Last checked at 2 Sep 2010 07:00
X-PHONICS PLC
(AIM: XPH)
Proposed investment together with warrants to subscribe for ordinary shares
Proposed change of name to Verdes Management plc
Proposed share reorganisation
Proposed disposal of existing business
Proposed adoption of new Articles of Association
Introduction
X-Phonics plc ("the Company") announces today proposals for a proposed investment through Verdes Management Limited ("VML") to raise £141,000 in aggregate (before expenses), Board changes and a strategic change in business direction for the Company conditional upon, inter alia, a share reorganisation and shareholders' approval in general meeting. It is also proposed that the Company adopt new articles of association and change its name to Verdes Management plc ("the Proposals").. A General Meeting has been convened to be held on 27 September 2010 for the purpose of approving the Proposals.
Dealings in the Company's ordinary shares were suspended on 29 March 2010 pending the publication of the 2009 Accounts, and have remained suspended pending the publication of the interim results for the six months ended 31 March 2010. On the publication of the interim results the recommencement of dealings in the Ordinary Shares will be requested.
VML has arranged for a number of investors to subscribe £141,000 for new ordinary shares. On completion of this investment and the other Proposals, the proposed directors will join the board. The Company will, immediately following completion of the Proposals, be classified as an investing company under the AIM Rules. The investing policy of the Group (subject to shareholders' approval) will be to pursue a new strategic business direction as a turnaround advisory business offering services to stakeholders, as well as seeking investment opportunities in UK public companies in need of restructuring.
The net proceeds of the fundraising through VML will provide short term working capital to allow the Company to commence business, and progress the proposed recruitment of an established turnaround team (where discussions are currently at an advanced stage). It is intended that there will be a more substantial fundraising in due course.
Each investor who is allotted new ordinary shares under the Investment will also receive one warrant for every five new ordinary shares so allotted.
Finally, the Company has agreed to dispose of the Company's existing music business, comprising X-Phonics Music Limited, X-Phonics Music Publishing Limited, White Noise Music Limited, X-Phonics Records Limited and X-Phonics Productions Limited ("the Music Subsidiaries") to the Chairman, Robin Davies ("the Disposal").
Placing and background
VML was established by Adam Webb, who has developed the strategic business plan for the turnaround services business, and who has arranged for approximately £141,000 to be raised from a limited number of individual investors through VML as additional working capital for the Company.
Discussions have been held with a number of specialist turnaround advisers and it is anticipated that the first recruitment of the services of a turnaround specialist team will proceed in due course.
VML has arranged for a number of individual investors to subscribe for 38,666,667 new ordinary shares at 0.3p per share (representing a discount of 25 per cent to the price at which the ordinary shares were suspended in March 2010). Adam Webb has invested considerable time in developing the concept for a quoted turnaround business, establishing commercial relationships and developing business areas, and to reflect this investment, he is subscribing for 12,500,000 new ordinary shares at 0.2p per share, a discount to the market price before suspension.
On completion of the Investment, Adam Webb and John Matthews ("the Proposed Directors") will join the Board of the Company, and Robin Davies and John McLaughlin will resign as directors. Mike Hosie has agreed to remain on the board and will become Chief Operating Officer to the new business.
The Proposed Directors consider that, following the recession, there will be an ongoing re-evaluation in the corporate sector of: funding mechanics; governance and control; value appraisal; management; and control and ownership. The recession is leading to a radically changing and challenging business environment. The economy remains turbulent, and the Proposed Directors believe that the resumption of growth will generate increasingly attractive opportunities for Verdes to exploit. Depressed market valuations and stock market volatility will provide opportunities to create value through takeovers of UK public companies, and as corporate valuations begin to recover, realisations by banks can be expected to increase, as buyers for distressed assets come into the market. The Proposed Directors consider that there is a large and growing market opportunity.
It is proposed to establish three divisions to capitalise on the current market opportunities, providing services to stakeholders, to include banks, private equity houses, hedge funds and other investors in UK businesses, focusing on:
·; turnaround services;
·; targeted takeover opportunities of UK public companies; and
·; independent business reviews.
Board changes
The Board currently comprises Robin Davies, John McLaughlin and Mike Hosie. Following the General Meeting, Robin Davies and John McLaughlin will step down as directors, and Adam Webb and John Mathews will join the board. Mike Hosie has agreed to remain on the Board. It is proposed that a further non-executive director will be appointed in due course.
John Matthews (aged 65), will become the non-executive chairman. John started his City career as a chartered accountant with Dixon Wilson & Co. He moved into corporate finance with NM Rothschild & Sons Limited and subsequently became a managing director at County NatWest. Subsequently he became deputy chairman and deputy chief executive officer of Beazer plc, chairman of Crest Nicholson and Regus plc (all FTSE 250 companies), and senior independent director of Rotork and Center Parcs and is chairman of Media Systems Limited. Since 2002, he has been senior independent director of Diploma plc, Minerva plc and SDL plc.
Mike Hosie, (aged 52), will become Chief Operating Officer and Finance Director, as well as taking responsibility for oversight of regulatory compliance matters. Mike is a chartered accountant with experience in finance and operations. He has worked in early stage and developed technology companies at board level for both private and public companies. He joined RMS Communications plc in 1996, where he was managing director. In 1999 he joined Cedar plc as finance director. In 2002 he became a consultant to MCI Inc. (following its filing under Chapter 11 of the US Bankruptcy Court), where he was appointed to implement and manage the European, Middle Eastern and African operating and business plan. Mike, whose services are provided through Kerr Douglas Limited, is also part time finance director of DesignCapital plc, which is an AIM company.
Adam Webb (aged 57), has been responsible for the launch of the new business and will become an executive director with particular responsibility for the takeover opportunities division. Adam qualified and practiced as a solicitor with Slaughter and May, and moved into merchant banking with Samuel Montagu & Co and then Morgan Grenfell. He was appointed head of CIBC/Wood Gundy's corporate finance/broking operations in London and Europe, and held the same position with Société Généralé, as head of European mergers and acquisitions. He established and ran Adam & Partners Limited and Navigator Corporate Finance Limited as independent authorised financial advisory firms, providing takeover advice to UK public companies and dealing with private equity funds.
Capitalisation of debt
Since March 2008, no salaries have been taken by any of the directors, and salary accrued but unpaid has been waived. In addition, loans have been received from Robin Davies and from John Molyneux (an associate of WHI) of £40,000 and £25,000respectively. It has been agreed that these loans will be capitalised into ordinary shares at the rate of 0.4p per share, the price at which dealings in the Company's shares were suspended on 29 March 2010. WHI has also agreed to capitalise £53,250 owed to it into ordinary shares at the rate of 0.4p per share, in respect of unpaid advisory fees.
The capitalisation is conditional upon the approval of a share reorganisation and upon admission of the new ordinary shares to AIM, and will be implemented following the General Meeting.
Share Reorganisation
The Company is not able to issue shares at less than the nominal value. Accordingly, it is proposed to subdivide each of the existing 66,214,920 issued ordinary shares of 1p into one ordinary share of 0.1p and one B deferred share of 0.9p.
The ordinary shares of 0.1p each will have the same rights as the existing ordinary shares in issue under the Company's Articles of Association, including those relating to voting and entitlement to dividends. New share certificates will not be issued in respect of the ordinary shares arising from the share reorganisation.
The proposed B deferred shares will be non-voting and have minimal rights (identical to those of the existing deferred shares in issue), as set out in resolution 2(b) in the notice of General Meeting at the end of a circular being posted to shareholders today, and will not be traded on AIM or on any other securities exchange. They will be effectively valueless and in due course the board may apply to the Court for their cancellation. In the meantime, they will be registered in the name of the Company Secretary. They will have the same rights and restrictions as the existing deferred shares. No share certificates will be issued for the B deferred shares.
Disposal of existing business
The Company has entered into a contract with Robin Davies for the sale of the entire issued share capitals of the Music Subsidiaries, comprising all the residual assets of the existing music business, for a nominal consideration. The net liabilities of the music business are shown in the 2009 Accounts as at 30 September 2009 at £113,635. Since that date, there has been a further increase in the liabilities. The Disposal will mean that the Group has no further exposure to the music business. The Disposal is a related party transaction, and also constitutes a fundamental change of business under the AIM Rules for Companies and is accordingly conditional on shareholder approval at the General Meeting. The directors other than Robin Davies who is the purchaser of the Music Subsidiaries ( "the Independent Directors"), who have been so advised by WHI, consider that the terms of the Disposal are fair and reasonable and in the best interests of the Company and Shareholders as a whole. In providing advice to the Independent Directors, WHI has relied upon the Independent Directors' commercial assessments.
Change of name
The name of the Company will be changed to Verdes Management plc, conditional upon the passing of the resolutions relating to the Proposals by the shareholders.
New Articles of Association
Following the full implementation of the CA 2006, the opportunity is being taken to adopt new Articles of Association.
Share Option Schemes
The Company adopted an EMI share option scheme in 2005, but did not utilise it significantly, and there are no options currently outstanding under that scheme. In order to provide a means to incentivise the management and employees of the Company's new business, the rules of the EMI Scheme are being updated to reflect current revenue limits. It is intended to grant options under the EMI Scheme on completion of the Proposals. The EMI Scheme is only open to employees of the Group who work over 25 hours per week. However, the Proposed Directors anticipate that the Group will be receiving services from a much wider group of persons, including non-executive directors, consultants and associates who may only work on a project by project basis. Accordingly, consideration will be given to the adoption of other appropriate share option schemes which would be open to a wider ambit of persons who are associated with and are able to assist in the growth of the Company's business, subject to approval by the Company's remuneration committee.
Recommendation
The Directors (apart from Robin Davies in relation to the Disposal in which he is interested as the purchaser), who have been so advised by WHI, consider that the terms of the Proposals are fair and reasonable and in the best interests of the Company and Shareholders as a whole. In providing advice to the Directors, WHI has relied upon the Directors' commercial assessments. Accordingly, the Directors unanimously recommend Shareholders to vote in favour of the Proposals (save for Robin Davies in relation to the Disposal) as they intend to do in respect of their own shareholdings, amounting in aggregate to 9,959,275 ordinary shares, representing 15.05 per cent. of the existing ordinary shares in issue.
In addition, the Independent Directors, who have been so advised by WHI, consider that the terms of the Disposal are fair and reasonable and in the best interests of the Company and shareholders as a whole. In providing advice to the Independent Directors, WHI has relied upon the Independent Directors' commercial assessments. Accordingly, the Independent Directors recommend shareholders to vote in favour of approving the Disposal, as they intend to do in respect of their own shareholdings, amounting in aggregate to 9,133,510 ordinary shares, representing 13.8 per cent. of the existing ordinary shares in issue.
| Contacts: |
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| X-Phonics plc | www.xphonicsgroup.co.uk |
| Mike Hosie, Finance Director | +44 (0) 208 987 0800 |
| Adam Webb | +44 (0) 07943 113190 |
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| WH Ireland Limited | www.wh-ireland.co.uk |
| John Wakefield / Marc Davies | +44 (0) 117 945 3470 |