REG - Electric Guitar PLC - Proposed CVA, Fundraising and Notice of GM
11/03/2025 07:15
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RNS Number : 0955A Electric Guitar PLC 11 March 2025
11 March 2025
Electric Guitar PLC
("Electric Guitar" or the "Company")
Proposed Company Voluntary Arrangement, Subscription for Ordinary Shares to
raise £300,000, Share Capital Reorganisation and Notice of General Meeting
The Board of Electric Guitar PLC (LSE: ELEG) is pleased to announce a proposed
subscription to raise £300,000 (the "Subscription") as part of a wider
Company restructuring to enable the Company to pursue an acquisition strategy
as a cash shell. The Board is proposing a Company Voluntary Arrangement
("CVA") with its creditors alongside the Subscription, as well as a Share
Capital Reorganisation to amend the nominal value of the Company's ordinary
shares (the "Proposals").
A circular containing a notice convening a general meeting to consider the
Proposals to be held at 11:00 a.m. on 27 March 2025 at the offices of
Broadfield Law UK LLP, One Bartholomew Close, London, EC1A 7BL will be posted
to shareholders today and made available on the Company's website
at electricguitarplc.com (https://www.electricguitarplc.com/investors/) .
Extracts from the circular containing further details of the Proposals
including the timetable are set out below. Unless otherwise defined,
definitions used in this announcement are set out at the end of this
announcement.
Contacts:
Electric Guitar PLC info@electricguitarplc.com
Richard Horwood, COO
Allenby Capital (Nominated Adviser and Broker) 020 3328 5656
Jeremy Porter / Piers Shimwell / Dan Dearden-Williams
Further information on the Proposals and General Meeting
The following sections are extracted from the circular that will be posted to
shareholders today, a full version of which will be available later today on
the Company's website at electricguitarplc.com
(http://www.electricguitarplc.com) . (http://www.electricguitarplc.com)
1. Introduction
We are writing to provide you with an explanation of the background to and
reasons for the Proposals and to explain why the Independent Directors
consider the Proposals to be in the best interests of the Company and its
Shareholders as a whole.
You should read the whole of this document and not rely solely on the
summarised information contained in this Part I (Letter from the Chair).
Further to the Company's announcement of 24 December 2024 regarding the
liquidation of 3radical, the Company's operating subsidiary, and subsequent
reclassification of the Company as a cash shell pursuant to Rule 15 of the AIM
Rules, the Board is pleased to present the following proposals to
Shareholders:
- a fundraise by way of subscription for 875,000,000 New Ordinary
Shares in the Company and a CLN for 374,813,776 New Ordinary Shares raising
total funds of £355,000;
- the proposed CVA in order to allow the Company to restructure itself
in a way that allows Shareholders and Creditors to retain an economic interest
in the Company; and
- the proposed Share Capital Reorganisation to allow the CVA and
Fundraising to complete in accordance with their terms.
Following below expected trading performance of 3radical since the RTO and the
failure of the Company to secure additional funds to continue to fund the
losses of 3radical, 3radical was placed into liquidation on 24 December 2024.
As at the date of this document, the Company has debts of £1,399,799 and cash
of £4,765. As such, the Company was left in a position whereby its only
remaining viable options were to either liquidate the Company or to seek some
form of creditor protection.
The Board has therefore concluded that a Company Voluntary Arrangement (the
"CVA"), if approved, would allow for the Company to continue as an entity for
the benefit of all stakeholders and to seek to retain admission of the
Ordinary Shares to trading on AIM with a new Company strategy to pursue
acquisitions, as set out in paragraph 3 below.
As the allotment and issue of the Fundraising Shares and CVA Shares will
exceed the Directors' existing authorities to allot shares for cash on a non
pre-emptive basis, the General Meeting is being called to seek Shareholders'
approval to grant new authorities to enable the Directors to, inter alia,
complete the Fundraising and provide headroom for future fundraises, as well
as to approve the CVA.
The Issue Price represents an 85.7 per cent. discount and the CLN Conversion
Price represents a 93.9 per cent. discount to the price of 0.24 pence per
Existing Ordinary Share, being the price at the time when trading in the
Ordinary Shares was suspended on AIM on 26 November 2024. The Company is not
permitted by law to issue new Ordinary Shares at an issue price which is below
their nominal value, which is currently 0.5 pence per Existing Ordinary Share,
and therefore the Company is proposing to carry out a Share Capital
Reorganisation of its existing issued ordinary share capital to subdivide each
Existing Ordinary Share into one New Ordinary Share of 0.01 pence each and one
Deferred Share of 0.49 pence each. The Share Capital Reorganisation is not
expected to have any impact on the trading value of the New Ordinary Shares.
The net proceeds of the Fundraising will be used principally to allow the
Company to implement the CVA and provide working capital to allow it to pursue
an acquisition or investment constituting a reverse takeover pursuant to Rule
14 of the AIM Rules.
The Company will apply for the Subscription Shares and Grahame Cook's CLN
Shares to be admitted to trading on AIM at the same time as seeking a
restoration of trading on AIM of the Ordinary Shares, both of which will be
sought to take place at 8.00 a.m. on or around 1 April 2025.
The Company will apply for the CVA Shares and Sanderson's CLN Shares to be
admitted to trading on AIM, which, subject to First Admission, is expected to
take place at 8.00 a.m. on or around 28 April 2025.
The Proposals are conditional upon, inter alia, the approval by Shareholders
of the Resolutions which will be sought at the General Meeting to be held at
11.00 a.m. on 27 March 2025, notice of which is set out at the end of this
document. If the Resolutions are not approved by Shareholders and the
Fundraising and CVA do not occur, in the absence of an alternative funding
solution, the Company would not have sufficient working capital to continue as
a going concern and as a result, the Board would need to place the Company
into a formal insolvency process.
The purpose of this document is to provide you with information regarding the
Proposals, to explain why the Board considers the Proposals to be in the best
interests of the Company and its Shareholders as a whole and why it
unanimously recommend that you should vote in favour of the Resolutions to be
proposed at the General Meeting, notice of which is set out at the end of this
document.
2. Background to and reasons for the CVA
Electric Guitar PLC was formed on 24 March 2021 as a Special Purpose
Acquisition Company to seek acquisitions in the digital media sector. It was
established with the express mission of acting as a 'buy and build'
consolidator and operator in the digital marketing and advertising market.
Its principal focus was on data solutions to help marketers obtain
'first-party' data directly from their consumers, in light of growing privacy
regulation which was increasingly inhibiting the use of indirectly obtained
'third-party' data to target marketing on them, coupled with a significant
trend towards more personalised marketing for which first-party data on
consumers is needed.
To pursue this strategy, the Company was admitted to the Standard Segment of
the Official List and to trading on the Main Market of the London Stock
Exchange on 11 January 2022, raising £1.2m before expenses.
The Company evaluated multiple acquisition targets in the following 18 months
before deciding that 3radical Ltd ("3radical") should be the first
acquisition. The business was attractive as an initial platform for further
acquisitions because it offered a global presence with its offices in
Singapore and the UK and its reseller arrangements in the US and Asia-Pacific;
existing blue chip clients; and a substantial investment in its robust
technology platform.
Accordingly, on 6 July 2023 the Company's directors agreed to acquire 3radical
through an all-share reverse takeover ("RTO"), which completed on 3 May 2024
alongside a fundraising.
Prior to the RTO, 3radical's trading had been hindered by limited funds
available for sales and marketing. Electric Guitar therefore proceeded to
invest most of the net cash raised on the RTO into 3radical for the planned
new sales and marketing resources, developing multiple new business
collaborations with third parties, and engagement with 3radical's existing
relationships, especially in the Asia-Pacific region. These efforts resulted
in a growing sales pipeline, and initial success from changing to a direct
sales model in the UK, reducing the time from the first conversation to
contract, with a simpler and faster growth model anticipated moving forward.
Notwithstanding these initiatives, as a result of the combination of the
reduced marketing prior to the RTO and underperformance of the historic
overseas reseller arrangements following the RTO, revenue from existing
business fell away after the RTO more quickly than had been projected before
it could be replaced by new clients. In addition, revenue generated by the
more proactive commercial activity was slower to materialise than anticipated
in a period of continuing poor macro-economic conditions and low business
confidence amongst prospective customers.
Despite these challenges, up to late November 2024 the Board believed that
3radical's projected revenues should provide sufficient growth in the second
half of the financial year (to 31 March 2025) to enable the Group to trade
through to cashflow breakeven and profitability. This proved not to be the
case when the Board reviewed the revised business pipeline and projections at
its Board meeting on 26 November 2024. The previous month's projected pipeline
revenue had been significantly reduced by 3radical's management, because
prospects were delaying purchasing decisions in order to assess the impact of
the 30 October UK Budget and worsening macro-economic indicators, on top of
normal seasonal slowdowns.
Electric Guitar was actively working on its buy and build strategy throughout
this period. However, as a result of a fall in Electric Guitar's share price
from soon after the RTO and difficult market conditions, and despite positive
commercial news by the Company, further planned acquisitions in consideration
for Electric Guitar's shares and related equity fundraisings were frustrated
as the share price continued to decline, ultimately down by some 90% from its
price at the time of the RTO.
With the headwinds outlined above and the Electric Guitar share price under
pressure since the RTO, since September 2024 the Electric Guitar Board had
engaged in discussions with prospective investors based mainly in Singapore,
where good interest had been shown in the Company. This culminated in a series
of very positive discussions with a number of prospective investors in
November, with a view to a proposal for new funding to be put to the Electric
Guitar Board at its upcoming Board meeting on 26 November. However, the
prospective investors ultimately decided not to proceed with an investment in
the Company, citing concerns over the Company's share price (which had
declined even further) and liquidity of the AIM market.
In light of all this and the unexpected withdrawal of interest from the
prospective investors in Singapore, the Electric Guitar Board concluded that,
absent substantial additional funding to, and from, Electric Guitar in the
short term that was not now available, 3radical Limited could not reasonably
be expected to be able to pay its historic and ongoing liabilities as they
fall due, despite its management's positive longer term outlook for the
business. Given the uncertain financial position, Electric Guitar
immediately applied for its shares to be suspended from trading on AIM.
The Boards of Electric Guitar and 3radical were advised by an insolvency
practitioner, Paul Ellison of KRE Corporate Recovery Limited ('KRE'), that
3radical Limited should market its business and assets for sale as a
"pre-pack" via administration, as its Board believed it could be an attractive
business absent 3radical's large historic debts.
KRE were formally engaged by the 3radical Board on 27 November, whereupon they
immediately commenced the marketing of 3radical's business and assets as a
going concern. By 13 December, following the marketing of the business and
assets of 3radical as a going concern with the assistance of KRE, and after a
number of enquiries and discussions, no offers for the business as a going
concern were received.
Accordingly, as a result of 3radical's revenues being significantly below its
management's expectations and given the wider Group's capital constraints,
3radical's Board resolved on 13 December that it could no longer reasonably
believe it would be able to pay its debts as they fall due, and instructed KRE
to assist with placing 3radical into creditors' voluntary liquidation ("CVL"),
which formally took place on 24 December 2024.
At this point, with its principal trading business in liquidation, Electric
Guitar became an AIM Rule 15 cash shell under the AIM Rules, requiring it to
make an acquisition or acquisitions which constitute a reverse takeover and
becoming an operating business within 12 months in order to preserve its
admission to AIM. Having used all its available funds (including by then
£125,000 drawn from a £600,000 loan facility) to support the 3radical
business and its own running costs, and as a result of being unable to raise
additional funds, coupled with the CVL of 3radical causing the £475,000
balance of the Company's loan facility to no longer be available pursuant to
its terms, Electric Guitar had no way to pay down its own liabilities
estimated at £1.4 million, comprising mainly outstanding fees due to
advisers, accrued salaries, and payments due to HMRC. This has led the Board
to put forward the Proposals.
3. Strategy following the CVA
The Company's proposed strategy, following approval of the Proposals and
completion of the Fundraising, will be to invest in and/or acquire companies
which show significant potential for growth, cash-generation, and a profitable
exit in the medium term.
Leveraging their knowledge and contacts, the Board will actively seek to
identify suitable investment and/or acquisition opportunities, with a view to
completing a reverse takeover pursuant to the AIM Rules. At this stage, the
Board would not seek to exclude any particular sector or jurisdiction.
In selecting suitable opportunities, the Board will consider a range of
factors including:
• the experience and quality of the management;
• the market positioning of the business opportunity,
including sector trends, barriers to entry and scalability;
• the growth potential and outlook for future cash
generation and profitability;
• the ease with which capital may be expected to be
raised to meet the working capital requirements, both initially and in the
future;
• the likely resulting liquidity in the Company's shares
following the investment or acquisition; and
• the target's suitability to be quoted on AIM.
4. Company Voluntary Arrangement
The Board has taken advice from Antony Batty & Company LLP on possible
options to preserve some value for shareholders given the Company has debts of
c.£1.4 million and cash of only £4,765 as at the date of this document.
After giving due consideration to all the options available, on the
recommendation of Antony Batty & Company LLP, the Board decided that a CVA
would be the best option for all stakeholders, as it would allow a full
restructuring of all of the Company's obligations and give a revised board of
directors a clean quoted entity to take forward.
A CVA is a formal insolvency process in the UK that allows a financially
distressed company to reach an agreement with its creditors to repay debts, in
this case debt for equity, over a fixed period while continuing to trade. It
requires creditor and Shareholder approval and is supervised by a licensed
insolvency practitioner who acts as the Company's Nominee and then Supervisor
if the CVA proposal is approved.
If the CVA proposal is approved, it is estimated that the Creditors will
receive in total 236,782,175 New Ordinary Shares, allocated pro-rata to their
agreed claims. Preferential Creditors will receive 300 New Ordinary Shares per
£1 of debt, with other unsecured Creditors receiving a share of the remaining
CVA Shares on a pro rata basis according to a schedule prepared by the
Supervisor of all agreed unsecured Creditor claims, currently estimated at 168
New Ordinary Shares per £1 of debt.
The CVA requires a single contribution of £115,000 will be made into the CVA
from the proceeds of the Subscription within 14 days of approval of the CVA.
These funds are to be utilised to pay the fees and expenses of the CVA,
estimated to be approximately £43,590, and the critical Creditors estimated
to be approximately £66,660. Once the Supervisor is satisfied that the fees
and expenses together with the critical Creditors have been fully discharged,
any remaining surplus will be returned to the Company.
The Directors have appointed Antony Batty of Antony Batty & Company LLP to
act as Nominee in respect of the proposal of the Directors for the CVA
Proposal. Mr Batty has provided his consent to act as Nominee and, if the CVA
Proposal is approved, as Supervisor of the same, and his Nominee's report has
been filed at Court as required.
A CVA requires the approval of 75 per cent. or more by value of the Creditors
voting on the resolution in person or by proxy. It also requires the approval
of 50% or more by value of such Creditors who are not Connected Creditors.
Once approved, the CVA binds all Creditors who were entitled to vote, whether
or not they were present or represented at that meeting and so voted and
whether or not they actually received notice of the meeting.
A CVA also requires shareholder approval. The CVA Resolution seeks that
approval. It is being proposed as an Ordinary Resolution and therefore
requires the approval of 50 per cent. by value of Shareholders present in
person or by proxy and voting on the CVA Resolution. The issue of the CVA
Shares is also subject to the Resolutions being passed.
Approval by Creditors of the proposed CVA Proposal will be put to a meeting of
Creditors to be held at 10.30 a.m. on 27 March 2025 and, if approved by
Creditors at that meeting, the CVA Resolution will be put to Shareholders at a
meeting to be held at 11.00 a.m. the same day.
For the avoidance of doubt, Shareholders will retain their existing Ordinary
Shares in the Company; and the CVA will not result in any distribution being
made to Shareholders of the Company in their capacity as Shareholders.
A copy of the Directors' CVA Proposal incorporating the Nominee's report is
available for download from the following website:
http://www.antonybatty.net/client-login.php
(http://www.antonybatty.net/client-login.php) access code 2019091169.
Any Shareholder wishing to receive a paper copy of the proposal should contact
Antony Batty on 020 7831 1234, or email antonyb@antonybatty.com,
(mailto:antonyb@antonybatty.com) or in writing to Antony Batty, Anthony Batty
& Company LLP, 3 Field Court, London WC1R 5EF.
The CVA Proposal is conditional upon the CVA Approval and approval of the
Share Capital Reorganisation Resolutions.
The Directors, under the terms of their existing service contracts and other
arrangements, are currently owed in aggregate £264,849. Under the terms of
the CVA Proposal, the Directors are entitled to make a claim for these
contractual amounts owing to them. Assuming all Creditors make a valid claim
under the CVA Proposal, the Directors will receive an initial estimated
payment of 168 New Ordinary Shares per £1, pari passuwith other unsecured
creditors. Should fewer of the Creditors make a valid claim under the CVA,
then the amount issued to the Directors may increase.
5. The Fundraising
CLN and Fundraising Warrants
As announced on 26 February 2025, the Company received an initial investment
by way of an unsecured loan from Sanderson and Grahame Cook of, in total,
£55,000, being £45,000 from Sanderson and £10,000 from Grahame Cook. The
Company intends to issue a CLN to the investors for this loan, which will
convert automatically into 374,813,776 New Ordinary Shares at a price of
0.01467 pence per share pursuant to the terms of the CVA as to 68,147,959 CLN
Shares on First Admission pursuant to Grahame Cook's CLN and up to 306,665,817
CLN Shares on Second Admission pursuant to Sanderson's CLN, subject to
Sanderson and connected parties holding no more than 29.99% of the Company's
issued share capital. The CLN bears no interest and is unsecured, but prior to
conversion to Ordinary Shares ranks senior to any equity or debt of the
Company, and gives Sanderson and Grahame Cook first refusal if there is any
equity or debt raised by the Company within 18 months from 7 February 2025.
Should the Proposals not be approved by shareholders at the General Meeting or
CVA Approval is not received, the CLN will remain as a liability on the
Company's balance sheet.
In addition, pursuant to the terms of the CLN and subject to Admission of the
Subscription Shares, Sanderson and Grahame Cook will receive warrants over, in
aggregate, 187,406,889 New Ordinary Shares, representing 1 warrant for every 2
New Ordinary Shares received by Sanderson and Grahame Cook pursuant to the
conversion of the CLN. The Fundraising Warrants will be assignable and
exercisable at the CLN Conversion Price for a period of 3 years from First
Admission, with the exercise of those held by Sanderson being subject to it
and its concert party not holding more than 29.99% of the Company's issued
share capital.
Subscription
The Company has conditionally raised £290,000 before expenses through the
Subscription and in addition, Grahame Cook, a director of the Company, intends
to subscribe for £10,000 of Subscription Shares.
The proceeds of the Subscription will allow the Company to implement the CVA
Proposal and provide working capital for the Company.
Following completion of the Fundraising and the CVA, the Subscription Shares
will, in aggregate, represent approximately 50.18% per cent. of the Enlarged
Share Capital.
In addition to the CLN, Sanderson and its associates have subscribed to
£50,000 in the Subscription. Further details of the shareholdings of
Sanderson and its associates are set out in paragraph 10 below.
It is the intention that there will be Board changes following the completion
of the Subscription, as detailed in paragraph 8 below.
In order to issue the Subscription Shares, the Company is seeking authority to
issue and to disapply statutory pre-emption rights pursuant to Resolutions 3
and 5.
The Subscription is conditional amongst other things on the CVA Approval and
the passing of the Resolutions. If these conditions are not met, then the
Subscription will not proceed and the Company would then have insufficient
capital to continue as a going concern and, in the absence of any other source
of funding, the Board may have no alternative but to place the Company into
liquidation.
6. Use of Proceeds
The proceeds of the Fundraising will be used to fund the immediate costs of
the Proposals and for working capital. Following the full settlement of
Creditors as part of the proposed CVA Proposal, the Company will be free of
its historic debts and have working capital to progress with its new strategy.
7. Related party transactions
By virtue of Sanderson's current shareholding in the Company of 24.8 per cent,
Sanderson is classified as a related party of the Company pursuant to the AIM
Rules. Therefore, the Company entering into the CLN with Sanderson and the
subscription by Sanderson for 116,666,666 Subscription Shares at the Issue
Price are 'related party transactions' under Rule 13 of the AIM Rules.
By virtue of Grahame Cook's position as a director at the Company, Mr Cook is
classified as a related party of the Company pursuant to the AIM Rules.
Therefore, the proposed CLN to be issued to Mr Cook and the subscription by Mr
Cook for 29,166,667 Subscription Shares at the Issue Price would be 'related
party transactions' under Rule 13 of the AIM Rules.
By virtue of Sarfraz Munshi's position as a former director of the Company
within the last 12 months, Mr Munshi is classified as a related party of the
Company pursuant to the AIM Rules. Therefore, the subscription by Mr Munshi
for 29,166,666 Subscription Shares at the Issue Price is a 'related party
transaction' under Rule 13 of the AIM Rules.
The Independent Directors consider, having consulted with Allenby Capital, the
Company's nominated adviser, that the terms of the CLN and the participation
by Sanderson, Grahame Cook and Sarfraz Munshi in the Subscription are fair and
reasonable insofar as Shareholders are concerned.
8. Board Changes
It is currently the intention that, following approval by Shareholders of the
Proposals and approval of the CVA by Creditors, the following Directors will
resign from their position as directors of the Company on First Admission:
- John Hutchinson
- John Regan
- Caroline Worboys
It is proposed that, subject to the Company's Nominated Adviser completing
satisfactory due diligence on Sarfraz Munshi, he will be appointed to the
Board as a Director.
Mr Munshi will be appointed to the Board as a representative of Sanderson. He
is an experienced Investment Manager and Non-Executive Director and holds a
Diploma in investment advice and a Bachelor of Science with Honours in
Economics in the First Class. Mr Munshi was a director of the Company prior to
the RTO.
9. Background to and Reasons for the Share Capital Reorganisation
Under the Act, a company is unable to issue shares at an issue price which is
less than the nominal value of shares of the same class. As the nominal value
of the Existing Ordinary Shares is currently 0.5 pence, the Company would not
be able to issue further Existing Ordinary Shares at the Issue Price. The
Board has therefore concluded that it is essential to implement the Share
Capital Reorganisation in order for the nominal value of the New Ordinary
Shares to become lower than the Issue Price, so that the Company can proceed
with the Fundraising and CVA.
Accordingly, it is proposing to sub-divide each Existing Ordinary Share into
one New Ordinary Share of 0.01 pence each (0.01 pence being the proposed new
nominal value per share) and one Deferred Share of 0.49 pence each.
The New Ordinary Shares will, in all material respects, have the same rights
(including rights as to voting, dividends and return of capital) as the
Existing Ordinary Shares, save for their nominal value. There will be the same
number of New Ordinary Shares as Existing Ordinary Shares and the trading
price of the New Ordinary Shares is therefore expected to reflect that of the
Existing Ordinary Shares. The New Ordinary Shares will be traded on AIM in the
same way as the Existing Ordinary Shares, with the exception of the difference
in nominal value. The nominal value of shares already held in CREST will be
updated at approximately 8:00 a.m. on 1 April 2025.
The rights attached to the Deferred Shares will be set out in the Articles (as
per Resolution 4 in the Notice of General Meeting). The Deferred Shares will
have little or no economic value as they will not carry any rights to vote or
dividend rights, nor (realistically) have any entitlement to a share of assets
on a return of capital or on a winding up of the Company. The Company does not
intend to make any application for the Deferred Shares to be admitted to
trading on AIM or any other public market. The Deferred Shares will not be
transferable without the prior written consent of the Company. No share
certificates will be issued in respect of the Deferred Shares. The Board may
further appoint any person to act on behalf of all the holders of the Deferred
Shares to transfer all such shares to the Company in accordance with the terms
of the Act.
The Company does not intend to issue new share certificates to the holders of
the Existing Ordinary Shares following the Share Capital Reorganisation.
Existing share certificates will remain valid for the same number of shares
but with a different nominal value of 0.01 pence per New Ordinary Share.
Following the Share Capital Reorganisation, should you wish to receive an
updated share certificate please contact the Registrars at the address set out
in this document.
Holders of options over Existing Ordinary Shares will maintain the same rights
as currently accruing to them and will not be issued with new option
certificates.
By effecting the Share Capital Reorganisation, the total nominal value of the
issued share capital of the Company will remain the same, with the New
Ordinary Shares having a nominal value of 0.01 pence each plus the Deferred
Shares having a nominal value of 0.49 pence each. The Share Capital
Reorganisation is conditional upon, and effected by, the approval of
Resolution 1 at the General Meeting as required by the Act and the Articles.
If Resolution 1 is passed, the Share Capital Reorganisation will become
effective at approximately 8:00 a.m. on 1 April 2025.
Please note that the Subscription and CVA cannot take place unless the Share
Capital Reorganisation is approved. Accordingly, if the Share Capital
Reorganisation Resolutions is not approved by Shareholders at the General
Meeting, the Proposals will not proceed and the Company will not be able to
receive the new funds from investors or satisfy creditors through the issue of
New Ordinary Shares under the CVA.
10. The Takeover Code
The Takeover Code applies to the Company. Under Rule 9 of the Takeover Code
("Rule 9"), any person who acquires an interest in shares which, taken
together with shares in which that person or any person acting in concert with
that person is 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
an offer to all the remaining shareholders to acquire their shares.
Similarly, when any person, together with persons acting in concert with that
person, is interested in shares which in the aggregate carry not less than 30
per cent. of the voting rights of such a company but does not hold shares
carrying more than 50 per cent. of the voting rights of the company, an offer
will normally be required if such person or any person acting in concert with
that person acquires a further interest in shares which increases the
percentage of shares carrying voting rights in which that person is
interested.
An offer under Rule 9 must be made in cash at the highest price paid by the
person required to make the offer, or any person acting in concert with such
person, for any interest in shares of the company during the 12 months prior
to the announcement of the offer.
The Company has agreed with the Takeover Panel that Sanderson, Sarfraz Munshi
(an employee of Sanderson and proposed director of the Company) and Tanvier
Malik (the controlling shareholder and a director of Sanderson) are acting in
concert for the purposes of the Takeover Code (the "Sanderson Concert Party").
If Sanderson were to convert its CLN in full, the Sanderson Concert Party
would be interested in Ordinary Shares representing marginally more than 30
per cent of the issued share capital and total voting rights of the Company.
Therefore, Sanderson has agreed only to convert such number of its CLN as
would cause the Sanderson Concert Party to be interested in a maximum of
29.99% of the issued share capital and total voting rights of the Company at
any time. Upon Second Admission, as a result of the CVA, participation in the
Subscription and conversion of £44,920 of Sanderson's £45,000 CLN, the
Sanderson Concert Party will be interested in 522,759,627 Ordinary Shares,
representing 29.99 per cent. of the issued share capital and total voting
rights of the Company*.
In addition, pursuant to the terms of the CLN, Sanderson will be granted
153,332,909 Fundraising Warrants over New Ordinary Shares on First Admission.
Sanderson has also agreed not to exercise the Fundraising Warrants such that
any exercise would cause the Sanderson Concert Party to be interested in more
than 29.99% of the issued share capital and total voting rights of the Company
at any time.
*assuming all eligible Creditors (including Sanderson) file their claims in
full in relation to the CVA.
11. General Meeting
A notice convening the General Meeting, to be held at the offices of
Broadfield Law UK LLP, One Bartholomew Close, London, EC1A 7BL at 11.00 a.m.
on 27 March 2025, at which the Resolutions will be proposed is set out at the
end of this document.
At the General Meeting, the following Resolutions will be proposed, of which
resolutions 1 to 3 inclusive will be proposed as ordinary resolutions and
resolutions 4 to 5 inclusive will be proposed as special resolutions:
Resolution 1 seeks approval of the Share Capital Reorganisation.
Resolution 2 seeks approval for the CVA.
Resolution 3 seeks to give the Directors the authority to:
• allot up to a further 1,674,002,840 new shares, equal to 96 per
cent. of the Enlarged Share Capital, to implement the Proposals (including the
Fundraising Warrants); and
• allot up to a further 1,743,741,691 new shares, equal to 100 per
cent. of the Enlarged Share Capital, for any future share issues. The Board
considers it important for the Company to have this authority to enable it to
pursue its strategy and provide flexibility to finance acquisitions and the
Company through the issue of shares if required.
Resolution 4 amends the articles to include the rights attaching to the
Deferred Shares, and a copy of the Company's existing articles and proposed
amendment to the Articles can be found on the Company's website.
Resolution 5 seeks approval to disapply the statutory pre-emption rights under
section 561 of the Companies Act 2006 in respect of:
· the Fundraising (including the Fundraising Warrants);
· the CVA; and
· up to a further 1,743,741,691 new shares, equal to 100 per cent.
of the Enlarged Share Capital, for any future fundraisings. The Board
considers it important for the Company to have this authority to enable it to
pursue its strategy and provide flexibility to finance acquisitions and the
Company through the issue of shares if required.
12. Recommendation
The Directors consider that the Proposals are in the best interests of the
Company, its Creditors and the Shareholders as a whole.
In the absence of any other source of funding, the only alternative course of
action, in the opinion of the Board, would be to place the Company into a
formal insolvency process. As a result, the Board is advised that the Company
would very likely lose its public listing and the opportunity to create future
value for Shareholders would be severely constrained.
The Directors therefore unanimously recommend that Shareholders vote in favour
of the Resolutions.
DEFINITIONS
The following definitions apply throughout this document and in the Form of
Proxy, unless the context requires otherwise:
Term Definition
"3radical" 3radical Limited, a subsidiary of the Company and a company registered in
England and Wales with registered number 07872556;
"Act" the UK Companies Act 2006, as amended;
"Admission" Admission of New Ordinary Shares to trading on AIM in accordance with Rule 6
of the AIM Rules;
"AIM" the market of that name operated by the London Stock Exchange;
"AIM Rules" the AIM Rules for Companies, which set out the obligations and
responsibilities in relation to companies whose shares are admitted to trading
on AIM, as published by the London Stock Exchange from time to time;
"Allenby Capital" Allenby Capital Limited, the Company's Nominated Adviser in accordance with
the AIM Rules;
"Articles" the articles of association of the Company from time to time;
"Board" the board of directors of the Company for the time being;
"Business Day" a day other than a Saturday, Sunday or public holiday on which banks are open
for commercial business in the City of London;
"CLN" the £55,000 of convertible loan notes to be issued to Sanderson and Grahame
Cook, the terms of which are set out in paragraph 5 of Part 1 of this
document;
"CLN Conversion Price" 0.01467 pence being the price at which the CLN is converted;
"CLN Shares" the 374,813,776 new Ordinary Shares to be issued pursuant to the terms of the
CLN;
"Creditors" the creditors of the Company;
"Creditors' Meeting" the meeting of creditors to be convened at 10.30 a.m. on 27 March 2025
pursuant to the CVA;
"CVA" a Company Voluntary Arrangement, pursuant to Part 1 of the Insolvency Act
1986, details of which are set out in this document;
"CVA Approval" approval of the terms of the CVA Proposal at the Creditors' Meeting and the
General Meeting convened for such purposes;
"CVA Proposal" the proposal document available to Creditors and Shareholders dated 10 March
2025 in relation to the CVA;
"CVA Resolution" resolution 2 in the Notice of General Meeting;
"CVA Shares" the 236,782,175 new Ordinary Shares to be issued to the Creditors upon
completion of the CVA;
"Company" or "Electric Guitar" Electric Guitar plc, a company registered in England and Wales with registered
number 13288812;
"CREST" the relevant system (as defined in the CREST Regulations) in respect of which
Euroclear is the Operator (as also defined in the CREST Regulations);
"Deferred Shares" the new deferred shares of £0.0049 each in the capital of the Company
following completion of the Share Capital Reorganisation
"Directors" the directors of the Company at the date of this document;
"Enlarged Share Capital" 1,743,741,691 New Ordinary Shares which includes the Issued Share Capital, the
Fundraising Shares and the CVA Shares;
"Existing Ordinary Shares" ordinary shares of par value £0.005 each in the capital of the Company;
"FCA" the United Kingdom Financial Conduct Authority;
"First Admission" Admission of the Subscription Shares and Grahame Cook's CLN Shares;
"Form of Proxy" the form of proxy accompanying this circular for use by Shareholders in
relation to the General Meeting;
"FSMA" the Financial Services and Markets Act 2000 of the United Kingdom, as amended;
"Fundraising" the Subscription and the CLN;
"Fundraising Shares" the 1,249,813,776 new Ordinary Shares to be issued pursuant to the
Subscription and the CLN;
"Fundraising Warrants" the 187,406,889 warrants exercisable at the Issue Price to be issued to
Sanderson and Grahame Cook pursuant to the terms of the CLN;
"General Meeting" the general meeting of the Company to be held at the offices of Broadfield Law
UK LLP, One Bartholomew Close, London, EC1A 7BL at 11.00 a.m. on 27 March
2025;
"Group" the Company and its subsidiary undertakings from time to time;
"HMRC" HM Revenue & Customs;
"Independent Directors" the Directors who are independent for the purposes of the Proposals, being
Richard Horwood, John Regan, John Hutchinson and Caroline Worboys;
"IP" intellectual property;
"Issued Share Capital" 257,145,740 Ordinary Shares currently in issue;
"Issue Price" 0.034p;
"Last Practicable Date" the last date before the posting of this document, being 10 March 2025;
"London Stock Exchange" London Stock Exchange plc;
"Nominee" or "Supervisor" Antony Batty of Antony Batty & Company LLP;
"Market Abuse Regulation" the UK version of the EU Market Abuse Regulation (2014/596) which is part of
UK law by virtue of the European Union (Withdrawal) Act 2018, as amended and
supplemented from time to time including by the Market Abuse (Amendment) (EU
Exit) Regulations 2019;
"New Ordinary Shares" the new ordinary shares of 0.01 pence each in the capital of the Company
following completion of the Share Capital Reorganisation
"Notice of General Meeting" the notice of General Meeting set out at the end of this document;
"Ordinary Resolution" has the meaning given in section 282 of the Act;
"Ordinary Shares" prior to the Share Capital Reorganisation, ordinary shares of 0.5 pence each
in the capital of the Company and following the Share Capital Reorganisation,
ordinary shares of 0.01 pence each in the capital of the Company;
"Proposals" together the Fundraising, CVA and Share Capital Reorganisation;
"Register" the register of members of the Company;
"Registrar" Share Registrars Limited, 3 The Millennium Centre, Crosby Way, Farnham, Surrey
GU9 7XX;
"Resolutions" the resolutions to be proposed at the General Meeting to approve the Proposals
as set out in the Notice of General Meeting;
"RTO" Electric Guitar's reverse takeover of 3radical which completed on 3 May 2024;
"Sanderson" Sanderson Capital Partners Limited
"Sanderson and its associates" together Sanderson, Sarfraz Munshi and Tanvier Malik and their connected
parties;
"Second Admission" Admission of the CVA Shares and Sanderson's CLN Shares;
"Share Capital Reorganisation" the proposed subdivision of each of the Company's Existing Ordinary Shares of
0.5 pence into one New Ordinary Share of 0.01 pence and one Deferred Share of
0.49 pence in accordance with the Share Capital Reorganisation Resolutions
contained in the Notice of General Meeting;
"Share Capital Reorganisation Resolutions" Resolution numbers 1 and 4 to be proposed at the General Meeting and contained
in the Notice of General Meeting, required to approve the Share Capital
Reorganisation;
"Shareholders" the persons who are registered as holders of the Ordinary Shares;
"Shareholders' CVA Meeting" a meeting of the Shareholders, called pursuant to section 3 of the Insolvency
Act 1986 (as amended) to consider the CVA to be convened immediately following
the Creditors' Meeting on 27 March 2025;
"Sterling" or "£" the legal currency of the UK;
"Subscription" the proposed subscription by investors for the Subscription Shares at the
Issue Price to raise £300,000 before expenses for the Company;
"Subscription Shares" the 875,000,000 new Ordinary Shares proposed to be issued pursuant to the
Subscription;
"UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland.
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Event Date and Time
Latest time and date for receipt of Forms of Proxy for the General Meeting 11.00 a.m. on 25 March 2025
Meeting of Creditors to consider the CVA 10.30 a.m. on 27 March 2025
General Meeting 11.00 a.m. on 27 March 2025
Share Capital Reorganisation record date 27 March 2025
First Admission 8.00 a.m. on or around 1 April 2025
Second Admission 8.00 a.m. on or around 28 April 2025
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