Share Capital Consolidation & Notice of Gen...

10 August PARALLEL MEDIA GROUP PLC ("PMG" or the "Company") Share Capital CONSOLIDATION Approval of Waiver of obligations under Rule 9 of the Takeover Code and Notice of General Meeting 1. Introduction On 30 June 2010, the Company announced that it agreed with the Lenders to extend the term of certain convertible loans to 31 December 2012 in consideration of which the Lenders would receive an Extension Payment, equal to an aggregate of 31.2 per cent. of the nominal value of the loans. The Company has the option to settle this Extension Payment by the issue of shares, subject to receiving shareholder approval and a waiver of Rule 9 of the Takeover Code. The extension of the conversion rights attached to the Loan Extension Agreements held by members of the Concert Party also requires a waiver of Rule 9 of the Takeover Code. The Company also announced that it was in advanced discussions with a potential major overseas investor with regard to a significant injection of capital. The discussions include the conversion of the Loan Extension Agreements into equity which, together with the cash injection, would transform the Group's balance sheet which the Directors believe would leave the Company well funded to exploit a number of opportunities, particularly in the Far East. It had expected that the necessary circular would be posted to shareholders within a few weeks of 30 June 2010. However it has not been possible to conclude the discussions to date and the Company is now proposing to press ahead with seeking the necessary approvals so that it is ready to move quickly once, and if, the discussions are successfully concluded. In addition, PMG is proposing to consolidate the Company's share capital. A Circular has been posted to Shareholders convening a General Meeting to consider and, if thought fit, approve the Proposals. 2. Share Capital Consolidation As at the date of the Circular, the Company has 1,066,023,664 Ordinary Shares in issue. The Company believes that having such a large number of shares in existence is unwieldy and costly and further that Shareholders are penalised through the unusually high bid/offer spread on AIM which reduces the attractiveness to investors of the Ordinary Shares. The Company proposes to consolidate the Ordinary Shares on the basis of 1 New Ordinary Share for each 220 Ordinary Shares. Since the number of Ordinary Shares in issue at the Record Date is not exactly divisible by 220, Martin Doherty, the Company Secretary, has agreed to subscribe for 196 Ordinary Shares to increase the number of Ordinary Shares in issue to 1,066,023,860. Any fractions arising from the Share Capital Consolidation will be aggregated, issued and sold for the benefit of those members and the Company shall distribute the proceeds of sale in due proportion among those Shareholders except that any amount otherwise due to a member, being less than Â£5.00 will be retained for the benefit of the Company. Shareholders should be aware that if they hold fewer than 220 Ordinary Shares they would not be entitled to receive any New Ordinary Shares under the Share Consolidation and as a result would no longer have an interest in the Company. Shareholders will, of course, be free at any time to purchase or sell such number of Ordinary Shares as will result in your holding of Ordinary Shares being exactly divisible by 220. In this event you will not be left with any fractional entitlements. However, Shareholders must ensure that all such transfers are lodged with the Registrars by 9.00 a.m. on 24 August 2010 in order that these may be registered by the Record Date for the Share Capital Consolidation, namely 5.00 pm on 31 August 2010. The New Ordinary Shares will have the same rights as those currently attaching to the ordinary Shares under the Company's articles of association, including those relating to voting and entitlement to dividends. Subject to the Share Consolidation being approved by Shareholders, share certificates for the Ordinary Shares will cease to be valid and new share certificates will be issued on 8 September 2010. In the case of Shareholders who shares are held through the CREST system, the New Ordinary Shares will be credited to CREST accounts on 1 September 2010. Pending receipt of new certificates, Shareholders will still be able to trade in New Ordinary Shares and transfers of New Ordinary Shares held in certificated form will be certified against the register of members of the Company. 1. Consequences for the holders of Existing Options The Share Option Schemes provide that in the event of a sub-division, consolidation or reduction of capital, the number of ordinary shares subject to any option and the subscription price for each of those ordinary shares shall be adjusted in such manner as the auditors of the Company confirm in writing to be adjusted in such a manner that retains the same proportional relationship between the options and the share capital provided that: (i) the grant of any such replacement option shall not result in any participant becoming entitled to subscribe for ordinary shares at less than their nominal value; and (ii) the aggregate amount payable on the exercise of an option in full is not increased. The auditors of the Company shall report on the calculations made to achieve such an adjustment. In accordance with the rules of the Share Option Schemes each participant in the Share Option Schemes will receive 1 option over 1 New Ordinary Share for every 220 options held by him (rounded down to the nearest whole number of New Ordinary Shares). 2. Consequences for the holders of the Warrants In respect of the Warrants, the number of ordinary shares to be issued on the exercise of the Warrants shall be equitably and reasonably adjusted in the opinion of the Company's auditors, acting as experts, to take account of the Share Capital Consolidation. It is expected that each warrant holder will receive 1 warrant over 1 New Ordinary Share for every 220 Warrants currently held (rounded down to the nearest whole number of New Ordinary Shares, and that the exercise price shall be similarly increased. 3. Background to the Rule 9 Waiver On 30 June 2010, the Company announced that the holders of Â£1.7m of loan agreements had agreed to extend the term of the loans until 31 December 2012, in consideration of which they will receive an Extension Payment equal to the aggregate of 10 per cent. of the principal and the interest to 31 December 2012 at 8% per annum, amounting to Â£0.53m. Luna also agreed to extend the term on the Luna Loan on a similar basis to the Loan Extension Agreements. A further Â£ 0.6m of convertible loans will be repaid in several tranches with the final payment being 28 February 2011. The Company wishes to settle the Extension Payment, equating to Â£0.63m in aggregate, through the issue of 1,152,238 New Ordinary Shares at 55p per share. This will result in the Concert Party's interest increasing from 40.1 per cent. to 42.5 per cent. Shareholders' approval is therefore required for a waiver of Rule 9 of the Takeover Code which would otherwise require the Concert Party to make an offer to acquire all the remaining shares in issue in the capital of the Company that are not held by it. The conversion rights attached to the Loan Extension Agreement held by Barclays Wealth and the to the Luna Loan also require a wavier of Rule 9 of the Takeover Code as extension of the term of the agreement represents a change from the waiver that was granted in 2008, although there is no change to the percentage interest as a result. The Company intends to issue 594,846 New Ordinary Shares at 55p per share in settlement of certain creditors amounting to Â£0.31m in aggregate, principally to certain directors in lieu of historic fees. The Creditor Shares and the Extension Payment Shares will rank pari passu with the New Ordinary Shares to be issued following the Share Capital Consolidation and will represent 26.2 per cent. of the Enlarged Share Capital. The Company is also seeking to implement a management bonus scheme under which up to 363,626 New Ordinary Shares may be issued, in aggregate, commencing on the completion of the fund raising currently under discussion. 4. Waiver of obligations under Rule 9 of the Takeover Code The Takeover Code is issued and administered by the Panel. The Takeover Code applies, inter alia, to all offers for public companies which have their registered office in the UK, Channel Islands and the Isle of Man and which are considered to have their place of central management and control in these jurisdictions. The Company is subject to the Takeover Code. Accordingly, Shareholders are entitled to the protections afforded by the Takeover Code. Under Rule 9 of the Takeover Code, any person who acquires an interest (as defined in the Takeover Code), whether by a series of transactions over a period of time or not, in shares which, taken together with shares in which he is already interested and in which persons acting in concert with him are interested, carry 30 per cent. or more of the voting rights of a company which is subject to the Takeover Code, is normally required to make a general offer to all of the remaining shareholders in that Company to acquire their shares. Similarly, where any person, together with persons acting in concert with him, is interested in shares which in aggregate carry not less than 30 per cent. of the voting rights of a company, but does not hold shares carrying more than 50 per cent. of the voting rights of the company, a general offer will normally be required if any further interest in shares is acquired by any such person. An offer under Rule 9 must be in cash and at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interest in shares acquired during the 12 months prior to the announcement of the offer. The Waiver At the date of this document, the Concert Party is interested in aggregate in 427,277,844 Ordinary Shares representing approximately 40.1 per cent. of the Issued Share Capital. More information on the members of the Concert Party, and the relationship between them, is set out in paragraph 5.1 of Part III of this document. Following the completion of the Share Capital Consolidation, and the issues of the Creditor Shares and the Extension Payment Shares the Concert Party would be interested in 2,808,740 New Ordinary Shares, representing 42.5 per cent of the Enlarged Share Capital. The Concert Party previously held the right to convert Â£1.51m of convertible loans (being Â£1.17 held by Barclays Wealth and Â£0.34 held by Luna) into 2,746,948 New Ordinary Shares. The issue of these shares and the related waiver of Rule 9 of the Takeover Code was previously voted on and approved by Shareholders at the general meeting in October 2008. The extension of this right in line with the extension of the term of the loans, as described above, represents a change to the previous waiver. Assuming that these conversion rights are exercised and that no other New Ordinary Shares are issued, except those giving rise to the Enlarged Share Capital as set out in this document, and that no Options or Warrants are exercised or Management Bonus Shares or Guarantee Shares issued, except for those held by or due to the Concert Party, the maximum interest, in aggregate, of the Concert Party would be 5,746,076 New Ordinary Shares, representing approximately 60.2 per cent. of the resulting issued share capital of the Company. Approval is therefore being sought on a poll of Independent Shareholders for a waiver of the obligations of Rule 9 of the Takeover Code that would otherwise be incurred by the Concert Party as a consequence of the Proposals. The Panel has agreed, subject to the passing of Resolution 1 at the General Meeting on a poll by the Independent Shareholders, to waive the obligation of any member of the Concert Party to make a general offer to Shareholders under Rule 9 of the Takeover Code that would otherwise arise as a result of the Proposals. Shareholders should be aware that, following the Proposals and including shares that may be issued on exercise of Options or the issue of the Management Bonus Shares or the Conversion Shares, the members of the Concert Party may in aggregate hold more than 50 per cent. of the Company's enlarged voting share capital. Accordingly, the Concert Party, together with any persons acting in concert with it, may increase their aggregate interests in the Company without incurring any further obligaiton under Rule 9 to make a general offer, although individual members of the Concert Party will not be able to increase their percentage holdings through or between a Rule 9 threshold without Panel consent. The members of the Concert Party, have confirmed to the Company that they are not proposing, following any increase in the Concert Party's percentage interest in New Ordinary Shares as a result of the Proposals, to seek any change in the composition of the Board, other than the appointment of the Proposed Director, or any other aspect of the Company's business. The members of the Concert Party have also confirmed that they have no intention to change the locations of the Group's respective places of business, except as described in this document, or the continued employment of their employees and management, including any material change in conditions of employment, nor will there be any redeployment of the fixed assets of the Group, as a result of the Proposals. 5. Admission Application will be made for admission to trading on AIM for the New Ordinary Shares, the Creditor Shares and the Extension Payment Shares. Subject to the Resolutions being approved by Shareholders, it is expected that trading in the Enlarged Share Capital will become effective and dealings will commence at 8.00am on 1 September 2010. 6. Increase in Share Authorities As mentioned above, the Company is currently in discussions with a potential investor for a significant injection of capital. Whilst it has not been possible to conclude these discussions with the expected timeframe, the Directors believe that it is in the best interests of the Company to seek a substantial increase in the share authorities in order to be ready to issue shares immediately an agreement can be reached with a new investor. For this reason, the Board is asking Shareholders for the authority to issue up to 6,609,827 New Ordinary Shares for cash, representing 100 per cent. of the Enlarged Share Capital, on a non pre-emptive basis. The effect of the issue of these shares will be to substantially dilute the interests of existing shareholders. There is no guarantee that the current discussions will be successfully concluded or as to the price at which the Directors will be able to raise money. At 93.5 pence per share (being the theoretical closing middle price following the share capital consolidation) this would enable the Company to raise approximately Â£6,180,188.25, before expenses. The Company's capital requirements will depend on numerous factors, including its ability to maintain and expand its existing business and it is difficult for the Directors to predict the timing and amount of the Company's capital requirements with accuracy. If the Company's capital requirements vary materially from its plans, the Company may require further capital. Any additional equity financing may be dilutive to Shareholders and debt financing, if available, may place restrictions on the Company's financing and operating activities. If the Company is unable to obtain additional financing as needed, it may be required to reduce the scope of its operations or anticipated expansion. Shareholders are also being asked for the authority for the Directors to issue shares in respect of the conversion of the Loan Extension Agreements and Luna Loan (this authority was previous granted at a general meeting in October 2008); in respect of the issue of the Creditor Shares and the Extension Payment Shares; and in respect of the management Bonus Shares. 7. General Meeting A notice has been sent to Shareholders convening a General Meeting of the Company to be held at the East India Club, 16 St James's Square, London SW1Y 4LH at 8.30 a.m. on 31 August 2010 for the purpose of considering, and if thought fit, passing the following resolutions: Resolution 1 To approve the Rule 9 Waiver; Resolution 2 A. to approve the Share Consolidation as follows: B. i. to consolidate each of the Ordinary Shares into New Ordinary Shares on the basis that every 220 Ordinary Shares will be consolidated into one New Ordinary Share. The treatment of any fractions arising as a result of the Consolidation is explained in paragraph 4 of this Part I; and ii. to authorise the Directors to sell fractional share entitlements in the market in accordance with the Company's articles of association; B. to grant authority to the Directors to allot shares as follows: C. i. to grant the Directors the authority to issue and allot New Ordinary Shares up to a nominal value of Â£555,000 under section 551 of the Act; ii. to grant the Directors the authority pursuant to section 561 of the Act to allot equity shares for cash without the application of section 571 of the Act requiring the Company offer shares to existing shareholders on a pre-emptive basis in respect of; iii. a. New Ordinary Shares up to a nominal value of Â£25,327.24 in respect of the issue of the Extension Payment Shares, representing approximately 17.4 per cent. of the Enlarged Share Capital assuming the Resolutions are passed; b. New Ordinary Shares up to a nominal value of Â£13,086.61 in respect of the issue of the Creditor Shares, representing approximately 9.0 per cent. of the Enlarged Share Capital assuming the Resolutions are passed; c. New Ordinary Shares up to a nominal value of Â£81,607.28 in respect of the issue of the shares on conversion of the Loan Extension Agreements, representing approximately 56.1 per cent. of the Enlarged Share Capital assuming the Resolutions are passed; d. New Ordinary Shares up to a nominal value of Â£12,686.54 in respect of the issue of the Management Bonus Shares and the issue of shares on the exercise of any Options or Warrants, representing approximately 8.7 per cent. of the Enlarged Share Capital assuming the Resolutions are passed; e. the allotment of New Ordinary Shares to Shareholders proportionate (as nearly as may be) to the respective number of New Ordinary Shares held by them following the passing of the Resolutions; f. New Ordinary Shares up to a nominal value of Â£145,416.19 in respect of the issue of any additional shares for cash, which represents approximately 100.0 per cent. of the total Enlarged Share Capital of the Company assuming the Resolutions are passed. Resolution 3 To approve a change to the Articles to amend the notice period for general meetings in line with the Act 8. Recommendation by Independent Directors The Independent Directors, who have been so advised by Astaire, consider the Proposals to be fair and reasonable so far as the Independent Shareholders are concerned. In providing advice to the Independent Directors, Astaire has taken into account the Directors' commercial assessments. For more information please contact: Stewart Mison / Martin Doherty Parallel Media Group Plc +44 (0) 20 7225 2000 Antony Legge / Toby Gibbs Astaire Securities Plc +44 (0) 20 7492 4750 Alex Giacchetti Bishopsgate +44 (0) 20 7562 3350 Communications www.parallelmediagroup.com EXPECTED TIMETABLE OF PRINCIPAL EVENTS 2010 Date of this document 9 August Latest time and date for receipt of completed 8.30 a.m. on 29 August Form of Proxy for General Meeting Record date for Share Capital Consolidation close of business on 31 August General Meeting 8.30 a.m. on 31 August Admission and commencement of dealings in New 8.00 a.m. on 1 September Ordinary Shares New Ordinary Shares credited to CREST members' 8.00 a.m. on 1 September accounts Despatch of definitive share certificates for 8 September New Ordinary Shares in certificated form by not later than If any details contained in the timetable above should change, the revised times and dates will be notified by means of an announcement through a Regulatory Information Service. SHARE CAPITAL CONSOLIDATION STATISTICS Number of Ordinary Shares in issue at the date of this 1,066,023,664 document Number of Balancing Shares to be used prior to the Share 196 Capital Consolidation Number of Ordinary Shares in issue at the Record Date 1,066,023,860 Number of New Ordinary Shares post the Share Capital 4,845,563 Consolidation Theoretical mid price per share post the Share Capital 93.5p Consolidation1 Number of Extension Payment Shares to be issued 1,151,238 Number of Creditor Shares to be issued 594,846 Enlarged Share Capital 6,609,827 New ISIN post the Share Capital Consolidation GB00B605QQ41 Notes: 1. This has been calculated using the closing mid price of the Company on 6 August 2010, being the last practical date prior to the posting of this document DEFINITIONS The following definitions apply throughout this document, unless the context otherwise requires: "Act" the Companies Act 2006 "Admission" the admission of the Enlarged Share Capital to trading on AIM becoming effective in accordance with the AIM Rules "AIM" the market of that name, operated by the London Stock Exchange "AIM Rules" the AIM Rules for Companies published by the London Stock Exchange "Approved Scheme" the Company's Approved Discretionary Share Option Scheme as adopted by the Company on 10 August 2001 "Astaire" Astaire Securities Plc, the Company's nominated adviser "Barclays Wealth" Barclays Wealth Trustees (Jersey) Limited "Board" or "Director(s)" the directors of the Company as at the date of the Circular "Capita Registrars" a trading name of Capita Registrars Limited "Circular" The circular posted to Shareholders on 9 August 2010 convening the General Meeting "Company" or "PMG" Parallel Media Group Plc "Concert Party" David Ciclitira, Serenella Ciclitira, Barclays Wealth and Luna "Conversion Shares" means the 2,746,948 New Ordinary Shares that may be issued to the Concert Party on conversion of the Loan Extension Agreements and Luna Loan "Creditor Shares" the 594,846 New Ordinary Shares to be issued to certain creditors, principally in settlement of certain directors' and advisors' fees "Enlarged Share Capital" the 6,069,827 New Ordinary Share in issue immediately following Admission, comprising the New Ordinary Shares to be issued under the Share Capital Consolidation, the Extension Payment Shares and the Creditor Shares. "Extension Payment" equals the aggregate of 10 per cent. of the principal and the interest to 31 December 2012 at 8 per cent. per annum as applied to both the Loan Monies and the Luna Loan, equating to Â£0.63m in aggregate "Extension Payment Shares" means the 1,151,238 new Ordinary Shares to be issued in settlement of the Extension Payment "EuroLibor" the London interbank offeror rate for Euro deposits "FSA" Financial Services Authority "Form of Proxy" the form of proxy for use in connection with the General Meeting "General Meeting" the general meeting of the Company, to be held at the East India Club, 16 St James's Square, London SW1Y 4LH at 8.30 a.m. on 31 August 2010 to approve the Resolutions "Group" the Company and its subsidiaries at the date of the Circular "Guarantee Shares" the 18,180 New Ordinary Shares, in aggregate, to be issued to David Ciclitira and Stewart Mison "Independent Directors" Stewart Mison, Edward Adams and Leonard Fine "Independent Shareholders" the holders of Existing Ordinary Shares, other than members of the Concert Party "Issued Share Capital" the 1,066,023,664 Ordinary Shares in issue as at the date of this document "Lenders" the holders of the Loan Extension Agreements who have each agreed to convert the outstanding principal into New Ordinary Shares "Loan Monies" The outstanding loan monies advanced to the Company pursuant to the terms of the Loan Extension Agreements, being Â£1.7m as at the date of the Circular "Loan Extension Agreements" the convertible loan agreements entered into by the Company on 29 June 2010 "Luna" Luna Trading Limited "Luna Loan" the loan for Â£336,000 in aggregate advanced by Luna "Luna Loan Shares" the 610,909 New Ordinary Shares that may be issued to Luna on conversion of the principal of the Luna Loan "Management Bonus Shares" the 363,626 New Ordinary Shares that may be issued, in aggregate, to certain directors, consultants and employees "New Ordinary Shares" the ordinary shares of 2.2 pence each in the share capital of the Company to be created as part of the Share Capital Consolidation "Notice of General Meeting" the notice convening the General Meeting to be held for the purpose of considering and, if thought fit, passing the Resolutions "Options" the options over 15,162,750 Ordinary Shares that have been granted by the Company and have not been exercised as at the date of this document "Ordinary Shares" the ordinary shares of 0.01 pence each in the share capital of the Company in issue at the date of this document "Panel" the Panel on Takeovers and Mergers "Proposals" means the Share Capital Consolidation and the Rule 9 Waiver "Registrar" Capita Registrars Limited, The Registry, 34 Beckenham Road, BR3 4TU "Regulatory Information any service by which companies can disseminate Service" information to AIM in accordance with the AIM Rules "Resolutions" the resolutions set out in the Notice of General Meeting "Rule 9 Waiver" the waiver by the Panel of the obligations of Rule 9 of the Takeover Code that would otherwise be incurred by the Concert Party, as described in Part I of this document "Share Capital the consolidation of the ordinary share capital, Consolidation" as set out in the Resolution 2 of the Notice of General Meeting "Shareholders" a holder(s) of Ordinary Shares "Takeover Code" the City Code on Takeovers and Mergers "Trafalgar Capital" Trafalgar Capital Specialized Investment Fund "Share Option Schemes" the share option schemes adopted by the Company "Warrants" the warrants over 31,706,202 Ordinary Shares - 9 -