Music asks owners to bail out Internet unit

Philippine-based investment holding firm Music Corp. has turned to its stockholders for help in securing the required $300,000 financing to protect its Internet website Music.com from bankruptcy.

Music Corp. president and CEO Michael Burton said stockholders could purchase Music. com shares from Music Corp. at two cents per share and then participate in the $300,000 loan to the website firm.

Music.com is 19 percent owned by Music Corp. Started in New York in 1998, the company was positioned to become the premier worldwide music web address but fierce competition — particularly from global labels — along with online mergers and acquisitions adversely affected the music portal.

Earlier, Music.com management attempted, but failed to raise $700,000 in cash to keep the company in operation, although at a significantly lower level, since the response of Music Corp.’s warrant-rights holders who subscribed to the July 9, 1999 issuance was not enough to bail out the company. The warrant holders hold approximately 52 percent of Music.com.

As it turned out, the warrant holders covered only 13 percent of the $371,000 required. For the proposal to be fully supported, Music Corp. and the warrant-rights holders need to contribute $504,000 on a pro-rata basis, of which $371,000 would be on behalf of the warrant-rights holders.

Thus, Music Corp.’s board of directors has resolved to underwrite the financing of up to $300,000 to keep the music portal from bankruptcy over the next three months while exploring negotiations for the sale of its assets.

"Giving up the struggle and putting Music.com into bankruptcy was an option that has been investigated. However, the legal, court and liquidator fees combined with the claims against the company, including those from employees and management in a bankruptcy scenario, would not allow the shareholders, if the claims were upheld, to realize any proceeds below a net value from the sale of assets in the range of $3 million," Burton said.

Burton said that if the sale of Music.com’s assets pushes through, the prime beneficiaries of the sale will be the lenders of the $300,000.

Music.com will then terminate all its operations and pursue the sale of its assets within a 90-day period during which its creditors, including management, will be managed with a combination of cash and a variable component from the proceeds of an asset sale.

Throughout the same period, a contractor will maintain the site for a share of any revenue generated, but without any further cash out for Music.com, which is expected to preserve Music.com’s online presence and, to a reasonable extent, its traffic.