5th March 1999
Sale and leaseback of Roots Hall and of the training ground and proposed rights issue and placing
I am writing to inform you that earlier this week The Southend United Football Club Limited (the
These arrangements (the
It is the opinion of the board that, if approved and completed, the Transaction will place Southend United Football Club on a sound footing for its regeneration.
Importantly, the arrangements include the following additional advantages for the Club. The Club will have the potential to share in a percentage of any increase in the land value of the Training Ground which may arise as a result of planning permission being obtained. This potential payment will be conditional upon redevelopment or sale of the Training Ground and practical completion of a new football stadium, The Club will also be entitled to share in the development profit on the possible redevelopment of Roots Hall.
A summary of the commercial terms of the Transaction is set out in paragraph 4 below. The contractual documentation is available for inspection by shareholders from today until the date of the EGM between the hours of 9.00am and 5.00 pm on any weekday at the Club's offices. The documentation will also be available for inspection at the EGM. The results of recent professional valuations of Roots Hall and the Training Ground are set out in Schedule l of this document.
I recognise the emotional ties, which the existing ground has for many of you. However, today's transaction should be seen as the start of a new beginning: it will give us an opportunity to reform our finances and the prospect of relocation to a new football stadium with new facilities which will provide additional sources of income.
The purpose of this document is:
As you are fully aware many Football League Clubs, including Southend United, are experiencing very difficult trading conditions.
A major cause of concern has been the continuing escalation of transfer fees and players wages. For the Club, these issues, coinciding with two years of relegation, have had a dramatic impact on its finances leading ultimately to the transaction of earlier this week, Audited figures for the financial year ending July 1998 will be released within the next month or so but the unaudited statements for the period from 1 August 1997 to 30 November 1998 are set out in Schedule 2 of this document. As of 25 February the Club has some £3.87 million of debt and accrued interest. I am sure that this figure is far larger than many of you will have realised. However, you will soon appreciate how these debts have mounted-up if I remind you that for the last two financial years the Club has incurred trading losses at the rate of £500 000 per year.
Of equal concern is the realisation that the market value of the Club's interest in Roots Hall is significantly below the £6.75 million (current use value) at which this asset has been carried forward in the Club's balance sheet for some years. This current use valuation enabled the Club to secure levels of bank borrowing and other lines of credit which it could not afford.
If approved and completed, the Transaction will not only enable the Club to continue to trade but give it the potential to share in the profits which could arise from the development of Roots Hall and from any increase in value of the Training Ground. Consequently, the Transaction will enable the Club to look to the future with some optimism. By contrast, without such a deal the Club will continue to make substantial unsustainable trading losses and run the risk of having both Roots Hall and the Training Ground repossessed.
On 30 April l998 Mr V T Jobson, the then Chairman of the Club sold his 55% shareholding in the Club to South Eastern Leisure plc (
It soon became clear that the Club's cash flow projections were proving far too optimistic and an urgent injection of extra Finance was needed. Following discussions between Martin Dawn and Mr Jobson. Mr Jobson confirmed he was not prepared to inject any more money into the Club and discussions commenced between both parties for Martin Dawn to buy from Mr Jobson his 50% interest in SEL. The sale of the SEL shares, was concluded in November l998. As majority shareholder Martin Dawn was then in a position to arrange additional funding for the Club,
The Transaction will involve a joint venture compromising a new company, Mailtrace Limited (
Mailtrace will acquire the headlease of the Training Ground from Martin Dawn, accept an assignment or surrender of the Club's existing Training Ground lease and enter into the new lease arrangements with the Club as summarised below, RHL will enter into the sale and leaseback of Roots Hall as summarised below.
In November 1998 Delancey, having already advanced substantial funds to the Club (through either Martin Dawn or SEL), replaced virtually all of the Club's commercial borrowings and effectively became the Club's banker. As security for these borrowings, Delancey has a charge over the assets of the Club (including Roots Hall and the Training Ground lease). The Club is currently in default in respect of payments of capital and interest to Delancey and in respect of lease payments to Martin Dawn in respect of the Training Ground.
The Transaction which the Club entered into earlier this week can be summarised as follows:
Roots Hall Ground
The Training Ground
Events on which the Transaction is Conditional
The Transaction is conditional upon and will not proceed unless the following conditions are satisfied (or where appropriate waived) either by the specified date or 21 April 1999 whichever is the later:
Benefits for the Club
The total consideration which the Club will receive will therefore be as follows:
At completion the Club will receive a total of £4.5 million (£4 million from the sale of Roots Hall and £500 000 from the disposal of the Training Ground lease) and will need to repay its indebtedness to Delancey Martin Dawn and SEL which as at 25 February l999 was £3.87 million (debt and accrued interest) but will increase between now and completion. The balance after expenses will be available to the Club as working capital. The Club will be entitled to a vacation fee of £250 000 when it vacates the Training Ground and to the other vacation fee also of £250 000 when it vacates Roots Hall.
The Club also has the benefit of rent-free periods on both properties, namely twelve months at Roots Hall and six months at the Training Ground, plus of course the potential development profits. Against this we will have to pay the rent on Roots Hall as from the development Spring of the year 2000 and the rent on the Training Ground as from Autumn 1999.
However, we will no longer be carrying the heavy burden of interest charges on borrowings and finance lease payments which for the 97/98 financial year totalled £229 483 (over a full 12 months they would exceed £430 000)
The vote at the EGM is required because the Transaction is with a connected party that connected party being Mr R Martin who is a director of SEL, Martin Dawn, Mailtrace and RHL and has (through his substantial shareholding in Martin Dawn) a substantial interest in the Club.
Shareholders who together hold more than 50% of the Club's share capital have already irrevocably undertaken to vote in favour of the Transaction. This includes SEL ( which controls 55% of the total vote) and all the current director shareholders (who account for 11.4% of the total vote).
The purpose of the EGM is therefore for me to explain the Transaction to all of you who are able to attend with the hope of obtaining your resounding endorsement for this opportunity for Southend United Football Club to restore its financial health and benefit from the proposed new facilities.
The directors of the Club (other than Mr King and myself) have approved the Transaction as being in the best interests of the Club, Board approval was unanimous (except for Mr. Woodcock who was unable to attend the meeting due to ill health). Mr King and I abstained from voting because of our indirect interests in the Joint Venture (through our shareholdings in Martin Dawn), The board now recommends the Transaction to shareholders.
Following completion of the Transaction it is the intention of the directors to invite existing shareholders to subscribe for additional shares in the Club by way of a pre-emptive rights issue and to arrange a placing of shares to new shareholders. It is expected that the terms of these share issues will be announced within the next few months.
Apart from the financial benefits which these additional share issues will bring to the Club, the placing of shares with new shareholders will give the many supporters who have, in the past, shown a desire to own shares in their Football Club, the opportunity to do so. This will, I believe, further strengthen the relationship between the Club and its supporters.
The Club is hoping to raise at least £250 000 from the pre-emptive rights issue on or before 31 December 1999 so as to qualify for the additional payment of £250 000 from RHL referred to at 4(f) above.
What to do next
Enclosed is a Form of Proxy for use by holders of ordinary shares at the forthcoming EGM. Any such holders are requested to complete the Form of Proxy in accordance with the instructions printed thereon, and return it to Roots Hall, Victoria Avenue, Southend-on-Sea, SS2 6NQ so as to be received not later than 7.30 pm on Monday 22 March 1999. The return of the completed Form of Proxy will not prevent holders of ordinary shares from attending and voting at the meeting in person should they so wish.
I and my fellow Directors look forward to seeing you at the EGM.
© Luke Bosman Monday, 23 April 2007 at 21:09:42
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