Think Entertainment Shareholder Action Group

Share registration:

I have been asked to clarify why Capita have suspended their function as share registrars. It is because their bills remain unpaid, and whilst they are being very patient and as helpful as can be, they cannot reasonably be expected to provide further updating services until their bills are paid.

WHERE DID THE MONEY GO?

As you will know I had intended to provide you today with copies of the detailed accounting for the rescue monies culminating in the balance of £748,172 left on May 20th 2004 as disclosed to you in the Fourpoint circular dated July 19th 2004; but which consolidated amount already included more than £650,000 collected by THINK’s two subsidiary companies since the CVA, so for all practical purposes you can see that the rescue money had all been spent before the THINK/Fourpoint deal was put to you.

I advised your former director, Brian Downs, of my intention to publish the detailed analysis and he objected most vociferously and in no uncertain terms. I am aware that on September 1st Mr. Downs, and other former directors, were interviewed by the Joint Liquidators of Newscreen Media Group plc, who then wrote to me on September 2nd formally advising me that without express authority Think Entertainment plc has no power or standing to deal with the records of NSMG, “which includes posting them on the internet”. Such express authority was not given “at this stage”.

I do not agree with the liquidators’ position, as it is my firm opinion that the reorganisation that brought THINK into existence vested THINK with title to all NSMG assets, including its books and records in order to continue the business. Indeed that is supported by the acts of your previous directors, as they did not deliver the books and records to the liquidators upon their appointment in May 2004 before the Section 110 reorganisation. Since the conversion to a Creditors Voluntary liquidation, the liquidators have now asked for the books and records and accordingly I have arranged to have copies made so that the liquidator may carry out his investigative duties, whilst THINK can pursue its remedies by reference to what was, I contend, handed over to it in the reorganisation.

I contend that it is not up to the liquidators to determine how information belonging to THINK is used unless they can show that publication would be prejudicial to their own investigations, which are of course aimed at getting the loan note and other creditors of NSMG (not creditors of THINK) paid in full. I am of the opinion that the publication of a limited amount of information would not be prejudicial to those investigations, but in the meantime I am bound to acquiesce to the liquidators request as they are “officers of the court”, and the only remedy available is to apply to the High Court to overturn their decision, something that there are not sufficient funds on hand to do at the present time, particularly as THINK’s own creditors remain unpaid.

In any event a hearing before the High Court may be sooner rather than later, because, having previously consented to a payment on account from the more than £250,000 surplus “shareholder rescue” monies held by the KPMG administrators being paid to THINK, the Liquidators lawyers changed their advice over the course of a weekend, and on July 11th 2005 the Liquidators instructed KPMG that under no cir*****stances should any monies be paid to THINK when payment instructions had already been agreed and given, and creditors advised they were being paid the following day. Nice one!

If those monies had been paid to THINK, then all THINK’s own pressing creditors would have already been paid by now and the AGM be on track.

KPMG had no choice but to then ask the High Court to determine to whom the monies should be paid, and we are all hopeful that the matter will be set down for hearing in the very near future.

Whilst I believe that the liquidators and I continue to have a good working relationship, it is inevitable that there will be conflicts of interest in some areas and they must, in law, fall to be contested before and decided by a neutral High Court judge.

In their investigation of the affairs of Just Group plc (subsequently renamed Newscreen Media Group plc) and their subsequent compulsory report to the DTI on the conduct of all the directors since incorporation, there are many matters which many of you have told me you believe were improper and/or deceitful – or even worse, and it is for you to bring those to the attention of the liquidators whose contact details can be found at http://www.geoffreymartin.co.uk/contact.htm You will find them extremely professional and thorough, but please note the request that “whilst happy to receive information from shareholders (or anybody else) it must be relevant, factual and supported by evidence (they do not want gossip or unsubstantiated information) as this will only slow the investigation process down”. So do not burden them with the THINK/Fourpoint deal, or reprint the nonsensical and unsubstantiated claims from the ADVFN bulletin boards, as they will be largely unable to help you, not least as the Fourpoint deal is a matter of contract law for THINK alone.

I will continue to bring matters to their attention where there is a potentially positive gain for THINK, and I believe we will end up with some overlapping commonality of interest in the pursuit in the High Court of those directors appointed since the CVA who caused THINK to come into existence as a separate legal entity with new creditors and obligations, and on what I say was based upon.

knowingly false and gross misrepresentation

On June 21st 2004 Brian Downs and David Clement approved the accounts for Newscreen Entertainment Ltd and Newscreen Licensing Ltd for the 6 months ended July 31st 2003. The directors’ report was signed by Graham Calderbank, the then Company Secretary, and who appears to have prepared the financial statements.

Those accounts were audited by Deloitte & Touche, Leeds and have a “clean” audit opinion, and are filed at Companies House and are available to any member of the public.

HOWEVER the accounts for each company show at Note 14 and 15 respectively (my emphasis added in capital letters and underlining) that £15,000,000 previously due to Newscreen Media Group plc was written off as follows:

POST BALANCE SHEET EVENTS

On 20 May 2004 the Newscreen Media Group plc, the company’s parent undertaking on that date, approved the waiver of indebtedness due to it of £7,500,000 to restore the company’s asset base. On 21 May the shareholders of Newscreen Media Group plc approved a group reconstruction under Section 110 of the Insolvency Act. As part of this reconstruction agreement the remaining balance due to Newscreen Media Group plc was assigned to NSMG (2004) plc. IT WAS AGREED BY NSMG (2004) plc THAT THE AMOUNTS DUE WOULD NOT BE PAYABLE FOR A PERIOD OF AT LEAST ONE YEAR FROM THE DATE OF APPROVAL OF THESE ACCOUNTS.

The various drafts of the accounts show that such a note was intended for inclusion as early as February 2004.

The 19th July circular then showed you that the “estimated realisable value of assets” assigned to THINK was £4,145,160 and included “debtors” (i.e. monies due and not the value of the investment) of £2,951,755 due from the two subsidiaries, and would be realisable before May 20th 2005.

Now please bear in mind that by this stage the directors had since the CVA only managed to collect £677,969 of 3rd party royalties due, appear not to have not paid any outgoing royalties on those receipts, and yet would collect a further £2,952,755 within 12 months! And then they don’t tell you that the deal with the auditors is that no monies will be paid over before July 22nd 2005 anyway!

I have seen some things in my time, but this one takes the biscuit and in my judgment should be pursued by the shareholders, jointly or individually under the relevant Securities legislation because of the disclosure in a circular.

It is compounded even more because those 3rd parties that owed money to the subsidiaries had stated in many cases that monies would not be paid because Just Group had failed to comply with its obligations from the outset.

Do not misunderstand me; I have some sympathy with the directors you chose for the rescue bid. However when the game was up, they just failed to tell you what was going on – failed to admit defeat and then misrepresented the position to you and, most culpably, in the sworn declaration of solvency and to Fourpoint. That is now their personal liability, and I wish them good luck, as I would rather prosecute than defend their cause.

Today’s problem is that the Registrar of Companies is now threatening to strike off the two subsidiary companies for failing to file accounts, but I cannot file accounts unless they are audited (Deloittes are still the auditors) and I have no money to pay for an audit as required for all companies owned at any time in the financial year by a public company. The one person who, in my opinion, will be happy with that is David Clement who continues to promote Jellies on his website but refuses to hand over materials even though he has been paid in excess of £500,000 for the second series – and yes he was a director of THINK and claims he is owed yet more money! THINK does however own 10% of his company, Optical Imaging – any bidders?

In the event that the companies are struck off the remaining assets become the property of the Duchy of Cornwall, aka Prince Charles – and if they have not been previously sold, I will personally be writing to him wishing him the best of luck with BUM’s and Jellies!

Which brings me to -

THE FOURPOINT DEAL

Let me firstly say I have some sympathy with Fourpoint in that they should have known that the amounts being shown as assets were in reality not so, certainly on the time scale envisaged, but they carried out almost stupidly cursory and little due diligence in their haste to “do the deal”.

I have offered, as part of a compromise, to let them retain the 25% interest presently allotted but against which there are outstanding liens asserted by THINK for multi million damages, and then to Fourpoint’s own creditors for unpaid legal and other bills.

Your directors also contractually represented to Fourpoint that THINK had enough working capital for the next 12 months, but by the time the circular was sent to you, their financial advisers confirmed that the directors had been unable to satisfy themselves that this was actually the case, but this information was then not disclosed to you or Shukri.

It is clear to me that Shukri thought there was a lot of money and assets in THINK that would have enabled him to pursue his dream of building a bigger media group – the concept of which was prima facie wholly meritorious.

The only problem was there was insufficient cash in THINK; BUM and Jellies were producing next to nothing and few debts were collected or collectible; and Shukri had no cash in Fourpoint to consummate even the basic deals he had managed to drag in.

It then transpired that he had forged, or had caused and/or knew to be forged, the do*****ents that permitted the assignment of the most high profile asset you were being asked to approve on the face of the circular- viz the SuperStars II series; but even worse was to be revealed, he had forged, or caused and/or knew to be forged, the signature of one of the Superstars giving personal consent to the use of the footage. Muppet or what?!? When Discovery Channel found out, they “hit the roof”.

In summary what happened, in my honestly held belief, was that grossly negligent directors, desperate to “do any deal”, met a fraudster and forger, and all you shareholders were conned. I am supported by the advice of the professional advisers to the deal that the directors must plan for it all going wrong and put in place proper management controls for such an event. When it went wrong, as it was destined to do, they had not put such controls in place, and did not then do so – they just resigned and left it all to Cathy Malatesta to deal with. She at least tried, brought in a couple of experts Peter Keefe and David Lawley, but they could achieve nothing so Cathy went back to the USA where she now resides and, I am assured, has nothing to do with any of the THINK/Fourpoint assets, not even the Suzy’s Zoo property contrary to some publicity that might otherwise indicate the contrary.

The forged consent to assignment do*****ent was so blatant an unacceptable legal do*****ent, that even the most recently recruited trainee accountant or solicitor would have spotted it, but not the directors or those others acting for THINK. This do*****ent was one of the very few “conditions precedent” to the closing – i.e. if it did not happen, the deal did not complete.

However, at the “closing” where Cobbetts (the well known Leeds law firm) were acting to ensure a successful completion (their words not mine), they seemingly failed to spot that the fax had been received from Shukri’s US fax number purporting to confirm that Discovery had agreed to the assignment of the Superstars II property. In this case the fax bears no letterhead, the salutation was to a person other than the addressee, and is frankly so amateurish as to strain credulity beyond breaking point. As it turns out the addressee had left the employment of Discovery many months before in any event so could not have signed it! If the directors had been awake and/or properly made aware of this so clearly false do*****ent before they signed to “complete” the deal, after being told all conditions precedent had been satisfied, surely even they would have stopped – well perhaps not given what seems to me, and many others, their desperation to do any deal whatsoever.

The most recent case of fraudulent faxes from persons other than the 3rd party aimed at deceiving professionals is the Italian multi-national Parmalat, and that cost investors and banks billions and billions of dollars.

In my opinion Cobbetts were so grossly negligent as to warrant the High Court awarding “exemplary” damages and the Law Society imposing penalties for gross professional negligence. That is what your company is pursuing.

The Fourpoint portfolio has turned out to be an absolute dog, contrary to my earlier hopes and reports to you.

Prior to the THINK/Fourpoint deal Shukri had negotiated a deal with Indigo Film & Television to distribute the library on a worldwide (ex USA) basis, but lo and behold the format was the US film standard that nowhere else accepts; so costs were incurred “converting” materials and other expenses authorised by Fourpoint/THINK. At the present time Indigo states it is owed close to $50,000 more than it has been able to achieve in sales – that is down from $120.000+, and yes that is being independently reviewed/audited.

The previous US distributor, the Peter Rogers Organisation, has failed to provide accounting or money since the beginning of the year and is now under independent investigation/review/audit and will be held to account.

Their claims that no monies are due are frankly unbelievable given that, in February, the CEO told me that there would be more than $500,000+ of gross revenues in 2005, and that one show was already in syndication at upto $5,000 per week. I sympathise with the problems they have had, including Shukri asking for monies in advance and one of the films having “property of ...........” across the entire footage and the missing name is not Fourpoint(!) but that is no excuse for not paying what is due and overdue, and then not submitting contractually required accounting in any event.

SO WHERE TO NOW?

Whatever the wastrels on the ADVFN bulletin board believe, the first obligation is to get the creditors of THINK paid – only if that happens is there any sort of future. And you still have to fend off demands, I say they are invalid, from the NSMG liquidator for damages for failure to honour the indemnity for the loan notes – anyone got £2.8 million to spare? – before the shareholders even get a sniff of anything.

To the sole end of getting the THINK creditors paid, and because the KPMG position is so uncertain, I have sold the Fourpoint portfolio, lock stock and barrel, to Indigo. The consideration is to be independently determined and is also to be based upon an independent experts opinion as to the state of the library, because even after 3 years the existing distributors are still finding false representations by Shukri. The consideration is then being ring fenced for the benefit of the THINK creditors in the first instance, with any surplus being handed over to THINK in due course.

The portfolio clearly needs people with media knowledge to make something of it, and THINK does not have, nor can it recruit, anybody as there is no money to pay salaries. Indigo have spent considerable time and money converting formats for distribution in the non-USA markets, and are as familiar with the portfolio as anybody is, and they seem to me to have the professional expertise and contacts to make the most of it to both their and THINK’s advantage. Shukri’s valuations and well-publicised cash flows are just so much rubbish – the figures he quotes from Indigo were based upon his own forecasts and on his representation that the media was ready for distribution, which it was not. I will be surprised if the library turns out to have any truly significant value, but I hope to be proved wrong.

Not one person, other than Shukri, has offered to become a director of this company, so what am I to do?

I have already said I will sell the three corporate directors to anybody who gets the creditors paid, and I repeat it here that if any of you disagree with what I am proposing, then I am quite willing to sell you the three “corporate directors” and let you get on with it – SO LONG AS ALL CREDITORS HAVE BEEN PAID. That is what I have offered Shukri but he says he will only get me paid and not the other creditors, and refuses to show he has the money to meet the commitment, which is a wholly reasonable request given the trail of unpaid Fourpoint bills and prior history of forgery.

As to Shukri’s suitability to be a director of THINK, if he comes up with the money – its all his as far as I am concerned, but he must put the money into escrow to pay the creditors first.

Shukri says he has asked THINK to convene an EGM to appoint his slate of directors – only one or two problems – none of them have signed a consent to act as required by law, and one of his proposed appointees has told me that he would never consider acting in any event. Accordingly Shukri’s request is invalid at even the first and most elementary hurdle he needs to cross, something accepted by his then solicitors, and even if THINK had the money it would be a waste of time and expense to convene an EGM as well as an AGM.

Given that the powers were vested in me by the previous directors under proper advice and authority, and that nobody else even wants to try and sort it out, I intend to do the following:

1. Gather in whatever cash I can.

2. Seek to collect the KPMG monies.

3. Sell the 10% interest in Optical Imaging Ltd. Any offers? David Clement and his wife have right of first refusal, but it might be an interesting way of getting Jellies sorted out.

4. Sell the BUM and Jellies assets of the two subsidiaries to the highest bidder, and to advertise them for sale on eBay so that there is total transparency.

5. If the subsidiary companies do not go with the IP rights sale, let the Registrar of Companies strike off the two subsidiaries and “kiss goodbye” to the £20+ million of tax losses.

6. The Suzy’s Zoo rights lapse next month unless extended for a further 6 months, and THINK does not have the money to even pay for that, let alone pay for the necessary development of the property, so they will probably lapse and I will try and sell the IP that has so far been developed for whatever can be realised.

7. I will sell the Merlin IP rights, such as they are, for whatever I can get for them.

8. Assign the residual legal rights against THINK’s former directors, professional advisers etc to a company connected with and under my control in return for THINK receiving a guaranteed 65% of all recoveries so long as that company pays all legal and other fees. Now here I would appreciate shareholders getting together to front up some money for professional legal help that will undoubtedly be needed at some stage, and they can participate parri-passu in the share of the 35%.

9. If nominees come forward to be directors of THINK, and there is enough money to convene an AGM, and all creditors have been paid BEFORE OCTOBER 1st 2005 , I will convene the AGM to be held on NOVEMBER 4th 2005.

10. If the AGM is not convened, I will place THINK into liquidation on NOVEMBER 4th 2005, not least because it cannot even afford the ongoing costs of maintaining the share register, and then have whatever monies are available distributed to the shareholders in due course by a liquidator.

11. Give you finality on this most sad and disastrous of investments.

Many of the wastrels on the ADVFN bulletin board singly fail to understand that I was not brought in to “liquidate” THINK, I was brought in to try and salvage it and get the shareholders some recompense. That is what I have done and continue to do – most people would have just walked away, but I relish a challenge, including against those nameless posters who try and rubbish whatever anybody does as they do not have the courage to even “step up to the plate” but merely love to spout endless nonsense. Even after sparring with them it is still the case that not one of them volunteers to be a director and run THINK? If they don’t then into the tank it will go, and it will have been their fault that it was not saved as they “just” “think” it should be.

Mark Hardy

For and on behalf of Think Entertainment plc.