Acquisition and the Whitewash Resolution.  The Independent Director, having been so advised by EGR, considers the Proposals to be be fair and reasonable and in the best interests of the Independent Shareholders and the Company as a whole.  In reaching its advice, EGR has taken into account the Board's commercial assessments.

10.  Intentions of the Concert Party

At present the Company is a cash shell with no operating business, no fixed assets, no research and development function and has no employees or defined benefit pension schemes.  On completion of the Acquisition the Company will become the holding company of OTAQ and the Company's existing strategy will cease and its financial and trading prospects will be dependent on the performance of the Enlarged Group. The Concert Party has confirmed that, following completion of the Proposals and Admission, its intention is that the strategy and business of the Enlarged Group will be the design, development, provision and support of marine technology for use in the aquaculture industry and the offshore oil and gas industry and that the Company's headquarters and headquarter functions (including registered office) will be moved to the offices of OTAQ in Lancaster.

The strategy of the Enlarged Group is to build a business of significance within the aquaculture industry focussed on helping salmon farmers become more effective and helping them overcome challenges in their operations. Over time, the Enlarged Group intends to have a range of products designed to meet these needs that are based on a common infrastructure and a cloud-based information system. The strategy is to design, develop, install and support these products on an 'Infrastructure as a Service' basis on long-term rental contracts.

OTAQ will remain in control of all material aspects of its products. The Concert Party believe that it is important to develop innovative products and differentiate OTAQ in the marketplace. Using its heritage in sub-sea technology and engineering for the offshore oil and gas markets, the Existing OTAQ Group develops and continuously improves its products using its own mechanical, electronic and software engineers, all with decades of combined experience in bringing underwater technology products to market. The Existing OTAQ Group's management team has many years of combined experience in aquaculture, marine and underwater technology products.

11.  Share Consolidation

The Directors consider that it is in the best interests of the Company's long term development as a public quoted company to have a more manageable number of issued ordinary shares with a higher share price.  The Share Consolidation will comprise the consolidation of every five Existing Ordinary Shares into one Consolidated Share.  Immediately prior to the date of this announcement, the Company had 32,000,001 Existing Ordinary Shares in issue. To effect the Share Consolidation, the Company intends, immediately prior to the General