Proposed Acquisition and Placing and Open Offer
Chandra PLC
24 March 2000
Contact: Nigel Drummond, Chairman
Nicholas Cowan, Proposed Chairman
Jon Cunningham, Proposed Chief Executive
Chandra PLC +44 (0) 20 7929 5599
David Worlidge
John East & Partners Limited +44 (0) 20 7628 2200
David Bick
Holborn Public Relations +44 (0) 20 7929 5599
david_bick@holbornpr.co.uk
Chandra PLC
Proposed Acquisition
and
Placing and Open Offer
Key Points of the Proposals
* Acquisition of Groovetech, which operates a website
broadcasting contemporary club music together with ancilliary
merchandising operations. Consideration of £8.8 million to
acquire 72 per cent with option to acquire balance for £6.8
million, to be satisfied in new shares at 158p per share
* Placing and Open Offer of 1.95 million new shares at 158p
per share to raise approximately £2.41 million, net of
expenses, for working capital purposes
* Change of group name to Internet Music & Media plc
* Appointment of Nicholas Cowan as Chairman and Jon
Cunningham as Chief Executive
Commenting on the proposed acquisition, Nigel Drummond,
Chairman of Chandra, said:
'We are delighted to be joining forces with Groovetech which
has developed an exciting music medium with very attractive
international potential. Groovetech has won growing audiences
in the USA and high profile investors with very successful
track records in the music industry.'
Proposed acquisition of Groovetech,
Proposed Placing and Open Offer of 1,950,000 new Ordinary
Shares
at 158p per share
and Change of Name
Introduction
It was announced today that Chandra has conditionally agreed
to acquire 72 per cent of the units of Groovetech LLC
('Groovetech'), a limited liability company registered in the
state of Washington, USA whose capital comprises membership
units of no par value, for a consideration of £8.81 million,
to be satisfied by the allotment and issue of the
Consideration Shares and has entered into mutual put and call
options, leading to full ownership in due course on completion
of the Option Agreement for a consideration of £6.83 million,
to be satisfied by the allotment and issue of the Option
Shares. The principal activity of Groovetech is the operation
of a website which broadcasts contemporary club music together
with ancilliary merchandising operations. Completion of the
Acquisition is scheduled to take place as soon as practicable
following the EGM.
The Board also announced today that the Company proposes to
raise approximately £2.41 million (net of expenses) by way of
the Placing and Open Offer of 1,950,000 new Ordinary Shares,
to provide additional working capital for the Enlarged Group.
Under the AIM Rules, the Acquisition is subject to shareholder
approval in view of its size. If the Resolutions are duly
passed, the existing AIM trading facility of the Company will
be cancelled and a new trading facility granted
contemporaneously. It is anticipated that dealings on AIM in
the Enlarged Issued Share Capital will commence on 4th May,
2000. If the Resolutions are not passed, dealings in the
Existing Ordinary Shares will continue on AIM.
Information On Groovetech
The Directors and Proposed Directors believe that
dissemination of music over the Internet has changed and may
continue to change the way consumers obtain and listen to
music. Digital compression technology allows the transmission
of music files, whether by downloading them onto the hard disk
of a personal computer using MP3 software, or by streaming
audio and video using software such as RealPlayer, or
Microsoft Windows MediaT Player. These technologies enable
the transmission of audio and video over the world wide web,
without using traditional broadcast media.
History and Business Of Groovetech
In 1996, Brian Pember and Zach Jenkins started a Seattle-based
business focused on local Disc Jockeys ('DJs'), record stores
and events for 'underground' electronic dance music. Brian
Pember had been a local DJ and had a background in design and
technology. Zach Jenkins, who then worked at Real Networks,
Inc., a leading provider of audio and video streaming
software, also had a keen interest in music and web
technology.
In early 1996, Zach Jenkins registered the Groovetech.com
domain name and began trading, with Brian Pember, as 'Groove
Technologies', operating a website under that name for
followers of local underground dance music. In mid 1996, they
invited Jon Cunningham to join them. Shortly thereafter, they
incorporated the business as Groove Technologies and began to
expand the content on its website to include national
underground dance music, with the intention of creating an
online community. Part of this expansion included initiating
live and pre-recorded broadcasts from 1015 Folsom, a nightclub
in San Francisco, California.
In 1998, Groove Technologies attracted private investment from
Nicholas Cowan, the proposed Chairman of the Company and his
business associate Barney Cordell and jointly with them formed
Groovetech, a limited liability company under the laws of the
state of Washington in the United States. Groovetech used the
money invested to redesign its website during 1998 so as to
improve navigation and expand content. During this time,
Groovetech also initiated activities in London, England, which
mainly consisted of developing relationships with record
distributors.
In mid 1998, Groovetech started an Internet based radio
station featuring live DJ sets originating from the company's
Seattle, Washington, office. The company concurrently set up
a warehouse and shipping and receiving facility in
anticipation of commencing e-commerce sales in early 1999. In
January 1999, the further developed version of the website
with e-commerce capability was launched and the company began
to sell CDs and vinyl records to Internet purchasers. In
August 1999 the limited liability company raised further
capital from an investment by Ronnie Wood, a member of the
Rolling Stones.
Current live broadcast locations
Groovetech currently broadcasts live over the Internet from a
number of clubs and studio locations in the USA. These
include:
1015 Folsom
Located in San Francisco, California, 1015 Folsom is
considered, by relevant trade magazines, to be one of the
leading underground dance music clubs on the west coast of the
US;
Data Bass
Located in Los Angeles, California, Data Bass, a studio which
broadcasts over the Internet once a week, features broadcasts
of DJ sets from a studio setting with real-time video feeds to
the website;
ARO.space
Located in Seattle, Washington, ARO.space is regarded by the
local community as the premier underground dance music club in
Seattle;
Groovetech Radio Seattle
Located in Seattle, Washington, the company broadcasts live DJ
sets from its own office-located studios. The Groovetech
website features a schedule of the different DJs and the type
of music broadcasts; and
Groovetech Radio SF
Located in San Francisco, California, the company maintains an
in-office studio for broadcast of live DJ sets, similar to
that operated by Groovetech Radio Seattle.
The company plans to continue adding additional live broadcast
locations within the US and elsewhere.
Music Archive
Groovetech has created and intends to continue to expand an
extensive archive of selected recordings of live broadcasts
and other pre-recorded content, which provides on demand
content for the website which is additional to that being
broadcast live.
Current Revenue Sources
On-line sales
In January 1999, Groovetech launched the Listening Lab portion
of its site. The Listening Lab allows customers to search
for, sample and purchase music, on vinyl or compact disc, by
mail order. It utilizes a proprietary e-commerce shopping
system. For the period ended 31st December, 1999, net sales
were US$145,000, having grown from US$4,700 for the month of
February, 1999 to US$31,400 for the month of December, 1999.
The Directors and Proposed Directors anticipate that sales
will continue to grow for the foreseeable future.
Intended Revenue Sources
Sponsorship
To date, Groovetech has not received third party sponsorship
for its site. Following further development of its content
and working e-commerce systems, the company intends to pursue
sponsorship opportunities, which may include:
* Co-branded content, which provides information regarding
sponsors' products and/or services;
* Co-branding in Groovetech marketing and promotional
activities; and
* Product Placement and endorsement of sponsors' products
or services, for example, by referring, on the appropriate web
page, to branded audio and video equipment during live
broadcasts.
Groovetech own label music sales
Groovetech intends during 2000 to launch its own Groovetech
record label, with the aim of releasing high quality
underground dance music from the USA and Europe, produced by a
combination of established and upcoming artists. Distribution
is intended to be carried out through appropriate
distributors, in addition to direct sales from the Groovetech
and other websites.
Merchandising
In furtherance of the development of its brand, Groovetech is
investigating the manufacture and sale of CDs, videos and
other products relevant to the Groovetech website. Products
could include T-shirts, hats, clothing and DJ accessories such
as turntable mats, record bags and flight cases.
Competition
The Directors and Proposed Directors consider that direct
competitors include Raveworld.net, Pseudo.com and
Satelliterecords.com in the USA and Ministry Of Sound in the
UK. These sites offer various combinations of CD and record
sales and/or live broadcasts of underground dance music.
Indirect competitors include any on or off-line retailer
offering music generally which might attract the attention of
a music listener with diverse tastes. On-line companies
falling into this category include CDNow and Amazon.com.
Some or all of these direct or indirect competitors have begun
to engage in activities which may cause Groovetech to alter or
modify its business model and revenue sources. For example,
in the underground dance music industry, websites have
traditionally obtained content such as recordings, artist
interviews and other types of programming free of charge.
However, the Directors and Proposed Directors believe that, in
the future, it may be necessary to pay for exclusive rights to
certain content.
Current Trading and Future Prospects
Since the year end, sales have continued to increase month on
month. Plans are at an advanced stage to fit out the new
London office and Internet radio station which the Directors
and Proposed Directors expect to open in summer 2000. During
2000, it is the intention of the Directors and Proposed
Directors that Groovetech develops its website further to
create the functionality to allow it to pursue sponsorship
opportunities and launches its own record label.
For all the reasons above, the Directors and Proposed
Directors feel justified in looking to the future with
confidence.
Reasons for the Acquisition
In the Company's AIM admission document and prospectus dated
4th October, 1999, the Directors' stated intention was to
build, largely through acquisition, a music, entertainment and
media group. The proposed acquisition of Groovetech is in
accordance with the objective and is intended to provide a
base for further complementary acquisitions by the Company as
and when suitable opportunities occur.
Details of the Acquisition
The Acquisition is being effected by means of the Lupine
Agreement, the Wood Agreement, the Subscription Agreement and
the Option Agreement.
Under the Lupine Agreement the Company has conditionally
agreed to acquire the entire issued share capital of Lupine,
which owns 110,000 Groovetech membership units, for a
consideration of approximately £8.01 million to be satisfied
by the issue of 5,070,228 Consideration Shares on completion,
which is scheduled to take place as soon as practicable
following the EGM.
Under the Wood Agreement, the Company has conditionally agreed
to acquire 11,000 Groovetech membership units for a
consideration of approximately £0.8 million, to be satisfied
by the issue of 507,023 Consideration Shares on completion,
which is scheduled to take place as soon as practicable
following the EGM.
Under the Subscription Agreement, the Company has
conditionally agreed to subscribe £1.3 million for 111,137 new
Groovetech membership units at completion.
As a consequence of the Acquisition, the Company will then own
232,137 Groovetech membership units, representing 72 per cent
of the then issued Groovetech membership units. The remaining
28 per cent of the Groovetech membership units will be
retained by Groove Technologies and will be the subject of
call and put option arrangements under the Option Agreement
described more fully below.
The Option Agreement is being entered into in order to defer
Groove Technologies' tax liability. The Proposed Directors
have been advised that the put and call rights granted under
the Option Agreement effectively defer Groove Technologies'
tax liability on the sale of its ownership interest in
Groovetech until the sale of Groove Technologies' membership
units in Groovetech pursuant to the exercise of the put and
call rights. Under current US Federal income tax laws, the
acquisition of Groove Technologies membership units in
Groovetech by a foreign corporation such as Chandra, will
trigger US tax liability on any gain on the sale.
Accordingly, separate arrangements have been made to acquire
the Groovetech membership units held by Groove Technologies by
the Option Agreement, under which the Company has the option
to acquire 90,000 Groovetech membership units held by Groove
Technologies (and has acquired certain intellectual property
rights held by Groove Technologies) for a consideration of
approximately £6.83 million, to be satisfied by the issue of
4,322,749 new Ordinary Shares on exercise of the Option. The
option is exercisable between two and ten years after
Admission and can only be exercised by the Company if the
Company is able to arrange for the placing of sufficient of
Groove Technologies' consequential holding of Ordinary Shares
to satisfy the tax liability arising on the exercise of the
option. Under the Option Agreement, Groove Technologies has
an option to require Chandra to acquire the relevant
membership units on the same terms as those set out above,
save that the Option may be exercised immediately and there is
no requirement on the Company to place shares on Groove
Technologies' behalf.
Following the exercise of the option under the Option
Agreement, the Company will own all the membership units in
Groovetech.
Directors, Proposed Directors and Senior Management of the
Enlarged Group
Directors
Nigel Drummond (Chairman), aged 32, is the Executive Chairman
of the Company. He has over ten years' experience in high
technology business strategy, acquisitions and operations. He
holds an MBA with distinction from the Wharton School of the
University of Pennsylvania and is an honours graduate of
Cambridge University. He joined VirtualInternet.net plc, an
AIM company, in 1998 where he has been closely involved with
its international expansion and on two recently completed
acquisitions. Previously he worked in the USA as a case team
leader with Bain & Company's leveraged buyout and acquisitions
group and with several consulting firms including the Boston
Consulting Group in London and New York.
David Rogers (Executive Director), aged 51, is an Executive
Director of the Company. He has spent the majority of his
working life in the property industry, predominantly in the
City of London as a partner in City Agents, Furze Rogers and
Partners (and a shareholding director of the company formed
when that firm incorporated). He is also a director of Corum
plc which is a company admitted to AIM.
Peter Burrell (Non-Executive Director), aged 36, is a Non-
Executive Director of the Company. In 1993 he was one of the
five founders of Southgate Management Limited, which was a
general marketing company within the racing industry. In
1996, he left Southgate Management Limited and formed Classic
Management Limited with Frankie Dettori as a minority
shareholder. In addition to managing the affairs of Frankie
Dettori, Classic Management Limited also manages the interests
of Vinnie Jones, Joe Kinnear and the boy band 'S.X.'. In this
context he actively deals with the media and promotional
aspects of their respective careers. He will resign from the
Board following implementation of the Proposals.
The Directors are the only employees of the Company at the
date of the document.
Board changes
Conditional upon Admission, Nicholas Cowan will join the Board
as non-executive director and Jon Cunningham, Zachary Jenkins
and Brian Pember will join as executive directors. Nigel
Drummond and David Rogers will assume non-executive roles and
Peter Burrell will resign as a non-executive director.
Further details of the Proposed Directors are set out below.
Proposed Directors
Nicholas Cowan (Proposed Chairman), aged 58, is a solicitor
who was a senior partner of a law firm specialising in
entertainment. Leaving this post to move to the USA in 1978,
he became President of Shelter Recording Company and later
established Belgravia Corporation, an artistes mangement
company. He returned to England in 1995 and is currently a
director of a number of companies, including Trebletrim
Limited, an art and music distribution company, Rockyarch
Limited, an artistes management company, and Sports Internet
Group plc.
Jonathon Cunningham (Proposed Chief Executive), aged 24,
joined Zachary Jenkins and Brian Penber to form Groove
Technologies in 1996 after leading Bellevue Community College.
He has been chief executive of Groovetech since its formation
in 1998.
Zachary Jenkins (Proposed Technical Director), aged 24, is a
founder of Groove Technologies and Groovetech. Between 1992
and 1995 he provided end-user technical support to internet
users at Cyberquest Inc. In 1995 he joined RealNetworks Inc.
becoming a core test engineer and left in 1999 to take up
full time employment with Groovetech.
Brian Pember (Proposed Creative Director), aged 26, is a
founder of Groove Technologies and Groovetech. Between 1996
and 1998 he also worked as a freelance graphic designer.
The Board intends to appoint a finance director as soon as
practicable. Until such time, the responsibility for the
finance function will be assumed by Brenda Hay.
Senior Management
Brenda Hay (Financial Controller of Groovetech), aged 37, is
a certified public accountant who left Arthur Andersen to join
Groovetech in 1999.
Quentin 'Tintin' Chambers (Operations Director of Groovetech
Limited), aged 30, joined Groovetech in 1998. Between 1998
and 1992 he was at Energy, a dance music promotion company.
From 1992 to 1995 he was a director of FXTC Limited, a disc
jockey and dance music artiste agency. In 1995 he became a
director of Cosmic Com Records Limited, an underground dance
label.
Share Options
On 1st October, 1999, Mr Drummond, Mr Rogers and Mr Burrell
were granted options over 150,000, 100,000, and 60,000
Ordinary Shares, (representing in aggregate 5.96 per cent of
the Existing Ordinary Shares) at an exercise price of 25p per
share. The main provisions of these options are set out in
paragraph 6 of Part VI of the document.
The Company also proposes to establish the Share Option Plan
in order to provide an incentive to employees of the Enlarged
Group in the future. The Company is seeking approval of the
rules of the scheme at the EGM. The total number of Ordinary
Shares issuable pursuant to grants of options made within the
preceding ten years, under the Share Option Plan and all other
share schemes of the Company (including the schemes detailed
in the paragraph above but not including the Option
Agreement), shall not exceed 15 per cent of the issued
ordinary share capital of the Company at Admission as enlarged
by share issues which are offered to shareholders on a pre-
emptive basis.
Dividend Policy
The Directors and Proposed Directors intend to commence the
payment of dividends when it becomes commercially prudent so
to do and to pursue a progressive dividend policy broadly in
line with earnings growth, subject to the availability of
distributable reserves and the need to retain funds to finance
the requirements of the Company.
Details of the Placing and Open Offer
The Company is proposing to raise approximately £3.08 million
(before expenses) by the issue of the Offer Shares pursuant to
the Placing and Open Offer. Accordingly, 1,950,000 Offer
Shares have been conditionally placed by Insinger Townsley
subject to Qualifying Shareholders having the right to apply
for such shares under the Open Offer at a price of 158p per
share, free of expenses, pro rata to their existing
shareholdings on the basis of:
3 Offer Shares for every 8 Existing Ordinary Shares
held at the close of business on the Record Date and so on in
proportion for any lesser or greater number of Existing
Ordinary Shares then held.
Fractional entitlements will not be allotted but will be
aggregated and sold in the Placing for the benefit of the
Company. The maximum entitlement of each Qualifying
Shareholder is indicated on the Application Form accompanying
this document. Qualifying Shareholders may apply for any
number of Offer Shares up to their maximum entitlement.
The Directors, who in aggregate beneficially own 100,000
Existing Ordinary Shares, representing 1.9 per cent of the
present issued share capital, have maximum aggregate
entitlements under the Open Offer to 37,500 Offer Shares.
They have irrevocably undertaken to take up these
entitlements. Certain other shareholders, who in aggregate
own 3,061,000 Existing Ordinary Shares, representing 58.9 per
cent of the present issued share capital, have irrevocably
undertaken to subscribe for 216,000 Offer Shares and not to
subscribe for the balance of their entitlements under the Open
Offer totalling 931,874 Offer Shares and such shares have been
placed firm by Insinger Townsley with institutional and other
investors.
An Application Form, containing details of Qualifying
Shareholders entitlements to the Offer Shares will be sent to
Qualifying Shareholders today. The terms of the Open Offer
provide that Qualifying Shareholders who make valid
applications for up to and including their maximum pro rata
entitlement will be entitled to receive all such Offer Shares.
An application to subscribe for Offer Shares may only be made
on the Application Form.
Each Application Form will be personal to the Qualifying
Shareholder(s) named thereon and may not be assigned or
transferred other than to satisfy bona fide market claims
pursuant to the Rules of the London Stock Exchange.
Qualifying Shareholders should be aware that the Open Offer is
not a rights issue and that Insinger Townsley will not attempt
to procure subscribers in the market for Offer Shares not
applied for on behalf of those Qualifying Shareholders who do
not apply for their entitlements. To be treated as valid,
completed Application Forms and payment in full must be
received by IRG plc by 3.00p.m. on 4th May, 2000.
The Open Offer is conditional upon (i) the passing of the
resolutions numbered 1 and 2 to be proposed at the
Extraordinary General Meeting; (ii) the Placing Agreement
becoming unconditional in all respects and not being
terminated in accordance with its terms; and (iii) Admission
becoming effective not later than 4th May, 2000 or such later
time or date not later than 24th May, 2000 as the Company,
John East & Partners Limited and Insinger Townsley may agree.
Use of proceeds of the Placing and Open Offer
The net proceeds of the Placing and Open Offer will amount to
approximately £2.41 million which will be utilised, together
with the existing cash resources of the Company, to fund the
costs of implementing the Proposals to pay the subscription
price under the Subscription Agreement and to provide working
capital for the development of the Enlarged Group.
Marketability
Application will be made for the Enlarged Issued Ordinary
Share Capital to be admitted to trading on AIM. Assuming that
the Resolutions are duly passed at the Extraordinary General
Meeting, it is expected that Admission will become effective
and trading in the Enlarged Issued Ordinary Share Capital will
commence on 4th May, 2000. John East & Partners Limited has
been appointed as the Company's nominated adviser and Insinger
Townsley as the Company's nominated broker for this purpose.
It is emphasised that no application has been or is being made
for admission of Ordinary Shares to the Official List of the
London Stock Exchange. The rules of AIM are less demanding
than those of the Official List.
Timetable of Principal events
Record Date for Open Offer 17th March, 2000
Latest time for splitting Application Forms
in respect of the Open Offer
(to satisfy bona fide market
claims only) 3.00 p.m. on 14th April, 2000
Latest time for receipt of
Application Forms
and payment in full 3.00 p.m. on 18th April, 2000
Latest time for receipt of
Forms of Proxy for the
Extraordinary General Meeting 10.00 a.m. on 16th April, 2000
Extraordinary General Meeting 10.00 a.m. on 18th April, 2000
Admission effective and trading
expected to commence 4th May, 2000
CREST accounts in respect of
Placing Shares and Offer Shares
credited on 4th May, 2000
Share certificates in respect of
Placing Shares and Offer Shares
despatched by 11th May, 2000