RNS Number:3244M
Poptones Group PLC
13 June 2003
Poptones Group plc ("Poptones" or "the Company")
Proposed Disposal of Poptones Limited
Statement on Capital
Notice of Extraordinary General Meeting
Introduction
The Independent Directors today announce the proposed disposal for a nominal
consideration of #1 (the "Disposal") of its trading subsidiary, Poptones
Limited, which in turn has holdings in each of Poptones Telstar 1 Limited,
Poptones Telstar 2 Limited (the "JV Companies"), Poptones Music Ltd and The Punk
Rock Film Company Limited (together the "Subsidiaries") to Alan McGee, the Chief
Executive and a director of Poptones. The result of the Disposal will be that
Poptones will become a non-trading company the majority of whose assets, before
costs and expenses relating to the Disposal, will be cash of approximately
#180,000.
Background
On 27 March 2003, the Board announced its interim results for the period ended
31 December 2002. In that announcement, it was stated that trading conditions
continued to be tough and that the Board was considering all available options
for the business.
Accordingly, following a strategic review, the Independent Directors have
agreed, conditional on shareholder approval, to dispose of the Subsidiaries to
Alan McGee. Before undertaking this Disposal, the Board considered a number of
alternatives and concluded that the best option available given the ongoing
losses being incurred was to dispose of the Subsidiaries to preserve the
remaining cash resources of the Company.
The key points are summarised below:
* Sale of the subsidiary Poptones Limited, which in turn has holdings in
each of Poptones Telstar 1 Limited, Poptones Telstar 2 Limited, Poptones Music
Ltd and The Punk Rock Film Company Limited to Alan McGee.
* Write-off of inter-company loans owed by Poptones Limited to
the Company taking into account the value of debtors, net of creditors.
* Alan McGee will be contractually committed to pay an override
royalty calculated on future profits and/or sales as outlined below.
* Resignation from the Board by Alan McGee and termination of his
service contract and the waiver of any payment in lieu of notice and/or
termination fees payable according to its terms. This will remove a potential
liability payable to Alan McGee of approximately #50,000.
* Aggregate cash, before expenses, following the Disposal of
approximately #180,000 million.
It has also been determined that the value of the Company's assets (net of its
liabilities) is less than half of its called-up share capital. In the
circumstances, the directors are obliged by Section 142 of the Companies Act
1985 (the "Act") to convene an extraordinary general meeting.
The Independent Directors (being Michael Blackburn, Ian Aspinall, Michael
Edelson and Julian Richer) who have been so advised by Altium Capital Limited,
consider the terms of the Disposal to be fair and reasonable, in so far as the
Company's shareholders are concerned. In providing its advice, Altium Capital
Limited has taken into account the commercial assessments of the Independent
Directors.
Altium Capital, which is regulated in the United Kingdom by the Financial
Services Authority, is acting exclusively for Poptones and no one else in
connection with the matters described herein and is not advising any other
person or treating any other person as its client in relation thereto and will
not be responsible to anyone other than Poptones for providing the protections
afforded to clients of Altium Capital or for providing advice in relation to
Poptones, the contents of this announcement or any other matters referred to
herein.
This summary should be read in conjunction with the full text of the
announcement set out below containing the details of the Disposal and which
forms part of this announcement.
13 June 2003
Poptones Group plc ("Poptones" or "the Company")
Proposed Disposal of Poptones Limited
Statement on Capital
Notice of Extraordinary General Meeting
1. Introduction
The Independent Directors today announce the proposed disposal for a nominal
consideration of #1 (the "Disposal") of its trading subsidiary, Poptones
Limited, which in turn has holdings in each of Poptones Telstar 1 Limited,
Poptones Telstar 2 Limited (the "JV Companies"), Poptones Music Ltd and The Punk
Rock Film Company Limited (together the "Subsidiaries") to Alan McGee, the Chief
Executive and a director of Poptones. The result of the Disposal will be that
Poptones will become a non-trading company the majority of whose assets, before
costs and expenses relating to the Disposal, will be cash of approximately
#180,000.
On 27 March 2003, the Board announced its interim results for the period ended
31 December 2002. In that announcement, it was stated that trading conditions
continued to be tough and that the Board was considering all available options
for the business. Accordingly, following a strategic review, the Independent
Directors have agreed, conditional on shareholder approval, to dispose of the
Subsidiaries to Alan McGee. Before undertaking this Disposal, the Board
considered a number of alternatives and concluded that the best option available
given the ongoing losses being incurred was to dispose of the Subsidiaries to
preserve the remaining cash resources of the Company.
Upon completion of the Disposal it is intended that Alan McGee will resign from
the board of Poptones and agree to the termination of his service contract and
the waiver of any payment in lieu of notice and/or termination fees payable
according to its terms. In addition, as part of the Disposal, Alan McGee will be
contractually committed to pay an override royalty calculated on profits and/or
sales as outlined below.
It has also been determined that the value of the Company's assets (net of its
liabilities) is less than half of its called-up share capital. In the
circumstances, the directors are obliged by Section 142 of the Companies Act
1985 (the "Act") to convene an extraordinary general meeting (the "EGM"). The
EGM will consider whether any, and if so what, steps need to be taken to deal
with the situation. Also, as the Company will, if the Disposal is approved, be
left with only one subsidiary, it is proposed that the name of the Company is
changed to Hawthorn Holdings PLC.
The Independent Directors (being Michael Blackburn, Ian Aspinall, Michael
Edelson and Julian Richer) who have been so advised by Altium Capital Limited,
consider the terms of the Disposal to be fair and reasonable, in so far as the
Company's shareholders are concerned. In providing its advice, Altium Capital
Limited has taken into account the commercial assessments of the Independent
Directors.
2. Background to and reasons for the Disposal
Poptones was floated on AIM on 8 August 2000 in conjunction with a #2 million
equity fundraising. The Company was established to take advantage of
opportunities within the music industry, specifically music production and
distribution, by creating a new independent record label run by Alan McGee (one
of the co-founders of Creation Records). However, as a small AIM traded
independent record label, Poptones has been unable to sign enough artists of
sufficient profile to enable it to achieve the record sales required to support
its initial strategy.
As a niche player, Poptones endeavoured to identify emerging trends in the music
industry, whilst attempting to control the cost of establishing and promoting
new artists. However, timing is critical to a strategy of this kind and with
diminishing cash reserves available to run the business and support its artists,
the Board concluded that the Company could no longer support this strategy.
Therefore, in 2002, given the continued operating losses following a major cost
cutting programme, the Board implemented a strategic review. As a result of this
review, Poptones established the JV Companies with Telstar Music Group Limited
in an attempt to better exploit the Company's contractual agreements with
certain artists.
However, following the interim results for the six months ended 31 December
2002, which reported further losses of #186,000 (2001: #588,000) it became
apparent that the business was unlikely to continue to be viable and the Board
undertook a further strategic review of the options available to the Company.
The scope of the review included, inter alia, Poptones continuing to pursue its
original strategy (which would require additional funding), disposal of the
Company, a merger or reverse takeover, the sale of the Subsidiaries (thereby
conserving the remaining cash) and/or a return of capital to shareholders.
Following this review, the Board concluded that the option which best served the
interests of the shareholders as a whole was to dispose of the loss-making
Subsidiaries and to conserve the remaining cash in the Company.
3. Details of the Disposal
The Disposal is a related party transaction under the AIM Rules as Alan McGee is
a director and substantial shareholder of the Company. Although the Board is not
required under the AIM rules to obtain the approval of shareholders for the
Disposal, the Independent Directors believe that, in light of the impact that
the Disposal will have on the activities of the Company and its nature as a
related party transaction, it would be best practice to seek the approval of
shareholders at a general meeting. Accordingly, an EGM to approve the Disposal
has been convened for 8 July 2003, to be held at Third Floor, 345 Stockport
Road, Manchester, M13 0LF.
Of the Subsidiaries, Poptones Music Limited and The Punk Rock Film Company
Limited have never traded, the JV Companies have traded at a loss for the period
to 30 June 2002 and Poptones Limited, (excluding the cancellation of all
relevant inter-company loans) had losses of #328,224 for the period to 30 June
2002 and #991,908 for the period to 30 May 2001. In accordance with Poptones'
previously adopted practice, subject to the finalisation of completion accounts,
it has been agreed that as part of the terms of the Disposal the inter-company
loans owed by Poptones Limited to the Company will be written-off with the
result that the net asset value, taking into account the value of debtors net of
creditors, will be zero. Accordingly, the Independent Directors have valued the
Subsidiaries at nil.
The proposed Disposal will be effected by way of the sale of the entire issued
share capital of Poptones Limited, for a nominal consideration of #1 to Alan
McGee and is conditional upon his resignation as a director and employee of the
Company and him waiving his entitlement to any payment in lieu of notice and/or
termination fees payable according to the terms of his service contract. This
will remove a potential liability payable to Alan McGee of approximately
#50,000. Furthermore, Poptones currently has 7 artists under contractual
arrangements, signed with either the JV Companies or one or other of the
Subsidiaries. Due to the nature of the record industry, and although not
currently expected by the Independent Directors, it is conceivable that any of
these artists could become sufficiently successful to generate substantial
revenue. Therefore, as part of the terms of the Disposal, Alan McGee is
contractually committed to provide additional consideration (the "Override
Royalties") as follows:
a) 30% of Poptones Limited's entitlement to recoverable profits in
excess of #50,000 generated by either or both of the JV Companies during the
period to 30 September 2004; and
b) a royalty calculated as a percentage of all sales, at the
published dealer price, of albums during the two year period commencing upon
completion of the Disposal, such percentage being 2 per cent. in respect of back
catalogue album sales and 1 per cent. in respect of future album sales in excess
of 100,000 units, increasing to 3 per cent. and 1.5 per cent. respectively once
album sales exceed 250,000 units.
A copy of the conditional disposal agreement between the Company and Alan McGee
may be inspected at Third Floor, 345 Stockport Road, Manchester, M13 0LF during
normal business hours on any week day (Saturday and public holidays excepted)
until the date of the EGM.
Following the Disposal, the Company will have no trading activities and will be
left with cash amounting to approximately #180,000 and a limited number of
creditors (mainly adviser costs incurred during the Disposal of approximately
#45,000). Upon completion of the Disposal, the Independent Directors have agreed
to resign as directors of the Subsidiaries but will, however, carry on as
directors of Poptones. The Independent Directors have also agreed to waive all
further fees in respect of their roles as directors following the completion of
the Disposal. The ongoing liabilities of the Company following the Disposal
should amount to approximately #4,500 a month, principally consisting of costs
and expenses in maintaining the Company's AIM status. Following the Disposal the
Independent Directors will look to identify suitable companies to whom the cash
and AIM status are attractive and to negotiate an appropriate transaction.
The Independent Directors, taking into account the fact that the Subsidiaries,
together with the salary of Alan McGee who will resign following the Disposal,
comprise the vast majority of the cash outflow of the Company, unanimously
recommend the Disposal.
4. Extraordinary General Meeting
An EGM to seek shareholder approval, inter alia, for the Disposal has been
convened for 10.30 a.m. on 8 July 2003 at Third Floor, 345 Stockport Road,
Manchester, M13 0LF at which resolutions (the "Resolutions") are being proposed
as follows:
1) an ordinary resolution to approve, inter alia, the Disposal
pursuant to section 320 of the Act and/or for all other purposes; and
2) a special resolution to change the name of the Company to Hawthorn
Holdings PLC.
Following best practice, given his interest in the Disposal, Alan McGee who has
a beneficial holding of 2,212,161 Poptones shares, representing 38.7 per cent.
of the issued share capital of the Company, will be excluded from voting on the
Resolutions.
5. Timetable
Set out below is a timetable which details the principal events relating to the
Disposal of the Subsidiaries:
Latest time and date for receipt of forms of proxy 10.30 a.m. on 7
July 2003
Extraordinary General Meeting 10.30 a.m. on 8
July 2003
Expected completion of the Disposal following shareholder by 5.00 p.m. on
approval 8 July 2003
6. Recommendation
The Independent Directors, who have been advised by Altium Capital Limited,
consider that the Disposal is in the best interests of the Company and its
shareholders as a whole. In providing its advice, Altium Capital Limited has
taken into account the commercial assessments of the Independent Directors.
Accordingly, the Independent Directors have unanimously recommended shareholders
to vote in favour of the resolutions proposed at the EGM, as they intend to do
so in respect of their beneficial holdings of 801,890 ordinary shares
representing approximately 14.0 per cent. of the issued share capital of the
Company (being 22.9 per cent. of the issued share capital of the Company
excluding Alan McGee's beneficial holding of shares).
Enquiries:
Poptones Group plc 07733 321426
Michael Blackburn, Chairman
This information is provided by RNS
The company news service from the London Stock Exchange
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