Cadence Mineral Regulatory News (KDNC)

28 Jan 2008 07:30

Zest Group PLC28 January 2008 Embargoed until 7.30am 28 January 2008 Zest Group Plc ("Zest" or "the Company") Proposed Disposal of Greensleeves Records Limited And Notice of General Meeting Zest Group plc announces today that on 25 January 2008 it entered into anagreement, conditional, amongst other things, on approval of the Resolution, forthe disposal by the Company of the Greensleeves Group to VP Records (UK)Limited. The following is extracted from the Circular of the Company which will be postedto Shareholders today. The purpose of the Circular is to provide details of theProposal, explain why the Zest Board considers the Proposal to be in the bestinterests of the Company and its Shareholders, to seek the approval ofShareholders for the Proposal at the General Meeting and to recommend thatShareholders vote in favour of the Resolution which is necessary to approve andto implement the Proposal. Defined terms used in this announcement are as set out below. Introduction The consideration for the Disposal is £3,100,000 in cash. The Share SaleAgreement provides for the payment of the consideration to the Company uponCompletion less £100,000, the payment of which is to be deferred, as describedbelow. Under the AIM Rules, the Disposal is classified as a disposal resulting in afundamental change of business of the Company. The Disposal is, therefore,conditional on the consent of Shareholders being given in a general meeting ofthe Company. A General Meeting is being convened for 10.00 a.m. on 13 February 2008 to beheld at the offices of Marriott Harrison, Staple Court, 11 Staple Inn Buildings,London WC1V 7HQ at which the Resolution will be proposed. The Disposal Greensleeves is an independent record company and music publisher specialisingin reggae music. Greensleeves is based in Isleworth, Middlesex and also has apromotions office in New York (which will be closing at the end of the month).Greensleeves operates its business activities in the United States of Americathrough Greensleeves USA and manages its publishing activities throughGreensleeves Publishing. Greensleeves has an established presence in a number ofreggae markets in various countries throughout the world and, in particular, theUK, the USA, Japan, France, Germany, Canada and Scandinavia. Greensleeves hasbeen one of the companies at the forefront of the constantly evolving reggaegenre of music and in the 1990s was instrumental in developing the new "ragga"style (commonly known in the USA as "dancehall") which remains the dominantstyle of reggae music. Greensleeves has an extensive reggae back cataloguedating from the 1980s onwards to the present day. The Greensleeves Group was acquired on 31 March 2006 by the Company for aconsideration of £3,250,000, comprising of a cash consideration of £3,000,000and the issue of 8,333,334 Ordinary Shares which were issued at 3 pence pershare. On 19 June 2007, the Company announced that it had reached a settlementwith the vendors of the Greensleeves Group in relation to the breach of certainspecified warranties given at the time of the acquisition. The total settlementfor these breaches was £455,687. Greensleeves occupies approximately 6,000 square feet of offices and warehousingat Unit 14, Metro Centre, St John's Road, Isleworth, Middlesex TW7 6NJ on afreehold basis. The freehold was acquired at the time of the originalacquisition of Greensleeves for £663,000 by Zest and will, together with arelated loan of approximately £419,000, be included as part of the net assets ofGreensleeves at Disposal. Reasons for the Disposal and use of proceeds Since the acquisition of Greensleeves in March 2006, the Zest management teamhas introduced a number of initiatives to seek to leverage the opportunitieswithin the Greensleeves business, including exploiting the existing catalogueand expanding the distribution network in both non-digital and digital formats.Unfortunately these initiatives have not produced the returns to Shareholdersthat Zest was expecting. The music industry is currently experiencing very difficult market conditionsagainst a background of considerable structural change. These difficult marketconditions have been particularly pronounced in the US retail market, the majormarket for Greensleeves, which has seen the closure of a number of significantretail outlets and, in those which remain, a trend towards seeking to restrictspace for genre music in favour of mainstream label releases and other productlines such as video games and DVDs. Although digital sales have exceeded Zest'sexpectations, they have not been sufficient to offset the shortfall in physicalretail sales. In addition, margins have been affected by exposure to exchangerate volatility, which has seen the pound appreciate approximately 20 per cent.against the dollar since Zest's acquisition of Greensleeves. Following Completion, the proceeds from the Disposal will be used by Zest torepay borrowings of approximately £1.8 million, settle outstanding creditors andto provide additional working capital. Principal Terms of the Share Sale Agreement Under the terms of the Share Sale Agreement, the Company has conditionallyagreed to sell the entire issued share capital of Greensleeves to the Buyer. Thetotal aggregate consideration for the sale and purchase of the Greensleevesshares will be £3,100,000 in cash which will be paid at Completion to Zest, lessthe Deferred Consideration. In addition intra-group debt of approximately£331,000, due to Zest, will be written off by Zest. The Company has also given certain warranties and indemnities to the Buyer inrelation to the business and affairs of the Greensleeves Group, which will besubject to a cap of £1,000,000. The liability of the Company for any breach ofthe warranties and indemnities (except in respect of those relating to taxation)will expire if notice of a claim is not given to the Company within 12 months ofCompletion. The Company will also enter into certain restrictive covenants withthe Buyer. Those Directors on the board of the Greensleeves Group will alsoresign their positions at Completion. The Deferred Consideration will, upon Completion, be placed for a period of 12months from Completion in a joint retention account to be operated by theCompany's solicitors and the Buyer's solicitors. The Deferred Consideration isto be set aside to meet any claims that arise under the warranty and indemnityprovisions of the Share Sale Agreement. Subject to there having been nodeductions from the Deferred Consideration in accordance with the agreement between the parties, the Deferred Consideration (or such amount as maythen remain in the joint retention account) will be paid to the Company on thedate 12 months after Completion. A copy of the Share Sale Agreement will be available for inspection from thedate of this announcement up until the commencement of the General Meeting at10.00 a.m. on 13 February 2008 at the offices of Marriott Harrison, StapleCourt, 11 Staple Inn Buildings, London WC1V 7QH. The Disposal is conditional onthe passing of the Resolution. Director Bonus Following Completion, Mr Steve Weltman, Chief Executive of Zest, will beentitled to receive a bonus of £90,000 in consideration of his projectmanagement of the transaction, but has agreed that from Completion his annualsalary will be reduced to £75,000. Financial effects of the Disposal In the year ended 30 September 2006, Greensleeves Group contributed all of theZest Group's turnover and gross profit of £1.4 million and £0.6 millionrespectively. It also contributed £0.2 million of the Zest Group's £0.7 millionoperating loss. At 30 September 2006 the Zest Group had net assets of £3.0million including £3.6 million goodwill arising from the acquisition ofGreensleeves. Each of these figures is derived from the audited financialstatements of Zest Group for the period ended 30 September 2006. In the six months to 31 March 2007, Greensleeves Group again contributed all ofthe Zest Group's turnover and gross profit of £1.1 million and £0.5 millionrespectively. It also contributed £0.2 million of the Zest Group's £0.4 millionoperating loss. At 31 March 2007, the Zest Group had net assets of £2.5 million,of which £3.5 million related to goodwill on Greensleeves. Each of these figuresis derived from the unaudited interim report of Zest Group for the six monthperiod ended 31 March 2007. An unaudited pro-forma balance sheet as at 31 March 2007, showing forillustrative purposes only, the impact on the Zest Group following the disposalof Greensleeves, as if it had occurred on 31 March 2007, will be set out in PartII of the Circular. Since the acquisition of Greensleeves, the Zest Group has been loss making. Inaddition, the Zest Group has also been faced with servicing the borrowings takenout to finance the acquisition of Greensleeves. In the opinion of the Directors,this is unsustainable. The proceeds from the Disposal will be sufficient torepay borrowings, settle outstanding creditors and meet the expenses of thetransaction, estimated to be approximately £325,000, and provide working capital for the future. If the Disposal does not proceed theZest Group will be obliged to raise further funding if it is to continue in itscurrent form. The Zest Business following Completion Following Completion the Board of Zest will comprise Richard Griffiths asExecutive Chairman, Steve Weltman as Chief Executive and John Crawley remainingas a Non-executive Director. Marcus Lee and Grant Gadzig will step down asFinance Director and Non-executive Director respectively on Completion. Zest will retain and continue to seek to exploit the publishing and recordingrights arising from the following artists with whom it has contracted: Tara Chinn Recording on Tara's debut album "Night Racing", produced and co-written by TonyFennell and mixed by Grammy award winning Hugh Padgham, was completed duringsummer of 2007. On 12 December 2007 Zest signed a physical and digital licence agreement withleading Australian based independent music distributor Amphead to launch Tara'salbum in Spring 2008 in Australia and New Zealand. The launch is beingco-ordinated with a promotional trip, live dates and a series of TV commercialsto act as springboard to launch her career and develop other markets in Asia andto create momentum before launching the album in the European and US markets. Nasio Fontaine Nasio's latest album "Universal Cry" was released in June 2006 throughGreensleeves and was supported with a three week tour of the east and westcoasts of the United States. In June 2007, Zest Group released a compilationalbum under the Greensleeves label "Rise Up" which incorporated tracks fromNasio's first three albums and "Universal Cry". As at 30 September 2007, totalsales for both "Universal Cry" and "Rise Up" are in excess of 30,000 since theirlaunch. Nasio has informed Zest that he is currently working on his next album which isexpected to be recorded and released sometime in 2008 and there are furtherplans to re-release some of Nasio's earlier recordings during 2008. Tony Fennell A songwriter and record producer signed to Zest, Tony co-wrote 11 of the 13songs on Tara Chinn's debut album "Night Racing" which he is also producing.Tony has informed Zest that he is currently writing the first album for former XFactor contestant, Brenda Edwards, who is currently featuring in the West Endmusical, Chicago. Tony is also hoping to produce Brenda's album. Richard Griffiths Chairman of Zest, Richard is also a songwriter signed to Zest and has recentlybeen writing with Tony Fennell for the Brenda Edwards album. In addition, bothTony and Richard have informed Zest that they are writing for another femaleartist (who cannot be named at this time for confidentiality reasons) and expectto see their work featured on an album in the second half of 2008. In addition to seeking to optimise the value of existing artists it is expectedthe Zest Group will, where the opportunity arises, seek to add further rights bysigning new artists and songwriters. General Meeting The Proposal is subject to the passing of the Resolution by a majority vote ofthe Shareholders. A General Meeting is being convened for 10.00 a.m. on 13February 2008 to be held at the offices of Marriott Harrison, Staple Court, 11Staple Inn Buildings, London WC1V 7QH, at which the Resolution will be proposed.If the Resolution is not passed at the General Meeting, or at any adjournment ofit, then Completion of the Disposal will not occur. Recommendation The Directors, having consulted with WH Ireland Limited, the Company's nominatedadviser, which has taken into account the Directors' commercial assessment ofthe position of the Company, consider that the terms of the Proposal are fairand reasonable and in the best interests of the Company and of Shareholders.Accordingly, the Directors will unanimously recommend Shareholders to vote infavour of the Resolution as they intend to do or procure to be done in respectof their own beneficial holdings of 11,666,668 Ordinary Shares, representingapproximately 6.72 per cent. of the issued share capital of the Company. Enquiries: Steve Weltman, Chief Executive +44 (0) 207 451 9800 John Bick +44 (0) 7917 649 362 Tim Cofman/Nicola Rayner WH Ireland +44 (0) 121 265 6330 Definitions "Act" means the Companies Act 1985 including any statutory modification or re-enactment thereof for the time being in force and, where relevant, any provisions of the Companies Act 2006"AIM" the market of that name operated by London Stock Exchange plc"AIM Rules" the AIM Rules for Companies governing the admission to and the operation of AIM published by London Stock Exchange plc as amended from time to time"the Board" or "the Directors" the directors of the Company"Buyer" or "VP" VP Records (UK) Limited"Circular" the circular to Shareholders in relation to the Proposal to be despatched today"Company" or "Zest" Zest Group plc"Completion" completion of the Share Sale Agreement and the purchase of the Sale Shares by the Buyer"Completion Date" the date of Completion of the Disposal, expected to occur on 14 February 2008"Consideration" £3,100,000 in aggregate in cash"Deferred Consideration" £100,000 in cash"Disposal" the disposal of the Greensleeves Group on the terms of the Share Sale Agreement"General Meeting" the general meeting of the Company, being convened for 10.00 a.m. on 13 February 2008, and any adjournment thereof, notice of which will be set out at the end of the Circular"Greensleeves" Greensleeves Records Limited, company no. 871107, a company incorporated in England and Wales"Greensleeves Group" Greensleeves and the Subsidiaries"Greensleeves Publishing" Greensleeves Publishing Limited, company no. 887475, a company incorporated in England and Wales"Greensleeves Shares" ordinary shares of £1.00 each in the share capital of Greensleeves"Greensleeves USA" Greensleeves Records (USA) Limited, a company incorporated under the laws of the state of New York, United States of America"the Group" or "Zest Group" Zest Group plc and its subsidiaries"Ordinary Shares" ordinary shares of 0.25p each in the capital of the Company"Property" the freehold property located at Unit 14, Metro Centre, St John's Road, Isleworth, Middlesex TW7 6NJ"Proposal" the Disposal"Resolution" the resolution to approve the Disposal to be proposed at the General Meeting, details of which will be set out in the notice of General Meeting at the end of the Circular"Sale Shares" 17,250 Greensleeves Shares, being the entire issued share capital of Greensleeves"Share Sale Agreement" the conditional share sale agreement entered into between the Company and the Buyer on 25 January 2008"Shareholder" or "Shareholders" the holder or holders of Ordinary Shares"Subsidiaries" Greensleeves USA and Greensleeves Publishing"WH Ireland" WH Ireland Limited, broker and nominated adviser to the Company This information is provided by RNS The company news service from the London Stock Exchange