17 Sep 2010 13:20
17 September 2010
Motive Television PLC
("Motive" or "the Company")
Proposed acquisition of approximately 67.7 per cent. of Adecq Digital S.L.
Subscription for £4,750,000 nominal of Convertible Loan Notes and 71,250,000 Subscription Warrants and Admission to trading on AIM
The Board of Motive, ("MTV") the AIM quoted media Investment company specialising in television technology, is pleased to announce the proposed acquisition of Adecq Digital S.L. ("Adecq Digital"), which owns the Bestv® brand. As well as the acquisition, Motive is proposing to raise approximately £4.75 million through a Subscription for £4,750,000 nominal value of Convertible Loan Notes and 71,250,000 Subscription Warrants.
HIGHLIGHTS
·; Proposed acquisition of approximately 67.7 per cent. of Adecq Digital S.L. for a total consideration of £1,614,992
·; Adecq Digital acquisition offers the Company the opportunity to increase its size, increase its earnings potential and increase its presence in its chosen market
·; Conditionally raised £4,750,000 (before expenses) through a Subscription of Convertible Loan Notes and Subscription Warrants
·; Funds will be used to grow Adecq Digital, make certain debt repayments and to provide additional working capital for the Enlarged Group
·; In June 2009, Adecq Digital moved from research and development to trading
·; Adecq is now in advanced negotiations to provide its technology platform for a major European broadcaster. The Board hopes to reach a successful conclusion in the near future
·; The Digital Terrestrial Television ("DTT") sector offers many exciting opportunities and the potential for rapid growth due to the mandatory "switch over" from analogue television to digital in most of the 120 countries which are members of the International Telecommunications Union ("ITU") by 2015
·; The particular attraction for the Board of the Bestv® technology is that it is available today, in commercial operation and ready to roll out to global markets
Michael Pilsworth, Chairman of the Company, commented: "We have been looking at potential, complementary acquisitions targets for some time now and Adecq Digital was the obvious choice. We already own the global distribution rights for BesTV® (excluding Spain and Italy) and Adecq Digital has strong synergies with our recent acquisition, NXVision Limited. This acquisition further demonstrates the progress we have made in achieving our stated objectives. As the majority owner of the technology rather than simply being a distributor we are well placed to boost our earnings potential.
"We are delighted at the level of support that Motive has received during the subscription. The funds raised will be used to further develop Adecq Digital, to pay off outstanding debts and as additional working capital, leaving the Company in a much more financial stable position. We believe that this acquisition and fund raising will allow the Company to maximize its growth potential and increase shareholder value."
Leonard M Fertig, CEO of Motive, commented: "The Bestv® technology has the potential to revolutionise terrestrial broadcasting by giving DTT operators opportunities to participate in pay television as well as catch-up television on the TV set without need for the Internet. The board of Motive believes that this proposition is very exciting to broadcasters and that it is beginning to gain traction in the market."
Contact:
| Motive Television plc Mick Pilsworth
| T: 020 3080 9430 |
| Merchant Securities Limited (Nominated Adviser) Simon Clements / Virginia Bull
| T: 020 7628 2200 |
| Hybridan LLP (Joint Broker) Claire Noyce
| T: 020 7947 4350 |
| Jendens Securities Limited (Joint Broker) Jeremy Read / Justine Waldisberg
| T: 0203 372 2586 |
| Bishopsgate Communications Gemma O'Hara / Siobhra Murphy
| T:0 20 7562 3350 |
Introduction and Background
The Company is pleased to announce that it has today entered into a conditional agreement to acquire 1,470,100 ordinary shares in Adecq Digital, representing approximately 67.7 per cent. of its issued share capital, and is proposing to raise approximately £4.75 million through a Subscription for £4,750,000 nominal value of Convertible Loan Notes and 71,250,000 Subscription Warrants.
Adecq Digital, which owns the Bestv® brand, is a software developer of digital technology platforms for terrestrial broadcasters. As announced in July 2009, the Company already has a collaboration agreement with Adecq Digital to distribute its Bestv® digital terrestrial technology to broadcasters throughout the world (excluding Spain and Italy). The Company has already had some success with this collaboration on announcing the launch of two pilot schemes in August 2010. The first being with TV Nova, the Prague (Czech Republic) TV station owned by Central European Media Enterprises Limited and the second with Antenna Hungaria ZRT, a fully-owned subsidiary of Groupe TDF. Completion of the Acquisition is conditional, amongst other things, upon Shareholder approval, completion of the Subscription and Admission.
Motive was originally admitted to trading on AIM having acquired Setanta Television Limited (renamed Motive Television Limited) in May 2005. At that time the Directors stated their intention to acquire companies, or controlling interests in companies, in the television production sector, to expand on its initial offering and to build critical mass. However, the sector, including the Company, was adversely affected by the recession in 2008 and following a strategic review in early 2009 the Board changed its strategy and focused on the potential acquisition of businesses in the DTT sector. The Board believes that the DTT sector offers many exciting opportunities and the potential for rapid growth due to the mandatory "switch over" from analogue television to digital in most of the 120 countries which are members of the ITU by 2015. Adecq Digital is, in the opinion of the Directors, a complementary well managed business with interesting broadcast technology, and represents a suitable acquisition opportunity for the Company.
Information on Motive
At the time of its admission to trading on AIM (when it raised £750,000 before expenses), the Company sought to acquire controlling interests in independent television production companies.
Motive acquired 49.9 per cent. of the independent television producer, Brown Eyed Boy Limited, on 2 March 2006. On 22 June 2007 it established a joint venture, Luminous Productions Limited, with entertainment producer Cillian de Buitléar and acquired 75 per cent. (which was later reduced to 50.4 per cent.) of Manchester-based television production company, Scarlet Television Limited, on 21 August 2007. On 6 March 2008 the Company established another joint venture company, Rumble TV Productions Limited.
In 2008, the television production industry, in general terms, was badly affected by the credit crunch and the prevailing economic climate. As a result, commercial broadcasters saw their advertising revenue fall which led to cuts in the commissioning of new programmes and, in turn, a reduction of Group revenues. As a consequence, in 2009, the Company undertook a strategic business review. The review resulted in the Board, due to its extensive experience in the sector, identifying an opportunity in the DTT market, establishing a new division, Motive Digital, in order to seek to exploit the market opportunity presented by the "switch off" of analogue television, and deciding to exit its existing trading subsidiaries either through a sale or closure with a view to preserving the remaining cash in the Company. In line with this strategy, the Company has accomplished an exit from the majority of its previous businesses. The Directors propose to retain the Company's interest in Dublin based production company, Motive Television Limited, due to it having several long-term production contracts with Irish broadcasters which are currently revenue generating.
The Directors believe that DTT is set for rapid global growth with switchover from analogue to DTT mandated in most of the 120 countries that are members of the ITU by 2015. It is estimated that over one billion TV sets globally will be required to be upgraded or replaced to allow them to receive digital signals.
At the same time, TV viewing is moving from "linear viewing" (real time viewing) to "non-linear viewing" (non real time viewing); consumers are already using Youtube, Sky Anytime, BBC i-Player, and similar delivery systems to consume television programmes as and when they are available to view them. The Directors believe that traditional, linear, television channels are losing viewing and advertising share. VOD growth is very strong, with catch-up TV also proving very popular. In addition, the Personal Video Recorder ("PVR") market is growing strongly as a function of this move towards time-shifted, non-linear viewing.
In implementing the DTT-focused strategy the Board believes that Adecq Digital represents a suitable first acquisition, as its Bestv® technology allows DTT broadcasters to offer VOD and time-shifted viewing. Following completion of the Acquisition, the Board intends to grow the Enlarged Group through both the expansion of existing trade and by further acquisitions.
The particular attraction for the Board of the Bestv® technology is that it is available today, in commercial operation and ready to roll out to global markets.
Information on Adecq Digital
Adecq Digital, a Barcelona based software developer, which trades through its Bestv® brand, was founded by Giuseppe Flores d'Arcais and André Vanyi-Robin in November 2005.
Background
The Vendor Directors believe that, despite a multitude of new media technology systems and options, including the internet, 3G mobile phones (including the iPhone), SKY+ and BBC iPlayer, there remains a high level of demand, even in the most advanced countries in terms of broadband penetration, for traditional television broadcast from a transmitter through an aerial to a home TV set. The Vendor Directors believe that this is due to the ubiquity and ease of use of television as well as the viewers' desire to "sit back and relax" during which viewers mainly want to be passive while enjoying the most popular programmes.
Pay TV operators and certain 'free to air' ("FTA") TV operators, identifying an opportunity, have started to move from traditional 'linear' television (i.e. one television program being broadcast and viewed at any given time) to 'non-linear' television which allows viewers to watch television programmes at the time they are aired or, alternatively, at a later time which is more convenient to them. Examples of non-linear television include catch-up TV, such as the BBC iPlayer and 4 on Demand, and VOD. In addition, Pay TV operators have launched PVRs which, similarly, allow viewers to watch already aired TV at their leisure. PVRs are further increasing pressure on FTA broadcasters as the PVR allows the viewer to fast forward through advertising.
The Vendor Directors believe that there is an opportunity for broadcasters to enhance their content offering and increase revenue through pay television and new advertising models. This is achieved by using a combination of datacasting, auto recording and overnight (remote) recording technologies through the Bestv® platform which should optimise the more limited bandwidth of terrestrial networks and enables the non-linear services for DTT. Adecq Digital has created a business-to-business software solution which uses the concept of remote set-top-box recording and control to allow the broadcaster full control of its product offering whilst providing the viewer with an enhanced viewing experience.
It is the intention of the Board to focus on some of the many countries in the world mandated to switchover to DTT before 2015, in accordance with the GE 06 Agreement of the ITU. The transition from analogue to DTT is currently underway and most developed markets are already in parallel broadcasting mode. The Directors believe that if all the households affected by the switch-over were to upgrade their TVs, it would amount to greater than one billion units.
Adecq Digital's business
Adecq Digital's product, Bestv®, is a business-to-business software solution which allows broadcasters to manage the non-linear content, advertising and user experience they wish to provide to viewers, gaining extra value by leveraging the premium content which they already have or can access and by adding value by providing targeted advertising to viewers.
Bestv® uses an existing DTT broadcast signal to continuously send instructions and data-cast content to a set-top-box in a user's home. This results in the "best of" existing television plus additional programming tobe stored on the set-top-box, accessible by the user as and when he or she wishes to view it. This allows for 'anytime' viewing or catch-up TV for the user. All the data-casting and automatic recording is provided on a 'push' basis (there is no return feed of information) so no internet, cable or DTH should be needed. The UK's most comparable product is SKY+ Anytime, where the PVR automatically records programmes transmitted overnight and stores them to the PVR hard drive allowing viewers to access popular content which is not being currently broadcast and which they did not record on their 'personal planner'. Bestv®, however, combines overnight recording with real-time programme recording and data casting and enables these technologies on terrestrial networks on a 24/7 basis, whether the television is being watched or not. This facilitates the transmission of more content. In addition, users' viewing habits may be utilised to provide targeted advertising, through which the viewer cannot always fast forward. The ability to fast forward through advertising will be at the broadcasters' discretion.
The Directors believe that the benefits to broadcasters in both control and revenue enhancement are attractive and that the Bestv® platform will be well received by the industry and lead to increased Shareholder value in the Enlarged Group.
In June 2009, Adecq Digital signed a software licensing agreement with Nagravision to supply services in conjunction with it to Mediaset in Italy. Mediaset is Silvio Berlusconi's national commercial TV company. The Mediaset product is now in operation and revenues are being generated from this collaboration with Nagravision.
Commercialisation of Bestv®
Bestv® can be commercialised in several different ways depending on the business model of the broadcaster. The Enlarged Group's strategy is to offer a bespoke service to broadcasters who can choose between a turn-key service, a platform service, software licensing or an amalgamation.
For a turn-key solution the Enlarged Group will aim to provide an end-to-end service which incorporates consumer product planning, deriving the technical specifications, integration and installation of the server at the broadcaster and content acquisition and digital rights management. Consumer marketing can be undertaken by either the broadcaster or Adecq Digital or both. Following set up, the Enlarged Group can then look to provide operational and conditional account management, customer accounts and CRM management and training, upgrades and continuing support. Some of the services offered within the turn-key solution may be outsourced to partners of the Enlarged Group and third party solution providers
The Directors believe that for a platform service, the Enlarged Group can assist the broadcaster with the set up of the service to whatever extent is required which will be dependent on the broadcaster's internal technical controls. The Directors believe the Enlarged Group can integrate and install the servers and then provide operational and conditional account management, customer accounts and CRM management and training, upgrades and continuing support.
The Directors believe that a fully integrated media company such as Mediaset, which has experience of Pay TV, may prefer to simply license the Adecq Digital software, merely requiring Adecq Digital (or its sub-contractors) to install the servers and to provide training, upgrades and ongoing support. In this situation, the Adecq Digital set-top-box software would be integrated into the manufacturers' set-top-boxes and Adecq Digital would provide a certification service to confirm that the box was Adecq Digital 'approved'.
Adecq Digital is already in discussions through its agents with many different broadcasters across five continents.
Adecq Digital's revenue model
In the case of the turn-key solution, the Enlarged Group's model envisages revenue from Bestv® from up to six different sources:
1) Platform licenses from the broadcaster resulting in a one-off fee or a recurring fee per month, per subscriber/broadcaster;
2) Platform planning and integration fees from the broadcaster for the provision of engineers and consultants by Adecq Digital;
3) One off set-top-box license fees payable by the box manufacturer per set-top-box;
4) Set-top-box integration fees payable by the box manufacturer for the provision of engineers and consultants by Adecq Digital;
5) One off set-top-box certification fees payable by the box manufacturer; and
6) Platform management fees from the broadcaster resulting in a recurring fee per broadcaster, per month or per subscriber, per month.
The Directors believe that the majority of income will be derived from licenses, platform planning and integration fees and at a later stage platform management fees. It is their opinion, however, that these fees will not deter broadcasters from investing in the Adecq Digital product offering due to the amount of benefit which the broadcasters could receive from subscription fees, pay-per-view and advertising.
The Directors expect that due to the strategic nature of the decision to move to Pay TV for FTA broadcasters, there may be a significant lead time between discussions beginning and, if successful, the commencement of a project. It is intended that part of the proceeds of the Subscription will be used by the Enlarged Group to provide working capital during this period to increase its international sales activities and for investing in integration and field engineers. In addition, the Board believes that in the short term any revenues generated will be attributable to project fees. In due course the Directors believe that the revenue stream will be enhanced by license fees and/or recurring platform management fees.
Competition
In addition to general competition for the provision of digital content through television and the internet, the Directors believe that the following companies are competitors in the delivery of additional services via set-top-boxes through one way delivery networks or hybrid DTT/STH-IP networks. These companies are:
·; Nagravision, a subsidiary of Kudelski Group, to which Adecq Digital provides services and content for its VOD system. Nagravision's main business is content security (Conditional Access Systems and Rights Management) but Nagravision as well as the Kudelski Group are increasingly diversifying through the acquisition of companies offering digital television solutions. While for high-end platforms, Nagravision does have VOD and Push VOD solutions, Vendor Directors believe that there is little overlap between the Nagravision solution and Bestv® for the terrestrial television market and that future collaboration may be mutually beneficial.
·; Osmosys, a subsidiary of ADB Group. Osmosys has a Push VOD solution for satellite broadcasters based on the Multimedia Home Platform television standard. In late 2009 Osmosys discontinued marketing its products as an independent software company and has been fully integrated into ADB, a leading set-top box manufacturer, to provide internal development services.
·; Thomson, the leading consumer electronics manufacturer, has software solutions for the broadcaster and set-top-box markets. It is the understanding of Vendor Directors that Thomson has provided VOD solutions for UK service provider Top-Up TV.
·; Cabot Software, a subsidiary of Turkish consumer electronics manufacturer Vestel. Like Thomson, Cabot is a software solution provider to UK-based Top-Up TV. The Top-Up TV solution was evaluated by Mediaset in comparison with the Bestv® solution, which was then chosen to serve as platform for Mediaset's non-linear television service (through Nagravision).
·; Sezmi is a low cost pay TV and VOD service provider that uses time-shift technologies to create its consumer offering. It deploys some of its services using terrestrial transmission capacity. While Sezmi deals with broadcasters (and telecommunication operators) to access bandwidth and transmission capacity, its offer is business-to-consumer and thus is not considered a direct competitor by the Vendor Directors. In addition, its VOD services are fulfilled using IPTV.
·; Quadrille, a French company providing VOD solution has recently announced it will be launching a Push VOD solution.
·; In Out TV is a Spanish supplier of Electronic Program Guide ("EPG") services. In Out TV has previously tried to launch datacast services and may try again as the market for non-linear TV is growing.
·; NDS, like Nagravision, is a leading security solution provider. Besides security, NDS has been supplying software solutions for value added services on high end (pay) television platforms, including some non-linear television services.
In addition, other competitors in a convergent field may emerge. For example, it is already possible in the UK to access the BBC iPlayer via an internet enabled Sony PlayStation 3 or Nintendo Wii, and the convergence of technologies may mean that other companies enter this space.
Intellectual Property
Adecq Digital has developed or commissioned from third parties its technology and know-how which is based upon a combination of systems, processes and infrastructure. This technology and know-how creates both protection for its business and barriers to entry against potential competitors.
Patent position
Adecq Digital has made provision to protect its methods and processes through apatent and patent application.
Adecq Digital has a granted Spanish patent (number ES 2306620) which was granted on 4 May 2009 for the method for the asynchronous transmission of audio-visual content by digital terrestrial television in "push" environments in which a transmitter transmits to a set of receivers a transmission signal which comprises at least a channel of audio-visual contents and a data channel associated with the channel of audio-visual contents.
A European patent application (published as number EP 2111043 A2) was filed by Adecq on 16 April 2009 and published (without a search report) on 21 October 2009. This application covers the same claims as the Spanish patent described above.
Third party rights
While Adecq Digital does not currently rely on its own patent to protect its business operations, the Enlarged Group recognises the need to avoid unauthorised use of third party intellectual property. To this end, the Company commissioned a freedom to use/operate report in the territories in which Adecq Digital is currently operating in as well as those the Enlarged Group plans to build operations in, namely Europe, the UK, the US, Brazil, Mexico and Chile.
Searches were carried out for the following countries: Europe, US, the UK, Mexico, Brazil and Chile in respect of a specific broadcast technology. For Chile, Mexico and Brazil certain of the patent specifications are in Spanish and Portuguese, and in these cases the claims of any English language equivalent applications were considered. In Europe, the search was only conducted for published European patent applications and PCT applications, both in English. The search was conducted for patents and pending patent applications, where the proprietor or applicant was one of a list of companies discussed with Adecq which were likely to have relevant patented technology. The patents and pending patent applications identified were reviewed. Only cases having a corresponding US patent application or patent were included in the report.
The report did not identify any granted patents which appeared to pose a direct threat in terms of infringement. One of the pending applications found by the searches had claims broad enough to cause a potential issue. However, it was reported that the risk that claims of this breadth would be granted was very low. Even if such claims were granted, it was reported that it was likely that they would be invalid in view of the prior art which had been cited against these claims. Accordingly, the report concluded that within the scope of the analysis that was carried out, it was unlikely that any of the identified patent properties posed a credible infringement threat to Adecq.
Current trading and Prospects
As announced in the Company's half-yearly results released earlier today, trading in the Company's television production subsidiaries has been difficult and because of this the Company has implemented the new investment strategy referred to above. In line with that strategy, the Company has exited all but one of its businesses by sale, closure or by placing them into administration. The sole trading television production company in the group is the Dublin based production business which has several long-term sports production contracts with Irish broadcasters.
In February 2010, the Company raised £400,000 by way of an offer for subscription to continue the marketing and development of its DDT business. Since then the Company has made significant progress in implementing this strategy and during August 2010 announced the entry into two pilot programmes with Antenna Hungaria ZRT, a fully owned subsidiary of Groupe TDF, and TV Nova in the Czech Republic, the largest operation of Central European Media Enterprises Limited.
Adecq Digital has recently moved from its research and development phase to trading in June 2009 due to its entry into the service provision contract with Nagravision. The trading consists mainly of revenues derived from solution integration fees and broadcaster software license fees and, more recently, initial set-top box software license fees. The production of set-top boxes is currently being carried out on a limited basis as the television platform is in an introduction phase. The business strategy is to roll out the Nagravision contract and to seek contracts with other terrestrial broadcasters in other territories in 2011, initially focussing on a single broadcaster per territory. Although the implementation of this strategy has been slower than the Vendor Directors initially anticipated, Adecq is now in advanced negotiations with a major European broadcaster which they hope will reach a successful conclusion in the near future. The Vendor Directors believe that the implementation of this strategy gives a significant prospect of growth. Due to the slower than anticipated negotiations with terrestrial broadcasters, Adecq has incurred significant losses during the period since 31 December 2009. These losses include additional interest accrued since the year end and transaction costs in relation to the negotiation of the Acquisition.
Following the Acquisition, the Enlarged Group proposes to undertake the following development projects in order to secure its future growth:
1. A full hybrid DTT/internet service that allows the Bestv® service to be delivered through a combination of DTT and IP networks which can run internet TV applications on the set-top-box.
2. The further development of advanced advertising solutions for the Bestv® non-linear television platform.
3. The enabling of 3D broadcasts through terrestrial television networks building on the core Bestv® system.
4. The integration of Bestv® technology and set-top box functionality directly into digital television sets through conditional access modules.
The Enlarged Group will seek to combine the technological expertise of Adecq Digital's personnel with the extensive broadcasting expertise and contacts of Motive's executive management team in order to achieve a faster route to market for its product offering.
Background to and reasons for the Acquisition
The Directors have been seeking to make a suitable acquisition, in order to increase the size of the Company, increase its earnings potential and increase its presence in its chosen market. The Directors believe that the acquisition of Adecq Digital offers an opportunity to achieve these aspirations.
Principal terms of the Acquisition
Under the terms of the Acquisition Agreement, the Company has agreed to acquire 1,470,100 ordinary shares in Adecq Digital, representing approximately 67.7 per cent. of its issued share capital, from the Vendors for a total consideration comprising (a) £1,614,992 which shall be satisfied by the issue of £1,614,992.00 nominal value of CLNs; (b) £657,742.25 which shall be satisfied by the issue of 164,435,562 Ordinary Shares at 0.4p per share; (c) earn-out consideration determined by reference to the annual turnover received by Adecq Digital from selected customer contracts; and (d) deferred consideration in the aggregate sum of £600,000, £200,000 of which is payable on each of the second, third and fourth anniversaries of completion of the Acquisition. The earn-out consideration and deferred consideration are each payable by the Company in cash. The Consideration Shares shall be issued between 366 and 732 days after completion of the Acquisition. The payment of the deferred consideration to a Vendor is subject to such Vendor, inter alia, remaining in employment with a member of the Enlarged Group at the relevant payment date.
In addition, conditional on Admission, the Vendors will each be granted Options over 10,000,000 Ordinary Shares. The Options vest on Admission and will be exercisable at the closing mid-market price on the day of Admission until the tenth anniversary of Admission.
During the period between the date of the execution of the Acquisition Agreement and completion of the Acquisition, the Vendors and the Company have undertaken to operate the businesses of Adecq Digital and the Company respectively, in the normal manner of such businesses.
On completion of the Acquisition, Giuseppe Flores d'Arcais and André Vanyi Robin will remain as directors of Adecq Digital and Giuseppe Flores d'Arcais will also be appointed to the board of the Motive. André Vanyi Robin will be granted certain rights as an observer at board meetings of Motive.
Completion of the Acquisition is conditional, inter alia, on the passing of the Resolutions, Admission, the issue of the Consideration CLNs, the entry into loan agreements between the Vendors and Sophesa (which will be secured on the Consideration CLNs and Consideration Shares received or receivable by the Vendors) and the execution by CCan of certain documents including the Put and Call Option Agreement and an agreement pursuant to which, inter alia, CCan consents to the Acquisition and agrees to modify the Adecq Digital Shareholders Agreement. Subject to the conditions (other than Admission) being satisfied, completion of the Acquisition is expected to take place upon Admission.
Under the Put and Call Option Agreement, conditional on Admission, the Company grants CCan a put option to require the Company to purchase the whole of CCan's retained shareholding in Adecq Digital, representing approximately 32.3 per cent. of Adecq Digital's issued share capital, at any time after the 18 month anniversary of Admission for an exercise price of €2,100,000. In addition, conditional on Admission, CCan grants the Company a call option to purchase the whole of CCan's retained shareholding in Adecq Digital at any time after Admission. The call option exercise price is the higher of €2,400,000 and an amount equivalent to either (i) the net placing proceeds of a notional 298,220,750 Ordinary Shares (being the number of Ordinary Shares at a price of 0.4p per share equivalent to the pro-rata amount of such part of the consideration satisfied in Consideration CLNs and Consideration Shares that CCan would have received had CCan sold the whole of its retained shareholding in Adecq Digital on completion of the Acquisition) at the same placing price at which Ordinary Shares are placed by or on behalf of the Company for the purpose of funding the call option exercise price or (ii) if no such placing is carried out, the value of such notional number of 298,220,750 Ordinary Shares based on a price per share equal to 93 per cent. of the market value of an Ordinary Share at the time the call option is exercised, subject to a maximum call option exercise price of €4,000,000.
Following approval of the Acquisition, the Vendors will each be receiving £807,496 nominal value of Consideration CLNs on Admission and Giuseppe d'Arcaise will be receiving 80,371,640 Consideration Shares and Andrė Vanyi-Robin will be receiving 84,063,920 Consideration Shares prior to the second anniversary of the Acquisition, which are to be pledged to Sophesa as security under a loan agreement to be entered into by each of the Vendors and Sophesa. Each of the Vendors has entered into and has agreed to procure that Sophesa shall enter into lock-in arrangements in relation to the Consideration Shares and the Consideration CLNs in which they will have an interest. Further details of the lock-in arrangements are set out below.
Following completion of the Acquisition, the operation and management of Adecq Digital will be governed by the Adecq Digital Shareholders Agreement.
Reasons for the Subscription and use of funds
The proceeds of the Subscription will be used to grow the Adecq Digital business, specifically to invest in its international sales activities, marketing, software engineers, project management and research and development. In addition, the Board intends to make certain debt repayments, to pay suppliers to the Adecq Digital business and to provide additional working capital for the Enlarged Group. Furthermore the Company will pay the professional fees incurred in respect of the Acquisition and the Subscription and certain bonuses and finder's fees to the Directors which have arisen as part of the Acquisition and the application for Admission.
Details of the Subscription
The Company has conditionally raised £4,750,000 (before expenses) through a Subscription for £4,750,000.00 nominal value of CLNs and 71,250,000 Subscription Warrants at a price of £100,000 per £100,000 nominal value of CLNs and 1,500,000 Subscription Warrants. The CLNs are secured by way of a fixed and floating charge over all the assets of the Company, including the shares in Adecq Digital to be acquired pursuant to the acquisition. The CLNs bear interest at an annual rate of 9%, payable in half yearly instalments on 30 June and 31 December in each year and which can at the option of the Company be rolled up into the principal amount of the CLNs. The CLNs are redeemable, if not converted, on 31 December 2015 and are convertible into fully paid Ordinary Shares at a rate of 0.4 pence per Ordinary Share. The Company is entitled, upon giving 60 days' notice to the noteholders, to redeem the whole or any part of the CLNs after the third anniversary of their issue if the average of the volume weighted price for an Ordinary Share as shown in the Daily Official List of the London Stock Exchange during the 30 business days prior to the date of the redemption notice is not less than 300 per cent. of the conversion price.
The Subscribers have entered into Subscription Letters pursuant to which they have conditionally agreed to subscribe for the Subscription CLNs and the Subscription Warrants. In the case of the Subscription Letter entered into by Jendens Holdings Limited as Subscriber, Jendens Holdings Limited has agreed to subscribe for its allocation of Subscription CLNs and Subscription Warrants subject to clawback by Jendens to satisfy valid subscriptions by alternative subscribers. The Subscribers will receive a commitment commission of three per cent of the nominal value of the CLNs to be subscribed pursuant to their Subscription Letters, and a further one per cent. of the nominal value of the CLNs to be subscribed pursuant to their Subscription Letters to be satisfied (conditionally on the passing of resolutions 3 and 6) by the issue of 35,625,000 Warrants to subscribe for Ordinary Shares at a price of 0.6 pence per Ordinary Share. The commitment commission is payable on Admission or upon the Introduction Agreement being terminated in accordance with its terms and will therefore be paid whether or not the Acquisition is completed and Admission occurs. If resolutions 3 and 6 are not passed, the entire commitment commission will be payable in cash.
The CLNs will not be admitted to trading on any market but are freely transferable.
Debt Capitalisation
Jendens Holdings Limited, the holding company of Jendens has advanced a loan of €160,000 to Adecq Digital pursuant to a loan agreement dated 30 April 2010. €100,000 was drawn down on 30 April 2010 and a second tranche of €60,000 was drawn down on 31 May 2010. The loan is repayable with interest of 10 per cent. of the principal amount on 31 October 2010. Jendens Holdings Limited, the Company and Adecq Digital have agreed that the amounts outstanding under this loan shall be converted into 34,489,089 Ordinary Shares on Admission at a rate of 0.4 pence per Ordinary Share.
Conditional on Admission, certain of the Directors have agreed that accrued fees and certain other payments owed to them, be converted into Ordinary Shares at 0.4p per Ordinary Share. The total number of Ordinary Shares to be issued and the subsequent holdings of the Directors are as follows:
|
|
Ordinary Shares subscribed for | Percentage of the issued share capital on Admission | Percentage of the Enlarged Issued Share Capital |
|
|
|
|
|
| Michael Pilsworth | 29,875,000 | 5.71 | 4.71 |
| Leonard Fertig | 28,500,000 | 3.97 | 3.27 |
| Alistair King | 21,250,000 | 3.45 | 2.84 |
Mr Fertig, Mr King and Mr Pilsworth, as directors of the Company, are related parties for the purposes of the Debt Capitalisation. The independent Directors being Leonard Ryan and Michael O'Rourke, having consulted with MSL, the Company's Nominated Adviser, consider the terms of the Debt Capitalisation to be fair and reasonable insofar as the Company's shareholders are concerned. In advising the independent Directors, MSLhas taken into account the commercial judgement of the independent Directors.
Directors and Senior Management
Details of the Directors of the Company following Admission are set out below. Giuseppe Flores d'Arcais will join the board of the Company on Admission. Alistair King, the Company's Finance Director, currently works on a part time basis but it is intended that post Admission the Board will seek to appoint a full time Finance Director. Due to his other work commitments, Mr King has indicated that, following such appointment, he intends to step down from the Board. In addition, it is a term of the Acquisition Agreement that three independent non-executives are appointed to the Board. Accordingly, Leonard Ryan and Michael O'Rourke have indicated their agreement to step down from the Board once the new independent non-executives have been identified.
Michael Pilsworth (Executive Chairman), aged 59, has worked in the television industry since 1979. He was managing director of USM-listed SelecTV plc from 1990 to 1993. After the sale of SelecTV to Pearson/MAI for £40 million, he moved to Chrysalis Group PLC where he established a new television division. As CEO he built the division into a group of television production businesses with sales of £87 million and EBITDA of £8.4 million on its sale to Bridgepoint Capital in 2002, for £51 million.
Leonard Fertig (Chief Executive Officer), aged 63, was co-founder and CEO of Central European Media Enterprises Ltd ("CME"). Leonard took CME from a start-up to a billion-dollar NASDAQ-listed broadcasting company (NASDAQ-CETV) with operations in eight countries covering 110 million viewers. More recently he was CEO of Futuremedia PLC. In the 1980's Len helped to establish and build television networks such as A&E, Comedy Central, Request Television and DirecTV. He is also a non-executive director of Metrodome Group PLC.
Alistair King (Finance Director), aged 50, is a Chartered Accountant and a member of the Chartered Institute of Taxation. After qualifying as a chartered accountant in 1984, Alistair worked for KPMG in a number of management positions before leaving to become a partner in a firm of Practicing Accountants. In 1995 he set up his own consultancy business specialising in providing strategic advice, consultancy services and management information to a number of businesses, both privately-owned and listed. Alistair joined Motive in January 2006 and was appointed finance director in October 2006.
Leonard Ryan (Non-executive Director), aged 44, is, with Michael O'Rourke, one of the two founding shareholders and co-chief executive of Setanta Sports Holdings Limited, a Dublin-based global sports, media and broadcasting group with interests in satellite-delivered television sports channels, radio stations and new media.
Michael O'Rourke(Non-executive Director), aged 45, is co-founder and co-chief executive of Setanta Sports Holdings Limited, along with Leonard Ryan.
Giuseppe Flores d'Arcais (Proposed Executive Director),aged 40, is a co- founder of Adecq Digital. He has a MSc in Economics and Business Administration from Erasmus University Rotterdam. He has worked at AT Kearney Management Consultants in Milan and at Philips Electronics where he became responsible for Professional AV solutions (Business Units CDS) for Latin America, Eastern Europe, Middle East, Africa and India and latterly Global Marketing Manager out of Atlanta, USA. He left Philips in 2000 to found his own broadcast consulting firm Nextudio. Nextudio supports governments, media authorities and broadcasters in defining business strategies, legislation, technology strategies and digital switchover plans. In 2005 he founded Adecq Digital with Andre Vanyi-Robin. He is co-author of the Spanish terrestrial television switchover plan, approved in Parliament in 2007 and has been heading the digital television group of the Spanish industry association ASIMELEC.
Senior management
André Vanyi-Robin (Chief Operating Officer of Adecq Digital), aged 39, is a co- founder of Adecq Digital. He has a Masters in Business Administration (MBA) from the graduate business school of the University of Miami and a Bachelors Degree in political science from the State University of New York (SUNY) and from l'Institut National de Sciences Politiques (Sciences Po). André was President and Chief Executive Officer of Visualcom, Inc. (Miami, Florida). Visualcom was acquired by Fusion Networks, Inc. (Nasdaq: FUSN) in 2000.
Lock-in and orderly market arrangements
Under the terms of the lock-in deeds referred to in paragraph 10.1 of Part VI of the Admission Document, each of the Directors (save for Alistair King and Michael O'Rourke) and the Vendors has undertaken to the Company, MSLand Jendens that conditional upon (amongst other things) the Acquisition having been completed and Admission, he will not sell or otherwise dispose of any interest in Ordinary Shares beneficially owned or otherwise held or controlled by him, her or it (including, in the case of the Vendors, the CLNs or any Ordinary Shares issued on conversion of his CLNs) for a period of 12 months following Admission or, in the case of the Vendors, 12 months from the date of the issue of their Deferred Consideration Shares ("Initial Period"), save in limited circumstances including (i) accepting or giving an irrevocable undertaking to accept a takeover offer; (ii) a disposal pursuant to a court order; (iii) a disposal required by law or any competent authority; (iv) with the consent of the Company, Jendens and MSL, a disposal to satisfy a liability under the Acquisition Agreement; or (v) a disposal on the death of a Shareholder. The Vendors are also permitted to transfer their Ordinary Shares and CLNs to Sophesa by way of security for the loans to be granted by Sophesa to the Vendors on Admission. Each of the Directors (save for Alistair King) and the Vendors has also undertaken that for a further period of 12 months after the end of the Initial Period or in the case of the Vendors, 12 months from the date of issue of the Consideration Shares, he will, other than in certain limited circumstances, only dispose of an interest in Ordinary Shares or other securities in the Company (including, in the case of the Vendors, CLNs or any Ordinary Shares issued on conversion of his CLNs) in such manner as the Company's broker (from time to time) shall reasonably require with a view to the maintenance of an orderly market in the shares of the Company. The Vendors have also agreed to procure that Sophesa enters into a lock-in agreement on the same terms as these given by the Vendors prior to Sophesa taking security over their Consideration Shares and Consideration CLNs.
Alistair King has undertaken to the Company, MSL and Jendens that conditional upon (amongst other things) the Acquisition having being completed and Admission, he will not sell or otherwise dispose of any interest in Ordinary Shares or other securities in the Company beneficially owned or otherwise held or controlled by him for a period of 12 months or until he resigns from the Board (whichever is earlier), save in limited circumstances. Mr King has also undertaken that following his resignation or the first anniversary of Admission (whichever is the earlier) he will, other than in the certain limited circumstances set out above, only dispose of an interest in Ordinary Shares or other securities in the Company in such manner as the Company's broker (from time to time) shall reasonably require with a view to the maintenance of an orderly market in the shares of the Company.
Options and Warrants
The Board believes that the recruitment, motivation and retention of key employees is vital for the successful growth of the Enlarged Group. The Board considers that an important element in achieving these objectives is the ability to incentivise and reward staff (including executive directors) by reference to the market performance of the Company in a manner which aligns the interests of those staff with the interest of shareholders generally. The Company will utilise its existing share incentive schemes pursuant to which Options have been and will be granted to directors and employees of and consultants to the Enlarged Group. The total number of Ordinary Shares that may be committed under the aggregate of the Share Option Schemes will not exceed 15 per cent. of the Enlarged Group's issued ordinary share capital from time to time.
On Admission, and conditionally on the passing of the Resolutions, the Company will grant the Jendens Warrants to Jendens as partial consideration for their corporate finance services under the Introduction Agreement. These warrants will be over 29,687,500 Ordinary Shares (representing 2.5 per cent of the number of Subscription CLNs converted into Ordinary Shares at 0.4p per Ordinary Share) and will be exercisable at 0.4p per Ordinary Share at any time from Admission until the third anniversary of Admission.
In addition, conditionally upon the Resolutions numbered 3 and 6 being passed, on Admission or upon the Introduction Agreement being terminated in accordance with its terms the Company will grant the Commission Warrants to the Subscribers pursuant to the Introduction Agreement to satisfy £47,500 of the commitment commission due to the Subscribers. These Warrants will be over 35,625,000 Ordinary Shares (representing 750,000 Warrants per £100,000 Subscription CLNs) and will be exercisable at 0.6p per Ordinary Share at any time from their grant until 31 August 2012. The Commission Warrants will be issued whether or not Admission occurs and the Introduction Agreement becomes unconditional in accordance with its terms. If the Resolutions numbered 3 and 6 are not passed, the £47,500 commission to be satisfied by the issue of the Commission Warrants shall be payable in cash.
On Admission, the Company will also issue the Subscription Warrants to the Subscribers. The Subscription Warrants will be over 71,250,000 Ordinary Shares (representing 1,500,000 Warrants per £100,000 nominal value of CLNs subscribed) and will be exercisable at 0.6 pence per Ordinary Share at any time from Admission until 31 August 2012.
Admission Document
The Admission Document, which comprises a circular to Shareholders and notice of General Meeting, will be posted to Shareholders and will be available from the Company's website, www.motivetelevision.co.uk, later today.
General Meeting has been convened for 10.00 a.m. on 4 October 2010 at the offices of MSL, 51-55 Gresham Street, London EC2V 7HQ
Admission and dealings
Application will be made to the London Stock Exchange for the Enlarged Issued Share Capital (excluding the Deferred Consideration Shares) to be admitted to trading on AIM. It is expected that Admission will become effective and that dealings in the Enlarged Issued Share Capital (excluding the Consideration Shares) will commence on 5 October 2010.
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Definitions
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| "Acquisition" | the proposed acquisition by the Company of 1,470,100 ordinary shares in Adecq Digital pursuant to the Acquisition Agreement
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| "Acquisition Agreement" | the conditional agreement dated 17 September 2010 between (1) the Vendors and (2) the Company
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| "Admission" | admission of the Enlarged Issued Share Capital (other than the Deferred Consideration Shares) to trading on AIM and such admission becoming effective in accordance with Rule 6 of the AIM Rules
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| "Admission Document" | the AIM admission document, which was sent to Shareholders today
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| "AIM" | the market of that name operated by the London Stock Exchange
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| "Adecq Digital"
| Adecq Digital S.L., a private limited company incorporated in Spain by public deed on 14 November 2005 and registered in the Mercantile Register of Barcelona, Volume 38100, sheet 211, page no. 8-318618, Inscription 1st
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| "Board" or "Directors" | the existing directors of the Company
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| "Commission Shares" | the 75,000,000 Ordinary Shares to be issued to Jendens in part satisfaction of the commission due to Jendens pursuant to the Introduction Agreement
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| "Commission Warrants" | the 35,625,000 warrants to subscribe for Ordinary Shares to be issued to the Subscribers in satisfaction of part of their commitment commission pursuant to the Introduction Agreement
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| "Company" or "Motive" | Motive Television PLC, a public limited company registered in England and Wales under registered number 5319264 and when the context so admits, its existing subsidiary undertakings
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| "Consideration" | the Consideration Shares and the Consideration CLNs
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| "Consideration CLNs" | the £1,614,992.00 nominal of CLNs to be issued on Admission as part of the consideration for the Acquisition under the Acquisition Agreement
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| "Consideration Shares" | the 164,435,562 Ordinary Shares to be issued after Admission, but prior to the second anniversary of Admission, as part of the consideration for the Acquisition under the Acquisition Agreement
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| "Convertible Loan Notes" or "CLNs" | the £6,585,264.17 million nominal of 9% convertible secured redeemable loan notes 2015
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| "Debt Capitalisation"
| the proposed capitalisation of debt and accrued fees amounting to £657,728.53 into 109,364,089 Ordinary Shares at 0.4p per Ordinary Share and £220,272.17 nominal of CLNs
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| "Debt Capitalisation Shares" | the 109,364,089 Ordinary Shares to be issued on Admission pursuant to the Debt Capitalisation
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| "Debt Capitalisation CLNs"
| The £220,272.17 nominal of CLNs to be issued on Admission pursuant to the Debt Capitalisation
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| "Deferred Shares"
| the 108,606,667 deferred shares of 0.9 pence each in the capital of the Company in issue at the date of the Admission Document
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| "Enlarged Group" | the Company and its subsidiaries as enlarged by the Acquisition, to include Adecq Digital
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| "Enlarged Issued Share Capital" | the entire issued ordinary share capital of the Company as enlarged by the issue of the Consideration Shares, the Debt Capitalisation Shares, the Commission Shares and the Warrant Replacement Shares
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| "Existing Ordinary Shares" | the 566,499,463 ordinary shares of 0.1p in the capital of the Company each in issue at the date of the Admission Document
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| "Existing Warrants"
| the warrants to subscribe for Ordinary Shares in issue as at the date of the Admission Document
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| "General Meeting" | the general meeting of the Company, to be held at the offices of MSL, 51-55 Gresham Street, London EC2V 7HQ on 4 October 2010 at 10.00 a.m. and any adjournment thereof to be held for the purpose of considering and, if thought fit, passing the Resolutions
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| "Introduction Agreement" | the agreement dated 17 September 2010 between (1) Jendens, (2) MSL, (3) the Directors, (4) the Company and (5) the Vendor Directors relating to the Proposals
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| "Jendens" | Jendens Securities Limited, broker to the fundraising
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| "Jendens Warrants" | the warrants to subscribe for Ordinary Shares to be issued to Jendens pursuant to the Introduction Agreement
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| "MSL" | Merchant Securities Limited
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| "London Stock Exchange" | London Stock Exchange plc
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| "Notice" | the notice convening the General Meeting
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| "Options" or "Share Options"
| options to subscribe for Ordinary Shares under the Share Option Schemes or pursuant to option agreements
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| "Ordinary Shares" | ordinary shares of 0.1p each in the capital of the Company
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| "Proposals" | means (a) the Acquisition; (b) the Subscription; (c) the Debt Capitalisation; and (d) Admission
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| "Proposed Director" | Giuseppe Flores d'Arcais |
| "Put and Call Option Agreement" | the conditional put and call option agreement dated 17 September 2010 between (1) the Company and (2) CCan
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| "Resolutions" | the resolutions set out in the Notice
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| "Sophesa" | Sophesa SPC |
| "Share Option Schemes" | the share option schemes operated by the Company
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| "Shareholders"
| holder(s) of Existing Ordinary Shares
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| "Subscribers" | the subscribers for Subscription CLNs and Subscription Warrants pursuant to the Subscription
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| "Subscription" | the conditional subscription for CLNs and Subscription Warrants pursuant to the Subscription Letters
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| "Subscription CLNs" | the £4,750,000.00 nominal of CLNs to be issued pursuant to the Subscription
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| "Subscription Letters" | the conditional subscription letters delivered or sent to Subscribers by Jendens relating to the Subscription
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| "Subscription Warrants" | the 71,250,000 warrants to subscribe for Ordinary Shares to be issued pursuant to the Subscription
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| "UK" or "United Kingdom" | the United Kingdom of Great Britain and Northern Ireland
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| "Vendors" or "Vendor Directors" | Giuseppe Flores d'Arcais and André Vanyi-Robin, details of whom are set out in Part I of this document
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| "Warrants" | the Jendens Warrants, the Subscription Warrants and the Commission Warrants
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| "Warrant Replacement Shares" | the 17,250,000 Ordinary Shares to be issued to Alistair King and Ian Buckley in replacement of their Existing Warrants
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