Disposal and Notice of EGM

Blavod Extreme Spirits PLC 03 September 2007 3 September 2007 Blavod Extreme Spirits PLC (the 'Company') The issuer has made the following amendment to the 'Disposal and Notice of EGM' announcement released 30 August 2007 at 07:01am under RNS number 9795C. In the section headed 'Extraordinary General Meeting', it should read 'To be valid, Proxy Forms must be returned to the Company's registrars no later than 11.00 am on 22 September 2007' and not 'To be valid, Proxy Forms must be returned to the Company's registrars no later than 11.00 am on 24 September 2007' as previously shown. All other details remain unchanged. A full version of the corrected announcement is contained below. Proposed disposal of the business of Blavod Extreme Spirits USA, Inc. And Notice of EGM The Company announces that it has today posted a circular to shareholders setting out a resolution to be passed at an Extraordinary General Meeting to be held on 24 September 2007. The resolution concerns the proposed disposal ('the Disposal') of BES USA to Black Diamond Spirits, LLC ('the Buyer'), a company controlled by Jeff Hopmayer, the Company's Chief Executive Officer. On completion of the Disposal, the Company will receive gross cash proceeds of US$800,000. In addition, the Buyer will assume the liability for the amounts owed by BES USA under the Laurus Facility which as at 31 July 2007 totalled US$3,200,000. The EGM is to be held at 11.00 am on 24 September 2007 at the offices of Maclay, Murray & Spens LLP, 12th Floor, One London Wall, London, EC2Y 5AB. To be valid, Proxy Forms must be returned to the Company's registrars no later than 11.00 am on 22 September 2007. Extracts of the text of the Chairman's letter contained within the circular are set out below. Definitions in this announcement shall bear the same meaning as those in the circular to Shareholders. For further information, please contact: Blavod Extreme Spirits Colin Campbell (Non-executive Chairman) +33 6 8781 1362 Brewin Dolphin Securities (Nominated Adviser) Mark Brady/Alison Barrow 0845 270 8600 PROPOSED DISPOSAL OF THE BUSINESS OF BLAVOD EXTREME SPIRITS USA, INC. Introduction The Company announces today that its subsidiary, BES USA, has entered into an agreement to dispose of its US Business to Black Diamond Spirits, LLC, a company controlled by Jeff Hopmayer, the Company's Chief Executive Officer. As a result of Mr Hopmayer's interest in the Disposal, it is a related party transaction within the meaning of the AIM Rules. Mr Hopmayer and the other US-based Directors (Messrs Falk and Levin) will resign following Completion. Mr Murphy, the Company's Finance Director, resigned with effect from yesterday on the signature of the Disposal Agreement to pursue other interests. Mr Hopmayer has taken no part in the Board's consideration of the terms of the Disposal for the purposes of making a recommendation to Shareholders. In view of the size of the US Business in relation to the Company, the Disposal is conditional upon the approval of Shareholders, which will be sought at the Extraordinary General Meeting which is being convened for 11.00 am on 24 September 2007, at the offices of Maclay, Murray & Spens LLP, 12th Floor, One London Wall, London EC2Y 5AB. A notice of the EGM is set out at the end of this document. On Completion of the Disposal, Blavod will receive gross cash proceeds of US$800,000. In addition the Buyer will assume the liability for the amounts owed by BES USA under the Laurus Facility which as at 31 July 2007 totalled US$3,200,000. The principal terms of the Disposal are described in more detail in the paragraph below headed 'Details of the Disposal'. The purpose of this circular is to explain the background to and reasons for the Disposal and why your Board considers that it is in the best interests of the Company and its Shareholders as a whole, and to recommend that Shareholders vote in favour of the Disposal at the EGM. Background to and reasons for the Disposal The US Business was acquired on 20 January 2004 from Extreme Beverage Company LLC, and is based in Franklin, Tennessee. It carries out the marketing and selling of various spirits and wines in North America. As well as importing Blavod Black Vodka, the US Business also handles other products including: • Players Extreme flavoured vodkas and rums; • El Diamante del Cielo tequila; and • A portfolio of Italian wines from various regions. The El Diamante tequila business is a joint venture with Suntory International Corporation, which was formed in August 2005 to develop a new range of premium tequila, initially for the market in the USA. Each partner owns 50 per cent. of the equity of the joint venture, with Blavod's contribution being solely in terms of intellectual property. The October 2005 launch in selected US cities was well received and distribution is currently being expanded to the broader US market and exports to international markets will begin in the near future. The results of the US Business for the past two financial years are summarised below: -------------------- ---------- ----------- Year ended 31 March 2006 2007 (audited) (unaudited) £000 £000 -------------------- ----------- ----------- Sales 3,152 3,787 -------------------- ----------- ----------- Operating loss (1,902) (1,960) Share of loss of joint venture - (91) Interest payable (464) (508) -------------------- ----------- ----------- Loss before taxation (2,396) (2,559) -------------------- ----------- ----------- The unaudited net assets of the US Business as at 31 March 2007 are summarised below: ---------------------- ----------- As at 31 March 2007 (unaudited) £000 ---------------------- ----------- Fixed assets Tangible assets 12 Investment in joint venture 255 ---------------------- ----------- Total fixed assets 267 ---------------------- ----------- Current assets Stocks 762 Debtors 787 Cash 39 ---------------------- ----------- Total current assets 1,588 ---------------------- ----------- Total assets 1,855 ---------------------- ----------- Liabilities Creditors 1,287 Amounts owed to joint ventures 255 Amounts owed to Group companies 8,673 ---------------------- ----------- Total liabilities 10,215 ---------------------- ----------- Net liabilities 8,360 ---------------------- ----------- This spring the Directors carried out a review of the US Business and its future prospects. The review found that: • whilst sales continued to grow overall, the rate of increase of the Company's own brands was slowing so that the growth was increasingly coming from agency brand business; • gross margins were suffering erosion in the US market; • the Company's advertising and promotional spending behind the brands was falling as a consequence of sales and margin erosion; • it had not been possible to reduce costs further, because of the need to maintain a strong sales force to support the brands; and • the US Business would require a considerable further capital injection to finance growth of the current portfolio or acquire new brands to enhance future growth prospects as its existing resources were largely exhausted. The Directors concluded that the likelihood of the business growing into profit within an acceptable timescale was insufficient to justify asking shareholders for further capital. Having reviewed possible alternatives, including the sale or merger of the Company, the Directors concluded that the Company as it is currently constituted is not attractive as there are few synergies between its UK operations and the US Business, with Blavod the only brand sold in both geographic markets. The management of these two geographically diverse businesses within a single, AIM-quoted company has proved complex, cumbersome and costly. Most importantly, the US Business continues to lose money, while the UK is operating profitably on a monthly basis before allocation of central overheads. It was with this background that the Independent Directors received an offer from Mr Hopmayer to purchase the US Business, on the terms set out in this document. If the Shareholders approve the Disposal, the turnover of the Company will be approximately halved, but its ongoing losses almost entirely eliminated. Whilst the remaining business of the Company will be smaller the Independent Directors believe it will have the following attractive qualities: • sales across all major brands are growing in both the UK and export markets run from the UK; • supportive suppliers, who have been consistently loyal in the past; • a significantly reduced and tightly monitored cost base; • a business with no significant debt; and • the ability to achieve profitability within an acceptable timescale. Following the Disposal the Independent Directors believe that the Company will be in an improved position to widen its portfolio of brands and thereby build turnover and a track record of developing small and mid-sized brands. Details of the Disposal The Disposal is to be effected by the sale by BES USA of the US Business pursuant to the terms of the Disposal Agreement. The key terms of the Disposal Agreement are as follows: BES USA has conditionally agreed to sell all its business and assets to the Buyer for US$800,000 in cash. The obligations of the parties under the Disposal Agreement are conditional on the passing of the Resolution. The Disposal Agreement may be terminated if it has not become unconditional on or before 28 September 2007. The Buyer has agreed to assume all known liabilities and continuing obligations of BES USA as listed in the Disposal Agreement including the sums due to Laurus under the Laurus Facility but excluding any liability to any employee of BES USA for any period prior to Completion. The total amount outstanding under the Laurus Facility as at 31 July 2007 was US$3,200,000. The Disposal Agreement provides that on Completion releases of the Company and its subsidiaries from the terms of the Laurus Facility and all guarantees and security given to Laurus pursuant to the facility (except for the option for Laurus to subscribe for 2,250,000 new Ordinary Shares at a price of 18.48 pence per Ordinary Share) will be delivered to the Company and BES USA. BES USA has given certain limited warranties to the Buyer under the Disposal Agreement confirming its due incorporation and ability to enter into the Disposal Agreement. BES USA has not given any warranties regarding the US Business itself. The Disposal Agreement also contains similar limited warranties by the Buyer in favour of BES USA. In addition, Mr Hopmayer has given certain warranties regarding the liabilities of the US Business and confirming that, to his knowledge, there are no other assets or liabilities of BES USA other than those to be acquired or assumed by the Buyer or specifically reserved to BES USA under the Disposal Agreement. The Disposal Agreement contains indemnities, covenants and undertakings by BES USA and the Buyer customary for transactions similar to the Disposal. On completion of the Disposal, Mr Hopmayer will resign from the Board. In addition Mr Falk and Mr Levin will resign as they are both based in the USA whereas the Company's operations will be refocused in the UK. Mr Banks and I will continue as Directors and it is proposed to re-appoint Richard Ambler to the Board as Managing Director and to re-appoint Willie Phillips to the Board as part-time Finance Director. The Board will also be seeking to appoint a further non-executive director when appropriate. Under a service agreement dated 15 February 2001, as amended, Mr Ambler will work for the Company as Managing Director. The service agreement is terminable by the Company on 12 months' written notice or by Mr Ambler on 6 months' written notice. His salary is £98,000 per annum and is reviewed annually by the Board. Mr Ambler is entitled to an annual discretionary bonus together with benefits totalling £15,000 per annum. It is proposed that Mr Phillips will enter into a consultancy agreement with the Company to provide his services as a director for 6 days a month for a monthly fee of £2,500 plus £500 per diem if his time commitment is more than 6 days a month. The consultancy agreement will be terminable on 3 months' written notice by either party. Use of the Disposal proceeds and financial impact of the Disposal The Disposal will generate gross proceeds of US$800,000 (representing approximately £396,700 at the exchange rate prevailing at the day before the date of this document), which will be returned to the Company's cash balances to support its remaining operations in the UK. The Independent Directors anticipate that, after payment of the costs of the Disposal and of a number of outstanding debts to the Company's advisers, the Company will have cash reserves somewhat in excess of its Working Capital requirements. The board of directors will review the future of BES USA following Completion. The Company intends to continue exporting Blavod vodka to the US Business for the time-being following Completion on an 'arms-length' basis although the longer term basis for such trade will be subject to mutual consent and agreement. Current trading The Company intends to publish its statement of preliminary results for the year ended 31 March 2007 in late September. The Independent Directors expect that these results, which are currently unaudited and are subject to adjustment on audit and consolidation, will show a slightly increased net operating loss before taxation of some £3,200,000 on turnover of approximately £7,000,000. In the first quarter of the current financial year these trends have continued. Sales in the USA were approximately £630,000, compared with approximately £790,000 in the UK, which is now operating profitably on a monthly basis before allocation of central overheads. Extraordinary General Meeting The EGM is to be held at 11.00 am on 24 September 2007 at the offices of Maclay, Murray & Spens LLP, 12th Floor, One London Wall, London, EC2Y 5AB. To be valid, Proxy Forms must be returned to the Company's registrars no later than 11.00 am on 22 September 2007. The sole business of the EGM is to propose the Resolution to approve the Disposal. Recommendation The Independent Directors, who have been so advised by the Company's nominated adviser, Brewin Dolphin, consider that the terms of the Disposal are fair and reasonable insofar as the Shareholders are concerned. In advising the Board, Brewin Dolphin has taken into account the Board's commercial assessment of the Disposal. Accordingly, the Independent Directors unanimously recommend Shareholders to vote in favour of the Resolution, as they intend to do so in respect of their own beneficial shareholdings amounting to 50,000 Ordinary Shares which represent approximately 0.08 per cent. of the Company's existing issued share capital. Mr Hopmayer, who is a related party has undertaken not to vote on the Resolution (and to procure that no other person shall exercise any voting rights in respect of the Resolution in relation to any Ordinary Shares in which he is interested). Ends This information is provided by RNS The company news service from the London Stock Exchange

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