Somerset Entertainment Income Fund
TSX : SOM.UN

Somerset Entertainment Income Fund

November 18, 2005 09:41 ET

Somerset Entertainment Income Fund Prices $32,550,000 Offering of Subscription Receipts

TORONTO, ONTARIO--(CCNMatthews - Nov. 18, 2005) -

NOT FOR DISTRIBUTION TO U.S. WIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES

Somerset Entertainment Income Fund (TSX:SOM.UN) ("Somerset" or the "Fund") announced today that it has entered into an underwriting agreement with a syndicate of underwriters co-led by BMO Nesbitt Burns Inc., RBC Capital Markets and TD Securities Inc., and including CIBC World Markets Inc., Raymond James Ltd. and Westwind Partners Inc. for an offering (the "Offering") of 4.2 million subscription receipts (the "Subscription Receipts") at a price of $7.75 per Subscription Receipt, for total gross proceeds of $32,550,000. Entities controlled by Andy Burgess (Somerset's CEO) and Gordon Gibson (Somerset's Executive Producer) have agreed to purchase an aggregate of approximately $6 million of subscription receipts in the Offering. Closing of the Offering is anticipated to occur on or about December 13, 2005.

The Offering is being undertaken to finance the Fund's previously announced indirect acquisition (the "Acquisition") of the assets of Compass Productions, Inc. ("Compass"), which will solidify Somerset's market position by combining North America's two leading producers and distributors of specialty music sold through non-traditional retailers using interactive displays. The preliminary prospectus relating to the Offering is available for viewing on the SEDAR website at www.sedar.com.

Based on the Offering price and size, the Fund's pro forma distributable cash per fully-diluted unit for the 12 months ended September 30, 2005 would have increased from $1.04 to $1.20 per unit, or 14.6%. These pro forma results exclude any potential synergies arising from the combination of the Somerset and Compass businesses. Somerset anticipates that it will increase its annual cash distribution by 5.3% to $1.00 per fully diluted unit from $0.95 commencing on the first distribution date following the first full month of operations of the combined business.

It is currently expected that the closing of the Acquisition will occur on the same date as the closing of the Offering, subject to satisfaction of various conditions and the receipt of all necessary regulatory approvals, including from the Toronto Stock Exchange. If the closing of the Acquisition occurs on the same date as the closing of the Offering, the Fund will deliver the underlying units (the "Units") on closing of the Offering instead of Subscription Receipts.

The units to be issued to Compass in connection with the Acquisition will be priced at $9.00. Under the terms of the Acquisition agreement, the number of units which could be issued to Compass will be:

- 218,900 units at the closing of the Acquisition; and

- up to 1,748,414 units in 2009, provided that the Compass business meets or exceeds certain cash flow targets in 2006, 2007 and 2008.

In addition, up to approximately 129,350 units may be issued to employees of Compass in 2009 if the Compass business meets or exceeds certain cash flow targets in 2006, 2007 and 2008



FINANCIAL HIGHLIGHTS

Unaudited pro forma financial results for the 12 months ended
September 30, 2005 (C$ millions, except as noted)

Somerset Pro Forma
-------- ---------
Revenue $70.4 $119.5
Adjusted EBITDA(1) $15.8 $29.6
Distributable Cash $14.0 $23.6
Distributable Cash Per Fully Diluted Unit(2)(3) $1.04 $1.20
---------------------------------------------------------------------
Accretion to Distributable Cash Per Fully
Diluted Unit 14.6%
---------------------------------------------------------------------
Cash Distribution Per Fully Diluted Unit $0.95 $1.00
Payout Ratio 91% 84%


1. EBITDA adjusted for non-recurring management and consulting fees paid by Somerset, non-recurring employee compensation expenses paid by Somerset and Compass, the application of Somerset's accounting policies to Compass' financial results and non-recurring financing costs paid by Somerset.

2. For the purposes of calculating pro forma distributable cash in Canadian dollars, it has been assumed the Fund would have had new foreign exchange forward contracts at an average rate of 1.1609.

3. Assumes the exchange of all Class B LP units into units, the completion of the Acquisition and related financing arrangements, and that all units issuable to Compass described above have been issued.

ABOUT SOMERSET ENTERTAINMENT INCOME FUND

Somerset is the leading North American producer and distributor of specialty music sold internationally through non-traditional retailers using interactive displays. Somerset's extensive distribution network includes mass merchants, specialty chains and independent gift stores in more than 20 countries, including the United States and Canada. Based in Toronto, Canada, Somerset employs over 125 people at offices in Toronto, Buffalo Grove, Illinois, U.S.A., and Essex, England.

ABOUT COMPASS PRODUCTIONS, INC.

Compass is a leading U.S. based producer and distributor of specialty music and compilations of original hit recordings sold through non-traditional retailers using interactive displays. It currently has over 8,000 interactive displays installed in approximately 4,500 predominantly mass merchant store locations. Compass' customers are among the largest retailers in the U.S. Compass is based in Minneapolis, Minnesota, and employs 25 people.

FORWARD LOOKING STATEMENTS

Certain statements in this news release may constitute "forward looking" statements that involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Fund or Somerset to be materially different from any future results, performance or achievements expressed or implied by such forward looking statements. When used in this news release, such statements use such words as "may", "will", "intend", "should", "expect", "believe", "plan", "anticipate", "estimate", "predict", "potential", "continue" or the negative of these terms or other similar terminology. These statements reflect current expectations regarding future events and operating performance and speak only as of the date of this news release. Forward looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to differ materially from the results discussed in the forward looking statements, including, but not limited to, customer concentration, integration of the Compass business following closing, lack of written customer contracts, reliance on suppliers and other risks described in the Fund's most recent management's discussion and analysis (which can be found at www.sedar.com). These forward looking statements contained in this news release are made as of the date of this news release, and the Fund does not assume any obligation to update or revise them to reflect new events or circumstances.

This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the securities described herein in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to qualification or registration under applicable securities laws of any such jurisdiction. The securities described herein have not been, and will not be, registered under the United States Securities Act of 1933 (the "Securities Act") and may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of Securities Act.

Contact Information

  • Somerset Entertainment Income Fund
    Andy Burgess
    Chief Executive Officer
    416-510-0505
    416-510-6915 (FAX)
    20 York Mills Road, Suite 600 Toronto, ON M3C 3G8
    investorrelations@somersetent.com