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Quarto Group Inc (QRT)

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Thursday 16 January, 2020

Quarto Group Inc

Open Offer to raise £13.9 million

RNS Number : 9571Z
Quarto Group Inc
16 January 2020
 

THIS ANNOUNCEMENT (INCLUDING THE APPENDIX) AND THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR PUBLICATION, RELEASE OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART, IN OR INTO OR FROM THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH IT WOULD BE UNLAWFUL TO DO SO. FURTHER, THIS ANNOUNCEMENT IS FOR INFORMATION PURPOSES ONLY AND SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, SUBSCRIBE FOR OR OTHERWISE ACQUIRE ANY SHARES OR OTHER SECURITIES OF THE QUARTO GROUP INC. IN THE UNITED STATES (OR TO ANY U.S. PERSON), AUSTRALIA, CANADA, JAPAN, THE REPUBLIC OF SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH ANY SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THIS ANNOUNCEMENT NOR ANYTHING CONTAINED HEREIN SHALL FORM THE BASIS OF, OR BE RELIED UPON IN CONNECTION WITH, ANY SUCH OFFER, SOLICITATION OR COMMITMENT WHATSOEVER IN ANY OF THOSE JURISDICTIONS. NO MONEY, SECURITIES OR OTHER CONSIDERATION IS BEING SOLICITED FROM ANY PERSON IN THOSE JURISDICTIONS AND, IF SENT IN RESPONSE TO THE INFORMATION CONTAINED HEREIN, WILL NOT BE ACCEPTED.

This announcement is an advertisement for the purposes of the Prospectus Regulation Rules and does not constitute a prospectus and investors must subscribe for or purchase any shares referred to in this announcement only on the basis of information contained in the prospectus published by The Quarto Group Inc. later today in connection with the Open Offer to be made to shareholders ("Prospectus") and not in reliance on this announcement.  The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its accuracy or completeness. The information in this announcement is subject to change. 

A copy of the Prospectus and the Circular (as defined below) will be, subject to certain access restrictions, available for inspection on the Company's website (www.quarto.com) and at the Company's principal place of business being The Old Brewery, 6 Blundell Street, London, N7 9BH.  This announcement does not constitute, and may not be construed as, an offer to sell or an invitation to purchase, investments of any description, or a recommendation regarding the issue or the provision of investment advice by any party.

This announcement contains inside information for the purposes of the Market Abuse Regulation (596/2014).

 

The Quarto Group Inc.

("Company", "Quarto" or "Group")

Open Offer to raise £13.9 million

Notice of Special Meeting

The Quarto Group Inc., the illustrated book publisher and distribution group, today announces that it proposes to raise £13.9 million (approximately $18.2 million) in gross proceeds (£12.8 million (approximately $16.7 million) net of expenses) by the issue of 20,444,550 New Common Shares at 68 pence per New Common Share by way of an Open Offer to the Company's existing Shareholders ("Open Offer"). The Open Offer is fully underwritten by two groups of the Company's Shareholders, namely the Lau Underwriter and the Giunti Parties (together, "Underwriters").

The Company will shortly send Qualifying Shareholders a Prospectus setting out the details of, and reasons for, and the procedures for participating in, the Open Offer. The Company will also send a Circular containing a notice of a Special Meeting, to be held at 9.30 a.m. on 31 January 2020 at the offices of finnCap Ltd at 60 New Broad Street, London EC2M 1JJ, to approve certain Resolutions necessary to implement the Open Offer. The Circular sets out, inter alia, the reasons why both the Board and the Independent Committee consider that the Open Offer and the Resolutions are in the best interests of the Company and the Shareholders as a whole and explains why both the Board and the Independent Committee recommend that the Shareholders vote in favour of the Resolutions as they intend to do in respect of their own beneficial holdings. The Company has received irrevocable undertakings to vote in favour of the Resolutions at the Special Meeting from Shareholders holding, in aggregate, 38.8 per cent. of the Company's Existing Common Shares.

Background to and reasons for the Open Offer

As reported by the Company in its 2018 Annual Report, the Group has recently been experiencing a slowdown in its business together with financial challenges deriving from the level of external bank debt owed by the Group. As at 30 November 2019, the aggregate size of the Group's net debt pursuant to the terms of the 2018 Facilities Agreement was $54 million. The Group also owed $13 million to the Lau Parties and Recruit & Company Limited pursuant to the terms of certain loan instruments (see paragraph 7.1.9 ("Loan Instruments") of Part 15 ("Additional Information") of the Prospectus for further details). This figure is significantly higher than expected for a company of the Company's size and profitability and the Board considers that this debt presents a risk to the future profitability of the Group and hampers the ability of the Company to make dividend payments or other returns to Shareholders.

During November 2018, the Group secured an extension to its bank facilities to 31 August 2020 which has proved helpful in providing a stable base from which the Board and the Group have commenced measures to improve the Group's performance and reduce its debt (see paragraph 7.1.3 ("2018 Facilities Agreement") of Part 15 ("Additional Information") for further details). The Group has recently been in discussions with the Syndicate to amend the 2018 Facilities Agreement and the Syndicate has agreed to extend the final repayment date under the 2018 Facilities Agreement to 31 July 2021 and to amend certain of the covenants of the 2018 Facilities Agreement. These amendments, which are set out in the Amended Facilities Agreement, will give the Group more certainty and time to continue to improve business performance. The Amended Facilities Agreement is conditional upon the Open Offer completing and the Syndicate being repaid the total net proceeds of the Open Offer. Therefore, if the Open Offer does not complete, the Amended Facilities Agreement will terminate and the outstanding amounts owed to the Syndicate will have to be repaid by the Group by 31 August 2020 pursuant to the terms of the 2018 Facilities Agreement. The Company is obligated to pay a series of fees to the Agent and the Security Agent and is required to pay to the Agent (for each member of the Syndicate) a commitment fee of 40 per cent. of the then prevailing interest rate margin on the undrawn, uncancelled amount of each member of the Syndicate's commitment under the RCF. In connection with the 2018 Facilities Agreement, the Company is due to pay an unconditional success fee to the Agent, of $1,266,444 payable on the earlier of: (i) 31 August 2020 and (ii) the date on which all the secured liabilities have been unconditional and irrevocably paid and discharged in full (as confirmed by the Agent). A further conditional success fee of $744,967 may be payable by the Company under the terms of the 2018 Facilities Agreement. However, if the Open Offer completes and the Syndicate is repaid the total net proceeds of the Open Offer, such success fee will be reduced to $595,973 and due by 21 February 2020. The Amended Facilities Agreement, which is conditional upon success of the Open Offer, will fix the Facilities at a total of $35 million. In addition to paying the net proceeds of the Open Offer to the Syndicate under the terms of the Amended Facilities Agreement, since 30 November 2019, the Group has made repayments under the terms of the 2018 Facilities Agreement of approximately $3.8 million.

For further details on the Amended Facilities Agreement, see paragraph 7.1.8 ("Amended Facilities Agreement") of Part 15 ("Additional Information") of the Prospectus.

In addition, as reported in the 2018 Annual Report, another challenge facing the Group is the level of administrative expenses within the business. The Group's administrative costs for the six months ending 30 June 2019 were $9.8 million and for the year ending 31 December 2018 were $23.9 million. As the 2018 Annual Report emphasised, the amount of these costs is quite difficult to justify given the financial performance and debt position of the Group. During the 2018 financial year, the Group also undertook a comprehensive review of its cost base and areas of expenditure. Following this review, the Group's portfolio was reduced from 40 to 33 imprints, a number of office facilities were downsized, certain processes relating to the printing of the Group's books were automated and corporate overheads were reduced. The Directors and the Group continue to monitor expenditure with a view to reducing unnecessary costs where appropriate.

Over the last 24 months, the Group has taken steps to address the challenges that it has been experiencing and, as reported in the 2018 Annual Report, continues to focus on right-sizing the Group, pursuing a path of sustainable debt reduction and focussing on the Group's core business strengths of creating and developing popular and diverse content for its portfolio of imprints.

As part of the Group's strategy to reinvigorate the Group's balance sheet and reduce the Group's reliance on bank debt by reducing the amount of the Group's debt and extending the terms of the 2018 Facilities Agreement, the Company is proposing to undertake the Open Offer. The net proceeds from the Open Offer will be used to reduce the amount of the bank debt which will result in the Amended Facilities Agreement becoming unconditional thereby extending the final repayment date of the facility to 31 July 2021. The Open Offer will raise gross proceeds of £13,902,294 (approximately $18,212,005) and £12,752,294 (approximately $16,705,505) net of expenses.

The Open Offer is being underwritten by two groups of existing Shareholders namely, the Lau Underwriter and the Giunti Parties. Each of the Underwriters has separately agreed with the Company to take up in full their Open Offer Entitlements but not to take up any additional New Common Shares under the Excess Application Facility. In addition, the Giunti Parties have undertaken to subscribe for up to 6,187,820 New Common Shares which will result in the Giunti Parties holding up to a maximum of 20 per cent. of the Enlarged Share Capital following Admission. The Lau Underwriter has undertaken to subscribe for all New Common Shares which are not subscribed for by Qualifying Shareholders under the Open Offer or by the Giunti Parties pursuant to their Open Offer Entitlements or the terms of the Giunti Underwriting Agreement. If no Qualifying Shareholders (other than the Underwriters) take up their Open Offer Entitlements, the Underwriters will subscribe for all of the New Common Shares available pursuant to the Open Offer which will result the Lau Parties, together, holding such number of Common Shares so as to give them control of 49.25 per cent. of the Enlarged Share Capital and the Giunti Parties holding, together, such number of Common Shares so as to give them control of 20 per cent. of the Enlarged Share Capital following Admission.  The Lau Parties and the Giunti Parties are not acting in concert in respect of the Underwriting.

Both the Board and the Independent Committee consider the Underwriting to be essential in providing assurance to the Company, its Shareholders and the Syndicate that sufficient monies will be raised under the Open Offer (provided that the conditions to the Open Offer are satisfied) in order to meet the Syndicate's requirement that the total net proceeds of the Open Offer be repaid in order for the Amended Facilities Agreement to become unconditional and the terms of the 2018 Facilities Agreement be extended to 31 July 2021. See also paragraph 6 ("Principal Terms of the Open Offer") of Part 6 and paragraph 7.1.11 ("Underwriting Agreements") of Part 15 ("Additional Information") of the Prospectus for further details of the Underwriting Agreements.

If the Open Offer and the Amended Facilities Agreement do not complete, the 2018 Facilities Agreement will remain in place, and the Company will need to repay its debt facilities by 31 August 2020. However, pursuant to the terms of the 2018 Facilities Agreement, the Company is required to produce its audited report and accounts for the year ended 31 December 2019 on a going concern basis by 31 March 2020. A failure to do so would constitute a breach of the 2018 Facilities Agreement which could result in the Syndicate demanding immediate repayment of the amounts owed thereunder. In these circumstances, the Group would make serious efforts to renegotiate the terms of the 2018 Facilities Agreement in order to waive the requirement for the Group to prepare its audited report and accounts for the years ended 31 December 2019 on a going concern basis and extend the Group's debt repayment obligations to at least 31 March 2021. If the Syndicate did not agree to such a waiver and was to demand full repayment of the outstanding amounts owed under the 2018 Facilities Agreement upon such breach on 31 March 2020, the Group is unlikely to be able to arrange any alternative sources of funding (i.e. outside of the Syndicate and the Company's shareholders) to meet its debt repayment obligations at that time which could ultimately lead to the Group's insolvency and the total loss of value of the Common Shares. Therefore, if Resolution 1 is not passed and the Open Offer does not proceed and the Amended Facilities Agreement does not complete, no assurance can be given that the Company will be able to continue as a going concern after 31 March 2020 which would lead to total loss of value in the Company's Common Shares.

Current Trading

Six month period ended 30 June 2019

The following commentary regarding the Group's trading performance in the six month period to 30 June 2019 is extracted from the Group's 2019 H1 Results Announcement, which were announced on 16 August 2019:

"Trading was encouraging for the first six months of 2019. Revenue is slightly up year on year at $56.4 million (H1 2018: $56.2 million) with a smaller publishing programme.

Children's imprints performed particularly well, with revenues up 14 per cent. Revenues from Adult imprints were down six per cent. as the market remains challenging, particularly on the co-edition side where we are still seeing consolidation of our key publishing customers. The gross profit margin was in line with prior year at 21.5 per cent. (H1 2018: 21.3 per cent.).

The increased revenues, combined with substantial benefits from the cost out program implemented in 2018, have resulted in a significantly lower adjusted group operating loss of $1.2 million (H1 2018: loss of $4.7 million) in what is our seasonally weak half year. The adjusted loss before tax was $4.0 million (H1 2018: loss of $6.6 million).

Both reporting segments improved their trading performance year on year, resulting in a significant improvement in the Group's adjusted operating result. Net debt at 30 June 2019 was $65.0 million (H1 2018: $73.2 million), a decrease of $8.2 million over the twelve-month period.

The book trade market remains soft, while in the co-edition market, further consolidation is impacting both English and foreign language sales, especially on the Adult segment. As a result, the Group expects the trading environment in the second half to be more challenging than in prior years.

Operating review

With fewer titles published in the period than the prior year, as a result of the cost out programme initiated in the second half of 2018, the Group's revenue increased slightly year on year, led by the strong performance of our children's imprints.

UK-based Frances Lincoln Children's Books was particularly successful. Its Little People, Big Dreams series remains a highlight, with over 1.3 million copies sold in the English language to date. We have expanded the list to include inspirational male role models and these titles have done well so far. Young Quarto also performed strongly, selling well in the book trade, although sales to our key co-edition publishers have been slower than the prior year. In the US, our SmartLab Toys business also performed well.

Revenues from Adult imprints were down, and that market remains more challenging. In the US, our Beverly-based Adult imprints, especially Fair Winds Press and Harvard Common Press, continue to perform strongly led by our successful line of Keto cookery titles. Co-editions sales have been slower than the prior year both in English and foreign language and, with the continued consolidation of key publishers in the market, we expect them to remain so in the second half. We continue to look at new opportunities in custom publishing to grow our customer base.

The challenging Adult co-edition market has impacted Foreign language sales, which have been slower than prior year in the first half and are expected to remain down year on year for the full year.

International English language sales are down year on year. This is mostly due to order timings and they are expected to remain comparable for the full year.

Group overheads were reduced by 65 per cent. due to the cost out program initiated in the second half of 2018. The benefits of these savings will much lower in the second half of the year.

Outlook

The market remains soft in both the US and the UK and, considering the weaker performance of Adult co-editions in both English and foreign language, as well as the uncertainty surrounding Brexit and US trade tariffs, we expect the trading environment in the second half to be particularly challenging.

That said, the Group has the right plans in place to capture all possible opportunities and deliver a satisfactory end to the year. The Board remains focused on returning the Group to full health, reducing debt and defining growth strategies for 2020 and beyond."

Six month period ended 31 December 2019

Since 30 June 2019, as anticipated in the Company's 2019 H1 Results Announcement, market conditions have proven to be challenging in the second half of the year. The market has remained soft in the US and UK and there has been a weaker performance of Adult co edition in both English and foreign language. This, together with the uncertainty caused by Great Britain's exit from the EU and US tariffs and other factors outside the control of management, has resulted in a particularly challenging environment. The Company's performance between July and the end of October 2019 continued to meet the Board's expectations; however subdued trading in the last two months of the year has resulted in a modest reduction in the Board's expectations of Group's performance for the year ended 31 December 2019. The Group's revenues were lower than anticipated during this period primarily as a result of weak trade sales in the US in the latter months of 2019, which was in part explained by the reported congestion in Amazon warehouses that resulted in lower than expected orders.

Notwithstanding this challenging environment, the Group has continued to see good cash generation during this period as it benefits from the cost-out programme initiated by the Board in 2018.  Save as disclosed above, since 30 June 2019, the Group confirms that there has been no significant change in the financial performance of the Group and that the Directors do not know of any known trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on the Company's prospects for at least the current financial year, being the year ending 31 December 2020.

Use of proceeds

The Company intends to use the net proceeds of the Open Offer of £12,752,294 (approximately $16,705,505) to reduce the Group's existing bank debt as required by the Syndicate under the terms of the Amended Facilities Agreement. 

Principal terms of the Open Offer

The Company intends to raise aggregate gross proceeds of £13,902,294 (approximately $18,212,005) (being £12,752,294 (approximately $16,705,505) net of expenses) through the issue of 20,444,550 New Common Shares at the Issue Price of 68 pence per New Common Share by way of the Open Offer. The Open Offer is conditional on, among other things, the passing of Resolution 1 at the Special Meeting.

The Issue Price was set having regard to the prevailing market conditions and the size of the Open Offer. The Issue Price represents a discount of approximately 9.9 per cent. to the closing price per Common Share of 75.5 pence on the Latest Practicable Date. The Directors and the Independent Committee believe that it is necessary to offer the New Common Shares at a discount to complete the Open Offer, and accordingly believe that such discount is in the best interests of Shareholders, and that the Issue Price (and the discount) is appropriate for the Open Offer.

The Open Offer is conditional on, among other things:

·      Resolution 1 being passed by the Shareholders at the Special Meeting;

·      the Underwriting Agreements having become unconditional in all respects and not having been terminated in accordance with their respective terms before Admission;

·      Admission becoming effective by no later than 8.00 a.m. on 3 February 2020 (or such later time as finnCap and the Company may agree, being not later than 28 February 2020); and

·      the Sponsor Agreement having become unconditional in all respects and not having been terminated in accordance with its terms prior to Admission.

Accordingly, if any such conditions are not satisfied or, if applicable, waived, the Open Offer will not proceed, any Open Offer Entitlements admitted to CREST will thereafter be disabled and application monies under the Open Offer will be refunded to the applicants, by cheque (at the applicant's risk) in the case of Qualifying Non-CREST Shareholders and by way of a CREST payment in the case of Qualifying CREST Shareholders, without interest, as soon as practicable thereafter.

The New Common Shares to be issued pursuant to the Open Offer will, following Admission, rank pari passu in all respects with the Existing Common Shares and will carry the right to receive all dividends and distributions declared, made or paid on or in respect of the Common Shares after Admission.

The Open Offer will result in 20,444,550 New Common Shares being issued (representing approximately 50 per cent. of the Enlarged Share Capital).

Application will be made to the FCA for the New Common Shares proposed to be issued in connection with the Open Offer to be admitted to the premium listing segment of the Official List and to the London Stock Exchange for the New Common Shares to be admitted to trading on its Main Market for listed securities. It is expected that Admission will become effective, and that dealings in the New Common Shares will commence, at 8.00 a.m. on 3 February 2020 at which time it is also expected that the Depository Interests representing New Common Shares to be held in uncertificated form will be enabled for settlement in CREST. Upon Admission, the New Common Shares will trade in the Company's new restricted line of Common Shares under the symbol QRTR, and the New Common Shares, as represented by Depository Interests, will be held in the CREST system and will be segregated into a separate trading system within CREST identified with the marker "REG S" and ISIN USU748092009. The Company also maintains an unrestricted line of Common Shares trading under the existing symbol QRT and ISIN US74772E1001.

As at the Latest Practicable Date, the Lau Parties currently hold, in aggregate, such number of Common Shares as give them control of 33.63 per cent. of the Existing Common Shares and the Giunti Parties currently hold such number of Common Shares to give them control of 4.87 per cent. of the Existing Common Shares.  If no Qualifying Shareholders (other than the Underwriters) take up their Open Offer Entitlements, the Underwriters will subscribe for all of the New Common Shares available pursuant to the Open Offer. This will result the Lau Parties, together, holding such number of Common Shares so as to give them control of 49.25 per cent. of the Enlarged Share Capital and the Giunti Parties holding, together, such number of Common Shares so as to give them control of 20 per cent. of the Enlarged Share Capital following Admission. This could result in a failure by the Company to comply with the free float requirement under Listing Rule 6.14 that 25 per cent. of the Company's Common Shares must be held in public hands which could lead to a suspension or cancellation of the listing of Common Shares on the premium segment of the Main Market of the London Stock Exchange.

Common Shares held by Directors or their connection persons or persons who hold five per cent. or more of the Common Shares and non-EEA Shareholders are not regarded as shares held in public hands under the Listing Rules. Failure to comply with the Listing Rule 6.14 without a derogation from the FCA, could result in the FCA either suspending or cancelling the listing of the Common Shares on the premium segment of the Main Market of the London Stock Exchange.

The Company has been in discussions with the FCA regarding these matters and to counteract the risk that the FCA may suspend or cancel the listing of the Common Shares after Admission, Mr Lau has undertaken to the Company to use reasonable endeavours to sell such number of Common Shares as will result in the Company satisfying the Listing Rules' free float requirement of 25 per cent. up to a maximum number of all of the Common Shares held by him following Admission, and to the extent he is unable to sell such Common Shares, to gift such Common Shares as is required to satisfy the Listing Rules' free float requirement to an unrelated third party by not later than the date which falls six months immediately following the date of Admission. Where the number of Common Shares sold or gifted by Mr Lau is insufficient to meet the Listing Rules' free float requirement, 1010 Printing has undertaken to the Company to use reasonable endeavours to sell and/or to gift for nil consideration such number of Common Shares that it holds to an unrelated third party as required to satisfy the Listing Rules free float requirement up to a maximum of 1,540,514 Common Shares by not later than the date which falls six months following the date of Admission.

Depending on the results of the Open Offer and whether the Company no longer satisfies the Listing Rules' free float requirement, the Company intends to apply to the FCA, at the appropriate time, for a derogation in respect of the free float requirement on the basis of the Lau Parties' undertaking to either sell and/or gift such number of Common Shares within six months of Admission so as to ensure that the free float requirement is satisfied.

In the event that other Shareholders (except for the Lau Parties and the Giunti Parties) elect not to take up their Open Offer Entitlements, the Lau Parties and the Giunti Parties could end up subscribing for all of the New Common Shares pursuant to their Open Offer Entitlements and the terms of the Underwriting Agreements which would result in the Lau Parties, together, holding such number of Common Shares as to give them control of 49.25 per cent. of the Enlarged Share Capital. In addition if Herald Investment Management participates in the Open Offer to the maximum extent possible, but no other Qualifying Shareholders (except for the Underwriters) participate in the Open Offer, the resultant free float of the Company would be approximately 13.7 per cent. (based on the latest information available to the Company). As a result, the Lau Parties' interests in the voting capital of the Company may permit them to effect certain transactions without other Shareholders' support, or delay or prevent certain transactions that are in the interests of other Shareholders including amending the Company's Certificate of Incorporation and the By-laws.

For further details of significant shareholders and their holdings in the Company and Underwriting Agreements, see paragraph 5.2 ("Significant Shareholders") and paragraph 7.1.11 ("Underwriting Agreements") of Part 15 ("Additional Information") of the Prospectus.

Effect of the Open Offer

Upon Admission the Enlarged Share Capital will comprise 40,889,100 Common Shares. The New Common Shares will represent approximately 50 per cent. of the Enlarged Share Capital and the Existing Common Shares will represent approximately 50 per cent. of the Enlarged Share Capital.

Where no Shareholders (other than the Underwriters) take up their Open Offer Entitlements, then all of the New Common Shares offered pursuant to the terms of the Open Offer will be subscribed for by the Underwriters by way of each of them taking up their Open Offer Entitlements in full and, in the case of each Underwriter, pursuant to the terms of the Underwriting Agreements. Therefore, following completion of the Open Offer, 49.25 per cent. of the Enlarged Share Capital will be held or controlled by the Lau Parties and 20 per cent. of the Enlarged Share Capital will be held by the Giunti Parties. As the Company is incorporated under the laws of and its registered office is located in the State of Delaware, United States of America, it is not subject to the City Code. Accordingly, the mandatory bid provisions of the City Code do not apply to the Company.

US Securities Law Restrictions

The New Common Shares have not been, and will not be, registered under the Securities Act or under any securities laws of any state or other jurisdiction of the United States. The New Common Shares will be offered and sold only to non-U.S. Persons in "offshore transactions" as defined in and pursuant to Regulation S or otherwise in transactions that are exempt from, or not subject to, the registration requirements of the Securities Act.

The New Common Shares offered in "offshore transactions" (as defined in Regulation S) to non-U.S. Persons in the Open Offer will be subject to the conditions listed under Rule 903(b)(3), or Category 3, of Regulation S. Under Category 3, "offering restrictions" (as defined in Regulation S) must be in place in connection with the Open Offer and additional restrictions are imposed on resales of the New Common Shares. Further details of these restrictions are set out in Part 17 ("U.S. Restrictions on the Transfer of New Common Shares") of the Prospectus. The New Common Shares will be "restricted securities" as defined in Rule 144 under the Securities Act. Purchasers of the New Common Shares may not offer, sell, pledge or otherwise transfer New Common Shares, directly or indirectly, in or into the United States or to, or for the account or benefit of, any U.S. Person, except pursuant to a transaction meeting the requirements of Rules 901 to 905 (including the Preliminary Notes) of Regulation S, pursuant to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act. All New Common Shares sold to non-U.S. Persons in "offshore transactions" (as defined in Regulation S) in the Open Offer will be subject to these restrictions until the expiration of the Distribution Compliance Period. These restrictions may remain in place or be reintroduced in relation to the New Common Shares following expiry of the Distribution Compliance Period, at the discretion of the Company, such as in the event the Company issues additional Common Shares under the same ISIN as the New Common Shares. Hedging transactions in the New Common Shares may not be conducted, directly or indirectly, unless in compliance with the Securities Act.

The New Common Shares held in CREST and the New Common Shares held in certificated form will bear a legend (electronically in the case of the former), inter alia, describing the restrictions on transfer thereof and prohibiting hedging transactions in the New Common Shares unless in compliance with the Securities Act.

Each purchaser of New Common Shares, by agreeing to purchase such New Common Shares, agrees to reoffer or resell the New Common Shares only pursuant to registration under the Securities Act and qualification under applicable U.S. state securities laws or in accordance with the provisions of Regulation S or pursuant to another available exemption from registration, and agrees not to engage in hedging transactions with regard to such securities unless in compliance with the Securities Act. Representations, warranties, certifications, acknowledgements, agreements and covenants must be made through the CREST system by those acquiring the New Common Shares (represented by the Depository Interests). If such representations, warranties, certifications, acknowledgements, agreements and covenants cannot be made or are not made, settlement through CREST will be rejected.

Furthermore, New Common Shares held by Affiliates of the Company, U.S. Persons or for the account or benefit of U.S. Persons will be held in certificated form and settlement will not be permitted via CREST until such time as the relevant restrictions are no longer applicable.

The above restrictions may severely restrict purchasers of New Common Shares from reselling the New Common Shares.

Subject to various conditions including, among others, the availability of current information regarding the Company, applicable holding periods and volume and manner of sale restrictions, Rule 144 may be available for U.S. resales of New Common Shares by Affiliates of the Company. Affiliates of the Company at the time of the Open Offer, or investors that become Affiliates at any time after the Open Offer, should seek independent U.S. legal counsel prior to selling or transferring any New Common Shares.

Prospectus and Circular

Both the Prospectus containing full details of the Open Offer and the Circular containing the Notice of Special Meeting convening the Special Meeting in connection with the consideration and approval of the Resolutions are expected to be, subject to certain access restrictions, made available on Quarto's website (http://www.quarto.com) later today.

The Prospectus will be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/nsm following publication.

The preceding summary should be read in conjunction with the full text of the following announcement and its appendices, together with the Prospectus and Circular. Capitalised terms used in this announcement shall have the meanings set out in the Appendix.

For further information, please contact:

The Quarto Group Inc.

 

Michael Clarke, Chief Administrative Officer

+44 (0)20 7700 9006

 

 

finnCap Ltd (Sponsor to Quarto)

Matt Goode, Anthony Adams, Max Bullen-Smith

+44 (0)20 7220 0500

 

About The Quarto Group

The Quarto Group (LSE: QRT) creates a wide variety of books and intellectual property products, with a mission to inspire life's experiences. Produced in many formats for adults, children and the whole family, our products are visually appealing, information rich and stimulating.

The Group encompasses a diverse portfolio of imprints and businesses that are creatively independent and expert in developing long-lasting content across specific niches of interest.

Quarto sells and distributes its products globally in over 50 countries and 40 languages, through a variety of sales channels, partnerships and routes to market.

Quarto employs c.330 talented people in the US and the UK. The group was founded in London in 1976. It is domiciled in the US and listed on the London Stock Exchange. 

For more information, visit quarto.com or follow us on Twitter at @TheQuartoGroup.

The information contained within this announcement is deemed by the Company to constitute inside information as stipulated under the Market Abuse Regulation (596/2014) ("MAR"). Upon the publication of this announcement via Regulatory Information Service ("RIS"), this inside information is now considered to be in the public domain.

IMPORTANT NOTICE:

This announcement has been issued by and is the sole responsibility of the Company. This announcement is an advertisement for the purposes of the Prospectus Regulation Rules and does not constitute a prospectus and investors should not acquire any New Common Shares referred to in this announcement except on the basis of the information contained in the Prospectus to be published by the Company in connection with the Open Offer. The information contained in this announcement is for background purposes only and does not purport to be full or complete. No reliance may or should be placed by any person for any purpose whatsoever on the information contained in this announcement or on its accuracy or completeness. The information in this announcement is subject to change.

Copies of the Prospectus and the Circular when published will, subject to certain access restrictions, be available for inspection from the principal place of business of the Company at The Old Brewery, 6 Blundell Street, London, N7 9BH and on the Company's website at www.quarto.com. Neither the content of Quarto's website nor any website accessible by hyperlinks on Quarto's website is incorporated in, or forms part of, this announcement.  The Prospectus provides further details of the New Common Shares being offered pursuant to the Open Offer.

This announcement is for information purposes only and is not intended to and does not constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for New Common Shares in any jurisdiction. No offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for Common Shares will be made in any jurisdiction in which such an offer or solicitation is unlawful. The information contained in this announcement is not for release, publication or distribution to U.S. Persons or persons in Excluded Territories, and should not be distributed, forwarded to or transmitted in or into or from any jurisdiction, where to do so might constitute a violation of local securities laws or regulations.

This announcement is not for release, publication or distribution, directly or indirectly, in or into or from the United States. This announcement is not an offer of securities for sale in the United States. The New Common Shares have not been and will not be registered under the Securities Act or under any securities laws of any state or other jurisdiction of the United States and may not be offered, sold, taken up, exercised, resold, renounced, transferred or delivered, directly or indirectly, within the United States, or offered, sold, taken up, exercised, resold, renounced, transferred or delivered to, or for the account or benefit of, U.S. Persons, except pursuant to an applicable exemption from or in a transaction not subject to the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. Hedging transactions in the New Common Shares may not be conducted, directly or indirectly, unless in compliance with the Securities Act. No public offering of securities is being made in the United States. No money, securities or other consideration from any person in the United States is being solicited and, if sent in response to the information contained in this announcement, will not be accepted.

The New Common Shares have not been and will not be registered under the applicable securities laws of any of the Excluded Territories and, subject to certain limited exceptions, the New Common Shares may not be offered or sold in the Excluded Territories or to, or for the account or benefit of, any U.S. Person or resident of the Excluded Territories. There will be no public offer of securities in the Excluded Territories.

The distribution of this announcement into jurisdictions other than the United Kingdom may be restricted by law, and, therefore, persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain limited exceptions, this announcement, the Prospectus (once published) and the Application Forms (once printed) should not be distributed, forwarded to or transmitted in or into or from the United States or any other Excluded Territory.

This announcement does not constitute a recommendation concerning any investor's options with respect to the Open Offer. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.

This announcement contains forward-looking statements that are based on current expectations or beliefs, as well as assumptions about future events. These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "will", "may", "should", "would", "could", "is confident", or other words of similar meaning. Undue reliance should not be placed on any such statements because they speak only as at the date of this announcement and, by their very nature, they are subject to known and unknown risks and uncertainties and can be affected by other factors that could cause actual results, and Quarto's plans and objectives, to differ materially from those expressed or implied in the forward-looking statements.

There are a number of factors which could cause actual results to differ materially from those expressed or implied in forward-looking statements. Among the factors that could cause actual results to differ materially from those described in the forward-looking statements are: increased competition, the loss of or damage to one or more key customer relationships, changes to customer ordering patterns, delays in obtaining customer approvals for engineering or price level changes, the failure of one or more key suppliers, the outcome of business or industry restructuring, the outcome of any litigation, changes in economic conditions, currency fluctuations, changes in interest and tax rates, changes in raw material or energy market prices, changes in laws, regulations or regulatory policies, developments in legal or public policy doctrines, technological developments, the failure to retain key management, or the key timing and success of future acquisition opportunities or major investment and research and development projects.

Neither the Company nor finnCap are under any obligation to update or revise publicly any forward-looking statement contained within this announcement, whether as a result of new information, future events or otherwise, other than in accordance with their legal or regulatory obligations (including under the Listing Rules, the Disclosure Guidance and Transparency Rules and the Prospectus Rules).

Notice to all investors

finnCap Ltd ("finnCap") is authorised and regulated by the FCA in the United Kingdom, is acting exclusively as sponsor for the Company and no one else in connection with the Open Offer and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Open Offer and other arrangements referred to in this announcement and will not be responsible to anyone other than the Company for providing the protections afforded to its clients nor for giving advice in relation to the Open Offer or any transaction or arrangement referred to in the Prospectus.

Apart from the responsibilities and liabilities, if any, which may be imposed on finnCap by the FSMA or the regulatory regime established thereunder, or under the regulatory regime of any jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, finnCap, nor any of its affiliates, directors, officers, employees or advisers, accepts any responsibility whatsoever for, or makes any representation or warranty, express or implied, as to, the contents of this announcement, including its accuracy, completeness or verification, or for any other statement made or purported to be made by it, or on its behalf, by the Company, the Directors or any other person, in connection with the Company or the Common Shares or the Open Offer and nothing contained in the announcement is or shall be relied upon as a promise or representation in this respect, whether as to the past or future. finnCap and each of its affiliates each accordingly disclaims all and any liability whether arising in tort, contract or otherwise which they might otherwise have in respect of this announcement or any such statement. No representation or warranty express or implied, is made by finnCap or any of its affiliates as to the accuracy, completeness or sufficiency of the information set out in the Prospectus.

No person has been authorised to give any information or to make any representations other than those contained in this announcement, the Prospectus, Circular and Application Forms, and, if given or made, such information or representations must not be relied on as having been authorised by Quarto or finnCap. Subject to the Listing Rules, the Prospectus Rules and the Transparency Rules of the Financial Conduct Authority and the Disclosure Requirements (as such term is defined in the Listing Rules), the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of Quarto since the date of this announcement or that the information in it is correct as at any subsequent date.

Information to Distributors

Solely for the purposes of the product governance requirements contained within: (a) EU Directive 2014/65/EU on markets in financial instruments, as amended (MiFID II); (b) Articles 9 and 10 of Commission Delegated Directive (EU) 2017/593 supplementing MiFID II; and (c) local implementing measures (together, MiFID II Product Governance Requirements), and disclaiming all and any liability, whether arising in tort, contract or otherwise, which any "manufacturer" (for the purposes of the MiFID II Product Governance Requirements) may otherwise have with respect thereto, the New Common Shares to be issued in the Open Offer have been subject to a product approval process, which has determined that the New Common Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II (Target Market Assessment). Notwithstanding the Target Market Assessment, distributors should note that: the price of the New Common Shares may decline and investors could lose all or part of their investment; the New Common Shares to be issued in the Open Offer provide no guaranteed income and no capital protection; and an investment in the New Common Shares to be issued in the Open Offer is compatible only with investors who do not need a guaranteed income or capital protection, who (either alone or in conjunction with an appropriate financial or other adviser) are capable of evaluating the merits and risks of such an investment and who have sufficient resources to be able to bear any losses that may result therefrom. The Target Market Assessment is without prejudice to the requirements of any contractual, legal or regulatory selling restrictions in relation to the Open Offer. Furthermore, it is noted that, notwithstanding the Target Market Assessment, the Sponsor will only procure investors who meet the criteria of professional clients and eligible counterparties.

For the avoidance of doubt, the Target Market Assessment does not constitute: (a) an assessment of suitability or appropriateness for the purposes of MiFID II; or (b) a recommendation to any investor or group of investors to invest in, or purchase, or take any other action whatsoever with respect to, the New Common Shares. Each distributor is responsible for undertaking its own Target Market Assessment in respect of the New Common Shares and determining appropriate distribution channels.

 

 

APPENDIX

 

 

Further information in relation to the Company and the Open Offer

Group Operations

The Group has a creative portfolio of imprints and develops content across a broad range of subject matters. The Group publishes appealing, information-rich books and products over various formats for a wide range of audiences. The Group has an international operation covering markets in 50 countries across the Americas, Europe and Asia.

In the six month period to 30 June 2019, the Group announced revenue of $56.4 million and adjusted operating loss of $1.2 million, down 75 per cent. from the six months ended 30 June 2018. The Group also announced that its net debt totalled approximately $65 million as at 30 June 2019 compared to $73.2 million as at 30 June 2018.

The vast majority of the titles which the Group publishes are printed in China by third party printers. The US is a large consumer market for the Group's business with 65.2 per cent. of the Group's revenue being generated in the US for the six months ended 30 June 2019 (and 57.7 per cent. for the financial year ended 31 December 2018). Import tariffs of 15 per cent. have recently been imposed on books that are imported from China to the US, for sale to US customers including books published by the Group.

Following Admission, the Company will continue to focus on its core business strengths of creating and developing popular and diverse content for its portfolio of imprints with a view to growing the Group and continuing to manage its debt.

Directors' participation in the Open Offer

 

Each of the Directors is supportive of the Open Offer.  Mr Lau has committed to subscribing for his Open Offer Entitlement.  Mr Fund has expressed an interest in doing so, subject to meeting the applicable regulatory requirements, although has not formally committed.

The Lau Underwriter (a subsidiary of Lion Rock, an entity ultimately controlled by Mr Lau and of which Ms Lam is a director and shareholder), has entered into the Lau Underwriting Agreement pursuant to which the Lau Underwriter has agreed to underwrite part of the Open Offer. Under the terms of the Lau Underwriting Agreement, the Lau Underwriter will subscribe for any outstanding New Common Shares that are not taken up by any Qualifying Shareholder under their Open Offer Entitlement or by way of the Excess Application Facility or by Giunti pursuant to the terms of the Giunti Underwriting Agreement. For further information, please see paragraph 7.1.11 ("Underwriting Agreements") of Part 15 ("Additional Information") of the Prospectus.

Recommendation

Given that Mr Fund, Ms Lam, Mr Lau and Mr Mousley may have interests in the Open Offer that are different from, or in addition to, the interests of Shareholders generally, the Board formed the Independent Committee, which consists solely of Independent Directors, to, among other things, review, evaluate, negotiate and determine the terms of the Open Offer, determine whether the Open Offer is in the best interests of the Company and the Shareholders and make determinations and/or recommendations to the Board regarding the Open Offer.

The Board and the Independent Committee have separately considered, and each believes that, the Open Offer is in the best interests of the Company and Shareholders as a whole and unanimously supports the Open Offer. Accordingly, the Board and the Independent Committee will unanimously recommend in the Circular that Shareholders vote in favour of both of the Resolutions to be proposed at the Special Meeting as set out in the Circular, as they (other than Mr Mousley) intend to do so in respect of their own beneficial entitlement. The Independent Committee and the Board were aware of and considered the interests of Mr Fund, Ms Lam, Mr Lau and Mr Mousley in the Open Offer referenced above, to the extent such interests existed at the time, in evaluating the Open Offer, determining that the Open Offer is in the best interests of the Company and Shareholders as a whole and recommending that Shareholders vote in favour of all of the Resolutions to be proposed at the Special Meeting.

No significant change

There has been no significant change in the financial or trading position of the Group since 30 June 2019, being the date to which the latest financial information of the Group set out in Part 14 ("Historical Financial Information") of the Prospectus was prepared.
 

EXPECTED TIMETABLE OF PRINCIPAL EVENTS AND OFFER STATISTICS

The times and dates set out in the expected timetable of key events below, and mentioned throughout this announcement, the Prospectus, the Application Form and any other document issued in connection with the Open Offer, are subject to change, and may be adjusted by the Company in consultation with the Sponsor. The timetable below also assumes that the Resolutions are all passed at the Special Meeting without adjournment or postponement. In the event of any significant changes from the below expected timetable, details of the new times and dates will be notified to the London Stock Exchange and, where appropriate, Qualifying Shareholders.

If you have any queries on the procedures for application under the Open Offer, you should contact Link Asset Services on +44 (0) 371 664 0321. Calls are charged at the standard geographic rate and will vary by provider. Calls outside the United Kingdom will be charged at the applicable international rate. The helpline is open between 9.00 a.m. - 5.30 p.m., Monday to Friday excluding public holidays in England and Wales. Please note that Link Asset Services cannot provide any financial, legal or tax advice and calls may be recorded and monitored for security and training purposes.

References to times in this announcement are to London time unless otherwise stated.

Record Date for entitlements under the Open Offer                Close of business on 15 January 2020

Announcement of the Open Offer                                                                              16 January 2020

Publication of the Prospectus and the Circular                                                          16 January 2020

Ex-entitlement date for the Open Offer                                                                      16 January 2020

Posting of the Application Form to Qualifying Non-CREST                                       16 January 2020

Shareholders(1) and the Circular and Forms of Proxy

Open Offer Entitlements and Excess Open Offer Entitlements                      as soon as possible after

enabled in CREST and credited to stock accounts of Qualifying            8.00 a.m. on 17 January 2020

CREST Shareholders(1) in CREST

Recommended latest time and date for requesting withdrawal of           4.30 p.m. on 27 January 2020

Open Offer Entitlements and Excess Open Offer Entitlements from
CREST
(2 )

Latest time and date for depositing Open Offer Entitlements and            3.00 p.m. on 28 January 2020

Excess Open Offer Entitlements into CREST(2) 

Latest time and date for splitting of Application Forms                           3.00 p.m. on 29 January 2020

(to satisfy bona fide market claims only)(2) 

Latest time and date for receipt of Forms of Proxy for use at the            7.30 a.m. on 29 January 2020

Special Meeting

Latest time and date for receipt of completed Application             11.00 a.m. on 31 January 2020

settlement Forms and payment in full under the Open Offer or of relevant CREST instruction (as appropriate)

Special Meeting                                                                                  9.30 a.m. on 31 January 2020

Announcement of the results of the Special Meeting                                                  31 January 2020

Announcement of the results of the Open Offer                                                          3 February 2020

Admission and commencement of dealings in New Common

Shares                                                                                                   8.00 a.m. on 3 February 2020

CREST Members' accounts credited in respect of New Common                  as soon as possible after

Shares in uncertificated form                                                                   8.00 a.m. on 3 February 2020

Despatch of definitive share certificates for New Common Shares                          Within 10 Business

in certificated form(3)                                                                                                 Days of Admission

Notes:

(1)       The ability to participate in the Open Offer is subject to certain restrictions relating to Shareholders who are U.S. Persons (or who are acting for the account or benefit of a U.S. Person) or with registered addresses, or who are citizens or resident, outside the United Kingdom, details of which are set out in Part 8 ("Terms and Conditions of the Open Offer") of the Prospectus.

(2)       Different deadlines and procedures for applications may apply in certain cases. For example, if you hold your Existing Common Shares through a CREST Member or other nominee, that person may set an earlier date for application and payment than the dates noted above.

(3)       Temporary documents of title will not be issued.

 

OPEN OFFER STATISTICS

 

Closing price of Existing Common Shares(1)                                                                         75.5 pence

Issue Price per New Common Share                                                                                     68.0 pence

Discount of Issue Price to closing price(1)                                                                            9.9 per cent.

Open Offer Entitlement                                                                                         1 New Common Share

for every 1 Existing
Common Share(2)
 

Number of Existing Common Shares in issue as at 15 January 2020,                                  20,444,550

being the Latest Practicable Date

Number of New Common Shares to be issued pursuant to the Open Offer                          20,444,550

Number of Common Shares in issue immediately upon completion of the                           40,889,100

Open Offer(3) 

New Common Shares as a percentage of the Enlarged Share Capital                                50 per cent.

Estimated gross proceeds of the Open Offer                                                                      £13,902,294

Estimated net proceeds of the Open Offer receivable by the Company                             £12,752,294

after expenses

Expected market capitalisation of the Company at the Issue                                             £27,804,588

Price upon Admission

Notes:

(1)       The closing price on the London Stock Exchange's Main Market for listed securities at the Latest Practicable Date.

(2)       Fractions of New Common Shares will not be allotted to Shareholders in the Open Offer and fractional entitlements under the Open Offer will be rounded down to the nearest whole number of New Common Shares.

(3)       On the assumption of completion of the Open Offer.

 

 

 

 

DEFINITIONS AND GLOSSARY

Definitions from the Prospectus

The following definitions apply throughout this announcement unless the context requires otherwise

1010 Printing                                   1010 Printing Limited, a private limited company incorporated under the laws of Hong Kong with registered number 1419686, whose registered office is at 625 King's Road, 26th Floor, North Point, Hong Kong, a Shareholder of the Company

2017 Amended Credit Agreement     a supplemental agreement dated 22 December 2017 pursuant to which the Original Credit Agreement was further amended and restated, as more fully described in paragraph 7.1.3 ("2018 Facilities Agreement") of Part 15 ("Additional Information") of the Prospectus

2018 Annual General Meeting           the annual general meeting of the Company held on 15 August 2018

2018 Annual Report                         the Company's annual report and accounts for the year ended 31 December 2018

2018 Facilities Agreement                a supplemental agreement to the 2017 Amended Credit Agreement dated 31 October 2018 between, among others, the Company and the Syndicate pursuant to which the 2017 Amended Credit Agreement was further amended and restated, as more fully described in paragraph 7.1.3 ("2018 Facilities Agreement") of Part 15 ("Additional Information") of the Prospectus

2019 H1 Results Announcement      the Group's results and unaudited accounts for the six months ended 30 June 2019

Admission                                        admission of the New Common Shares:

(1)      to the premium segment of the official list of the FCA becoming effective in accordance with the Listing Rules; and

(2)      to trading on the London Stock Exchange's main market for listed securities becoming effective in accordance with the Admission and Disclosure Standards

Affiliate                                             an affiliate (as defined in Rule 405 under the Securities Act)

Amended Facilities Agreement        a supplemental agreement to the 2018 Facilities Agreement dated 16 January 2019 between, among others, the Company and the Syndicate pursuant to which the 2018 Amended Facilities Agreement was further amended and restated as more fully described in paragraph 7.1.8 ("Amended Facilities Agreement") of Part 15 ("Additional Information") of the Prospectus

Annual Exemption                            the level of the annual allowance of tax-free gains in the UK tax year

Application Form                            the application form accompanying the Prospectus on which Qualifying Non-CREST Shareholders who are registered on the stock ledger of the Company at the Record Date may apply for New Common Shares under the Open Offer

Audit Committee                               the audit committee of the Board, as constituted from time to time

Board                                               the board of directors of the Company from time to time

Brexit                                              the United Kingdom's proposed exit from the European Union

Business Day                                  a day (other than Saturday, Sunday or a public holiday) on which banks are generally open for business in the City of London for the transaction of normal banking business

By-laws                                           the existing by-laws of the Company as amended from time to time

certificated or certificated form        recorded on the relevant register of the share or security concerned as being held in certificated form in physical paper (that is, not in CREST)

Chairman                                        Andy Cumming

CEO or Chief Executive Officer        Chuk Kin Lau, a Director and Shareholder of the Company with

or Mr Lau                                        business address at 625 King's Road, 26th Floor, North Point, Hong Kong

Certificate of Incorporation              the existing certificate of incorporation of the Company as amended from time to time

Chief Financial Officer or CFO         Walter Nolan

Circular                                           the circular to be sent to Shareholders including the Notice of Special Meeting on or around the date of the Prospectus

City Code                                        the City Code on Takeovers and Mergers

Common Shares                             shares of common stock of the Company, with a par value of $0.10 each

Companies Act                                the Companies Act 2006, as amended

Company or Quarto                         The Quarto Group Inc., a Delaware corporation with registered number 2104160

CREST                                            the electronic transfer and settlement system for the paperless settlement of trades in listed securities operated by Euroclear

CREST Member                               a person who has been admitted to Euroclear as a system-member (as defined in the CREST Regulations)

CREST Regulations                         the Uncertificated Securities Regulations 2001 (SI 2001 No. 01/378)

CREST Sponsor                              a CREST participant admitted to CREST as a CREST Sponsor

CREST Sponsored Member             a CREST Member admitted to CREST as a sponsored member

Depository                                       Link Market Services Trustees Limited

Depository Interests                        dematerialised depository interests representing underlying Common Shares that can be settled electronically through and held in CREST, as issued by the Depository or its nominees who hold the underlying securities on trust

Directors                                         the Executive Directors and Non-Executive Directors of the Company

Disclosure Guidance and                the disclosure guidance and transparency rules of the FCA, as

Transparency Rules                         amended from time to time

Distribution Compliance Period      the period during which New Common Shares offered in "offshore transactions" (as defined in Regulation S) to non-U.S. Persons pursuant to Regulation S are subject to the conditions listed under Rule 903(b)(3) of Regulation S, or such longer period as may be required under applicable law or as determined by the Company, being until at least the expiry of one year after the later of (i) the time when the New Common Shares are first offered to persons other than Distributors in reliance upon Regulation S and (ii) the date of closing of the Open Offer

Distributor                                       a distributor (as defined in Rule 902(d) of Regulation S)

EBITDA                                           earnings before interest, tax, depreciation and amortisation

Enlarged Share Capital                    the Common Shares of the Company that will be in issue following completion of the Open Offer, comprising the Existing Common Shares and the New Common Shares

Euroclear                                        Euroclear UK and Ireland Limited, the operator (as defined in the CREST Regulations) of CREST

European Economic Area or EEA   the European Union, Iceland, Norway and Liechtenstein

European Union or EU                    an economic and political union of 28 member states which are located in Europe

Excluded Territories                        Australia, Canada, Japan, South Africa, the United States (subject to certain limited exceptions) and any other jurisdiction where the offer, sale or advertisement of the New Common Shares (or any other transaction contemplated by the Open Offer) would breach applicable law or regulation and Excluded Territory means any one of them

Excess Application Facility             the arrangement pursuant to which Qualifying Shareholders may apply for any number of New Common Shares in excess of their Open Offer Entitlement provided that they have agreed to take up their Open Offer Entitlement in full

Excess Open Offer Entitlement        in respect of each Qualifying CREST Shareholder, the entitlement (in addition to his or its Open Offer Entitlement) to apply for New Common Shares pursuant to the Excess Application Facility, which is conditional on him or it taking up his or its Open Offer Entitlement in full

Excess Shares                                 New Common Shares which may be applied for by Qualifying Shareholders in addition to their Open Offer Entitlements pursuant to the Excess Application Facility

Excluded Territory Shareholder       any Shareholder from an Excluded Territory

Executive Directors                         Chuk Kin Lau and Ken Fund

Existing Common Shares                the 20,444,550 Common Shares in issue as at the Latest Practicable Date

FCA                                                 the UK Financial Conduct Authority

Form of Proxy                                 the form of proxy for use at the Special Meeting

FSMA                                              the UK Financial Services and Markets Act 2000, as amended

GDP                                                gross domestic product

Grant Thornton                             Grant Thornton UK LLP, auditor to the Company of 30 Finsbury Square, London EC2A 1AG

Group                                             the Company and its subsidiaries

Giunti                                             MONTECRISTO 2019 S.r.l., a private limited company incorporated under the laws of Italy with registered number IVA 06943970480, whose registered office is at Via Bolognese, 16550139, Firenze, Italy

Giunti Parties                                Sergio Giunti and Andrea Giunti Lombardo (shareholders of the Company) along with Giunti (an entity, ultimately controlled by Sergio Giunti and Andrea Giunti Lombardo)

Giunti Underwriting Agreement  the underwriting agreement between the Giunti Parties and the Company dated 16 January 2020 as more fully described in paragraph 7.1.11 ("Underwriting Agreements") of Part 15 ("Additional Information") of the Prospectus

H1 2018                                          the six months period ended 30 June 2018

Historical Financial Information  the Group's audited consolidated financial statements for the year ended 31 December 2018 (prepared in accordance with IFRS as adopted by the European Union) and the Group's results and unaudited accounts for the six months ended 30 June 2019

HMRC                                             Her Majesty's Revenue and Customs

HMT                                                Her Majesty's Treasury

IFRS                                               International Financial Reporting Standards

imprints                                         the individual creative division that produces books

Independent Committee              the committee of Independent Non-Executive Directors formed, inter alia, to review, evaluate, negotiate and determine the terms of the Open Offer

Independent Non-Executive        Andy Cumming and Jane Moriarty
Directors

ISIN                                                 International Securities Identification Number

Issue Price                                     68 pence per New Common Share

Latest Practicable Date                15 January 2020, being the latest practicable date prior to publication of the Prospectus

Lau Parties                                    Mr Lau along with Lion Rock and 1010 Printing, entities ultimately controlled by Mr Lau

Lau Underwriter                            1010 Printing

Lau Underwriting Agreement      the underwriting agreement between the Lau Underwriter and the Company dated 16 January 2020 as more fully described in paragraph 7.1.11 ("Underwriting Agreements") of Part 15 ("Additional Information") of the Prospectus

LEI                                                  legal entity identifier

LIBOR                                             London Interbank Offered Rate

Link Asset Services                         a trading name of Link Market Services Limited

Lion Rock                                        Lion Rock Group Limited, a limited company incorporated under the laws of Bermuda with registered number F0018460, whose registered office is at 625 King's Road, 26th Floor, North Point, Hong Kong, sole shareholder of 1010 Printing

Listing Rules                                   the listing rules made by the FCA pursuant to Part VI of FSMA

London Stock Exchange                 London Stock Exchange plc

Main Market                                     the main market for listed securities of the London Stock Exchange

Market Abuse Regulation                 Regulation (EU) No. 596/2014 of the European Parliament and the Council of 16 April 2014 on market abuse

Member State                                  member state of the EU

MiFID II                                           EU Directive 2014/65/EU on markets in financial instruments, as amended

MiFID II Product Governance           MiFID II together with (i) Articles 9 and 10 of Commission Delegated

Requirements                                  Directive (EU) 2017/593 supplementing MiFID II; and (ii) local implementing measures

Money Laundering Regulations       Money Laundering Regulations 2017

New Common Shares                      the 20,444,550 new Common Shares to be issued and allotted by the Company pursuant to the Open Offer or the Underwriting Agreements

Nil Rate Amount                              a nil rate of income tax will apply for the first £2,000 of dividend income received by individual Shareholders in a tax year

Nominations Committee                  the nominations committee of the Board, as constituted from time to time

Non-Executive Directors                  Andy Cumming, Jane Moriarty, Mei Lan Lam and Michael Mousley

Notice of Special Meeting                the notice convening the Special Meeting in the form appended to the Circular

Official List                                      the Official List maintained by the FCA

Open Offer                                       the offer to Qualifying Shareholders, constituting an invitation to apply for the New Common Shares at the Issue Price and on the terms and subject to the conditions set out in the Prospectus, and in the case of Qualifying Non-CREST Shareholders, the Application Form

Open Offer Entitlement                    the pro rata entitlement of Qualifying Shareholders to subscribe for 1 New Common Share for every 1 Existing Common Share registered in their name as at the Record Date, on and subject to the terms of the Open Offer

Original Credit Agreement               a credit agreement dated 6 February 2015 between, among others, Quarto Publishing, the Company, certain other members of the Group, Abbey National Treasury Services PLC, Bank of America N.A., Fifth Third Bank and The Royal Bank of Scotland plc as original

 

lenders, RBS as agent and Natwest Markets PLC as security agent, as more fully described in paragraph 7.1.3 ("2018 Facilities Agreement") of Part 15 ("Additional Information") of the Prospectus

Overseas Shareholders                   Shareholders with registered addresses outside the United Kingdom or who are citizens or residents of countries outside the United Kingdom

Panel                                               the Panel on Takeovers and Mergers established under the City Code

PCAOB Standards                           the standards of the Public Company Accounting Oversight Board

Prospectus                                      the prospectus to be published later today in connection with the Open Offer

Prospectus Regulation                    Regulation (EU) 2017/1129, as supplemented by the PR Regulation

Prospectus Regulation Rules          the Prospectus Regulation Rules Sourcebook published by the FCA pursuant to section 73A of FSMA

PR Regulation                                 Regulation (EU) 2019/980

Qualifying CREST Shareholders      Qualifying Shareholders holding Existing Common Shares in uncertificated form on the Record Date and who are not Affiliates of the Company, U.S. Persons or acting for the account or benefit of U.S. Persons

Qualifying Non-CREST                    Qualifying Shareholders holding Existing Common Shares in

Shareholders                                   certificated form on the Record Date or who are Affiliates of the Company, U.S. Persons or acting for the account or benefit of U.S. Persons

Qualifying Shareholders                  holders of Existing Common Shares on the stock ledger of the Company at the Record Date with the exclusion of, subject to certain limited exceptions, U.S. Persons, holders acting for the account or benefit of U.S. Persons and Overseas Shareholders with a registered address or resident in, or who are citizens of, any Excluded Territory

Receiving Agent                              Link Asset Services, a trading name of Link Market Services Limited

Record Date                                     close of business on 15 January 2020

Registrars                                        Link Asset Services

Regulation S                                   Regulation S under the Securities Act

Regulatory Information Service       one of the regulatory information services authorised by the FCA to receive, process and disseminate regulatory information from listed companies

Relationship Agreement                  the relationship agreement entered into on 3 December 2019 by 1010 Printing, Lion Rock, Mr Lau and the Company

Remuneration Committee                the remuneration committee of the Board, as constituted from time to time

Resolution 1                                    means the resolution number 1 to be proposed at the Special Meeting set out in the Notice of Special Meeting to amend the Certificate of Incorporation to increase the authorised Common Shares of the Company to 55,000,000 Common Shares

Resolution 2                                    means the resolution number 2 to be proposed at the Special Meeting set out in the Notice of Special Meeting to amend the

Company's By-laws such that the appointment or reappointment of any independent director of the Company must be approved by a resolution of both: (a) the Company's Shareholders; and (b) the Company's independent Shareholders (comprising Shareholders who do not constitute "controlling shareholders" for the purposes of the Listing Rules)

Resolutions                                     the resolutions to be proposed at the Special Meeting set out in the Notice of Special Meeting as described in paragraph 6 ("Resolutions, authorisations and approvals relating to the New Common Shares") of Part 7 ("Information Concerning the New Common Shares") of the Prospectus

Rule 144                                         Rule 144 under the Securities Act

SDRT                                              stamp duty reserve tax

SEC                                                the U.S. Securities and Exchange Commission

Securities Act                                the U.S. Securities Act of 1933, as amended

Senior Independent Director       Jane Moriarty

Senior Management                     Walter Nolan, Michael Clarke and Karine Marko

Shareholders                                 holders of Common Shares

Special Meeting                            the special meeting of the Shareholders of the Company to be held at the offices of finnCap Ltd at 60 New Broad Street, London EC2M 1JJ at 9.30 a.m. on 31 January 2020

Sponsor                                         finnCap Ltd, Sponsor to the Company, of 60 New Broad Street, London EC2M 1JJ

Sponsor Agreement                     the sponsor agreement between the Company and the Sponsor relating to the Open Offer dated 16 January 2020

Syndicate                                       Bank of America Corporation of 100 Federal Street, Boston, Massachusetts 02110 USA, Fifth Third Bank of 38 Fountain Square Plaza, MD 109055, Cincinnati OH 45263 USA, The Royal Bank of Scotland plc of 280 Bishopsgate, London, EC2M 4RB, UK and Santander UK plc of 2 Triton Square, Regent's Place, London, NW1 3AN

Target Market Assessment          a product approval process, which has determined that the New Common Shares are: (i) compatible with an end target market of retail investors and investors who meet the criteria of professional clients and eligible counterparties, each as defined in MiFID II; and (ii) eligible for distribution through all distribution channels as are permitted by MiFID II

Transparency Rules                     the transparency rules and corporate governance rules made by the FCA under Part VI of FSMA

U.S. GAAP                                      U.S. Generally Accepted Accounting Principles

U.S. GAAS                                      U.S. Generally Accepted Auditing Standards

U.S. Person                                    a U.S. person (as defined in Rule 902(k) of Regulation S)

UK Corporate Governance Code UK Corporate Governance Code, published by the Financial Reporting Council in July 2018

UK Listing Authority or UKLA     the FCA when it is exercising its powers under Part VI of FSMA

UKGS                                             UK Guarantees Scheme

Underwriters                                  the Lau Underwriter and the Giunti Parties

Underwriting                                 means the underwriting commitment of the Lau Underwriter and the Giunti Parties in respect of the Open Offer under the terms of the Underwriting Agreements

Underwriting Agreements            the Giunti Underwriting Agreement and the Lau Underwriting Agreement

uncertificated or                           a share or other security recorded on the relevant register of the

uncertificated form                       share or security concerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST

United Kingdom or UK                 the United Kingdom of Great Britain and Northern Ireland

United States or U.S. or US          the United States of America, its territories and possessions, any State of the United States and the District of Columbia

US$ or $ or U.S. Dollars                the lawful currency of the United States

VAT                                                value added tax


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