Live Company Regulatory News (LVCG)

11 Sep 2006 16:59

Parallel Media Group plcChanges to business arrangements in Asia and restructuring of financingOn 16 August 2006, Parallel Media Group plc (the "Company" or "PMG") announcedthat it had entered into binding heads of agreement (the "Heads") for arearrangement of its Asian golf interests and that it was seeking to raisefunds to repay loans and to provide working capital and progress towardscompletion was indicated in an announcement dated 7 September 2006 and afurther announcement will be made in due course.PMG and the other parties to the Heads (the "Malaysian Shareholders") agreed on8 September 2006 that the agreement was capable of completion at that time butthat in order to ease the transition of certain banking arrangements, thepayment of the amounts defined in the Heads would now be scheduled for 28September 2006. Save for this variation of timing no other terms of the Headswere varied.PMG announces that it has entered into commitments for the raising of ‚£3.0million by the issue of shares, convertible loans and loans to enable therepayment of old loans now required on 28 September 2006 and to provide workingcapital.Full details of these arrangements are detailed below.BackgroundSince 2003, PMG's interests in its PGA European Tour golf tournaments held inAsia have been owned by an associated company, Parallel Media Asia (2003)Limited ("PMA"), and its subsidiary. PMA was established with Malaysianfinanciers and PMG holds a minority interest and receives commissions based onthe income of the tournament. It has become clear to the Board over recentmonths that the original intentions of the establishment of this arrangementwere not being achieved and, in particular, the expansion of PMG's golfinginterests in Asia and the cash flow PMG was receiving from the existinginterests were not satisfactory.The Board also established that this arrangement was not achieving theobjectives of our partners. Accordingly, negotiations were entered into with aview to dissolving the partnership and sharing the events managed by the PMAGroup between the two groups. Notwithstanding the Dissolution, it is likelythat the two groups will work together in the future on specific projects.In addition, the Board decided that the level of the Company's borrowings (muchin convertible form) was unacceptably high and unsustainable in the longerterm. As a result, the Board has held discussions with the major creditors(including the Malaysian Shareholders) with a view to improving this situationa further announcement will be made in due course.Agreements with the Malaysian ShareholdersThe detailed terms of the dissolution are being reflected in two agreements(the "PMA agreements") to be entered into by PMG and the Malaysian Shareholdersreflecting the matters dealt with in the Heads. These terms are in summary: * PMG will transfer its shareholding in PMA to certain of the Malaysian Shareholders * PMG will acquire the rights to stage the UBS Hong Kong Open and the TCL Classic golf tournaments * Amounts due from PMA to PMG will be settled (in part by the novation of PMG's bank loan to PMA) * All shareholder agreements (including those whereby PMG receives commissions on the income of the tournaments run by PMA) will be terminated Finally, and as part of the balance sheet restructuring further detailed below,PMG will, at Completion, for ‚£1.9 million, repay the convertible loans made bythe Malaysian Shareholders to PMG (net of cash received from PMA in respect ofthe Dissolution) and by the end of November 2006 will repay the remaining ‚£376,684 of unsecured loans made by the Malaysian Shareholders to PMG. Inrespect of the latter repayment, the Company has the option to satisfy it bythe issue of shares at a discount to the then market price of the Company'sOrdinary Shares.Fund raisingThe Company has entered into agreements with investors to raise an aggregate of‚£3.0 million to enable the transactions outlined above to be completed and toprovide working capital for the Company. ‚£0.49 million is being raised by theissue, today, of 39,400,000 new ordinary shares of 0.5p per share at an issueprice of 1.25p (with 2 million new ordinary shares being issued in payment ofcommissions on the funds raised, ‚£2.13 million is being raised by the issue ofconvertible loan stock which will convert at 1.65p (or 1.25p if interestpayments are waived) and the arrangement of new borrowing facilities of ‚£1.1million, ‚£0.84 million of which is bridging finance and will be repaid from theproceeds of the issues described in this paragraph.The issue of the new ordinary shares was conditional upon the Heads becomingcapable of completion and the Board have concluded that this condition has beensatisfied.While the above fund raisings and commitments will enable the Company tocomplete the Malaysian Agreements and have sufficient working capital to tradesatisfactorily in the future, it is the Company's intention to issue furthernew ordinary shares in the coming months to complete the process of stabilisingthe Company's balance sheet and to ensure that future loan repayments can bemet when due.Details of the convertible loansPMG has agreed to issue four separate amounts of convertible loan, none ofwhich is expected to become publicly traded. Brief details of the principleterms of these are: i. An amount of ‚£1 million to be drawn down in four separate and equal tranches upon satisfaction of certain conditions over coming months. The conditions relating to the first and second tranches are completion of this funding round to the satisfaction of the investor. The Directors believe that they have satisfied the first condition already and will satisfy the second in due course. The third tranche is conditional upon the appointment of a new Chief Operating Officer (an intention referred to in the Chairman's statement accompanying the results to 31 December 2005). The fourth tranche is conditional on the Company's profit before interest and taxation for the first quarter of 2007 not being materially less than budget of ‚£71,000 (for which a substantial part of the revenues have been committed already). The loan is repayable (if not previously converted or repaid) three months after the publication of the Company's accounts to 31 December 2007. The investor may also require repayment of any part of the loan already drawn down if these conditions are not satisfied. The amount bears interest at LIBOR for Euros plus 2% and, up to 3 months before the final repayment date, is convertible (if interest is drawn by the investor) based on a price of 1.65p per share or (if interest is never drawn) based on a share price of 1.25p. ii. An amount of ‚£0.60 million which can be drawn down in two separate tranches, ‚£600,000 on or before 28 September and ‚£600,000 on or before 2 December dependent upon the completion of this fund raising to the satisfaction of the investor. The terms as to interest and conversion are the same as those of the first amount. iii. An amount of ‚£0.18 million which can be drawn down immediately, bears interest at the same rate, conversion rate and repayment date as the two loans listed above. iv. An amount of ‚£0.35 million which is initially provided by way of interest free loan from David Ciclitira and which, if not repaid by 30 June 2007, may become at the election of Mr. Ciclitira an interest free convertible loan, convertible at any time until repaid on the basis of a share price of 1.25p. Financial effectsThe immediate impact of the Dissolution upon the profit and loss account of thePMG Group results from a number of factors. This is best exemplified throughthe figures in respect of the year to 31 December 2005, the last completed yearof both the PMG Group and the PMA Group. PMG earned net commissions of ‚£0.67million from the five events run by the PMA Group and accounted for a loss onthe results of its investment in PMA of ‚£0.39 million. In that same year andbased on the management accounts prepared jointly by PMA and PMG, the twotournaments to which PMG would assume the promotion rights under theDissolution, had turnover of ‚£3.5 million and, after allocating the overheadsof PMA between the tournaments but before charging the commissions which wouldbe terminated by the Dissolution, a profit before tax of ‚£0.48 million.Accordingly, based on these numbers, the simple effects of the Dissolutionwould be beneficial to the profit and loss account of the PMG Group. TheDirectors consider that the level of overheads which PMG will take on to runthese tournaments will be considerably lower than that apportioned by PMA tothese events. In addition, there would be a number of other benefits to thetransaction which should lead to increased trading profitability over comingyears resulting from: * PMG being released from an obligation to put all new tournaments and activities in Asia into PMA; * PMG being in control of its own cash flow from the two tournaments - to date there have been delays in the payment of commissions due to PMG from the PMA Group; * the outstanding amounts due from PMA to PMG being settled; * the bank loan which is currently on PMG's balance sheet (although PMA has assumed responsibility for funding interest and capital repayments as repayment of amounts otherwise due to PMG) being transferred to PMA or repaid. Finally, the settlement of the substantial majority of the existing convertibleloans and certain creditors by the issue of shares should reduce the Company'sinterest expense.Application for Admission to AIMApplication has been made for 41,400,000 new Ordinary Shares of 0.5p each to beadmitted to trading on AIM and it is anticipated that such admission willbecome effective and that dealings in the new ordinary shares will start on 12September 2006.For further information, contact:David Ciclitira, Chairman, Parallel Media Group plc 020 7225 2000ENDPARALLEL MEDIA GROUP PLC