18th Aug 2005 07:00
R.E.A.Hldgs PLC18 August 2005 Summary-------R.E.A. Holdings plc announces that it has despatched a circular (the "circular")to holders of ordinary shares, preference shares, warrants and convertible loanstock containing proposals for (i) the conversion of the outstanding £3,050,497nominal of convertible loan stock into new ordinary shares and dollar notes onterms that the holders of the new ordinary shares arising on conversion of theconvertible loan stock will be entitled to a capitalisation issue of further newordinary shares so as to result in every £100 nominal of convertible loan stockbeing exchanged for 164 new ordinary shares and $163 nominal of dollar notes and(ii) the creation of additional dollar notes (so as to increase the prospectiveissue size to $30,000,000) to be issued for cash or other appropriateconsideration, as required and as markets permit, over a period of up to fouryears. The circular is accompanied by a prospectus (the "dollar noteprospectus"). Introduction------------It was announced on 23 May 2005 that the company was considering proposals forthe conversion of the convertible loan stock into a combination of new ordinaryshares and new dollar denominated loan notes. A further announcement was made on3 August 2005 giving the principal terms on which it would be proposed that theconversion be effected and stating the directors' intention to build on theissue of new listed dollar denominated loan notes that would result from theconversion of the convertible loan stock by creating additional dollar notes,ranking pari passu with the dollar notes to be issued on conversion, to beavailable for issue for cash or other appropriate consideration, as required andas markets permit, over a period of up to four years. Detailed proposalsregarding the proposed conversion and creation of additional dollar notes havenow been formulated and the purpose of the circular is to provide informationregarding such proposals. Since implementation of the proposals will require certain approvals fromholders of listed securities of the company, notices are set out at the end ofthe circular convening a meeting of warrant holders, a meeting of convertibleloan stock holders, a class meeting of the holders of ordinary shares and anextraordinary general meeting of the company, all to be held on 12 September2005, for the purposes of considering and, if thought fit, passing theresolutions necessary to implement the proposals. Background----------The entire business of the group is represented by oil palm operations in theprovince of East Kalimantan in Indonesia. Whilst those operations are nowproducing profits and positive operational cash flow, this has been achievedonly after a testing period of several years. That period started with theeconomic destabilisation that occurred in Indonesia in late 1997 and wasfollowed, in 1998, by political destabilisation accompanied by the collapse ofmany Indonesian companies and banks. After several years, the Indonesian economyis now recovering but, in the interim, the problems faced were compounded by afall in the price of crude palm oil from May 1998 to May 2001 when the pricemoved from a high of $705 per tonne to a low of $234 per tonne (in both casesCIF Rotterdam, as published by Oil World). Against this background, the group has been forced in recent years to raisesubstantial capital to support the East Kalimantan operations and to finance thewithdrawal of capital provided by other investors in those operations. Thatcapital has been found from issues of listed securities and from new borrowingsin Indonesia but the nature and terms of the finance raised have, to aconsiderable extent, been dictated by availability rather than choice. As aresult, the present financial structure of the group is not, in the opinion ofthe directors, ideally matched with the directors' plans for the group's futuredevelopment. Reasons for the proposals-------------------------A fundamental financing problem that the group faces is that, in order tomaximise the equity returns from its oil palm development programme, it needs tofinance a prudent proportion of development costs with debt. The group is ableto, and does, borrow from banks in Indonesia but borrowings are currentlyavailable to the group only for average terms of less than three years. Suchmaturities do not fit well with the growth cycle of an oil palm which takesnearly four years to maturity from nursery planting and then a further period ofthree to four years to full yield. Moreover, if the group is to maintain asensible proportion of debt, it must, as its equity base grows, seek to addrather than repay debt. Continuing reliance on Indonesian borrowings thereforecommits the group to a cycle of regular refinancings. This is expensive andinefficient and the uncertainty that it creates limits the group's financialflexibility in a manner that is likely to become increasingly burdensome as cashflow builds and the directors have to decide whether to allocate cash resourcesto establishing a cash reserve to meet debt repayments or to developmentexpenditure and paying dividends. The directors believe that one answer to this problem is to seek longer termdebt from markets external to Indonesia. Given the company's size, it cannotreadily make a new issue of debt securities for cash in a manner that would meetthe requirements of the conventional markets for such securities. However, thedirectors believe that if an issue of listed debt securities can be established,it should be possible, over an extended period, progressively to increase thelevel of the debt securities in issue by a series of small offerings. Such aprocess would dovetail well with the group's requirement for an alternativesource of debt finance since that requirement is primarily for new funding tomeet maturing obligations as these arise rather than to refinance existing debt.Because crude palm oil is priced in dollars, it is prudent for the group toborrow in dollars. Moreover, the South East Asian markets that are obviousmarkets for debt securities of the company are principally dollar markets.Accordingly, the directors would prefer any new issue of debt securities by thecompany to be denominated in dollars. A second deficiency of the group's present financial structure is theconvertible loan stock. That stock was issued in May 2002 at a low point in thegroup's fortunes and is now traded on the London Stock Exchange at a largepremium to its par value. The directors take this premium to mean that theconvertible loan stock is essentially viewed as an indirect investment in thecompany's equity as, whilst the stock does provide some income to holders, thatincome is not substantial in relation to the current capital value of the stock.Moreover, the stock is relatively illiquid to the extent that certain holdershave elected to exercise the conversion rights attaching to their holdings so asto convert all or part of those holdings into more marketable ordinary shares.From the company's viewpoint, the presence of the convertible loan stock as debton its balance sheet, when the stock is in substance equity, is unsatisfactorybecause it complicates dealings with some counterparties. The current proposals have been formulated to address the establishment of a newissue of listed debt securities and the elimination of the convertible loanstock. If approved, the proposals will achieve this by converting a proportionof the convertible loan stock into new dollar notes (with the balance of thestock being converted into equity). The benefit to the company of establishingthe dollar note issue and eliminating the convertible loan stock permits theprovision to convertible loan stockholders, as a term of the proposals, of apremium over the value of the ordinary shares that they would receive were theyto convert their stock on the basis of the existing conversion terms. Conversion and capitalisation issue-----------------------------------Upon and subject to the terms and conditions described below, it is proposedthat holders of convertible loan stock on the register of stockholders at theclose of business on 12 September 2005 should exchange their stock for newordinary shares and dollar notes on the basis of: 164 ordinary shares and $163 nominal of dollar notesfor every £100 nominal of convertible loan stock held and so in proportion for any other nominal amount of convertible loan stockheld. Fractional entitlements to ordinary shares and dollar notes will not beallotted and entitlements to ordinary shares and dollar notes will be roundeddown to the nearest integral number or amount. For legal reasons, this exchange will be effected in stages. First, £10 nominalof each holding of £100 nominal of convertible loan stock will be converted into20 fully paid new ordinary shares (and so in proportion for any other amount ofconvertible loan stock held). Secondly, the balance of the convertible loanstock will be converted into fully paid dollar notes on the basis of $163nominal of dollar notes for every £100 nominal of convertible loan stock heldimmediately prior to the conversion of £10 nominal per £100 nominal of stockinto new ordinary shares as just described (and so in proportion for any otheramount of convertible loan stock held). Simultaneously with the conversion ofthe balance of the convertible loan stock, stockholders (in their capacity asthe holders of the new ordinary shares arising pursuant to the conversion) willbe allotted, by way of capitalisation of up to £1,098,178.75 standing to thecredit of share premium account, a further 144 new ordinary shares, credited asfully paid, for every 20 new ordinary shares issued pursuant to the conversion(and so in proportion for any other number of new ordinary shares so issued). The proposal to effect the overall exchange of convertible loan stock forordinary shares and dollar notes by way of a conversion and a capitalisationissue reflects the fact that, after allowing for the nominal amount ofconvertible loan stock to be converted into dollar notes (issued at par), thenominal amount of convertible loan stock available to be converted into ordinaryshares would be insufficient to pay up in full, at their par value of 25p each,the number of ordinary shares that the terms of the overall exchange propose beissued. By law, ordinary shares cannot be issued fully paid at a discount totheir par value. The split of the exchange of the convertible loan stock for thefull 164 new ordinary shares and $163 nominal of dollar notes for every £100nominal of convertible loan stock held into two stages is necessary as, by law,ordinary shares issued by way of capitalisation of share premium account canonly be issued to persons who are shareholders. In the most unlikely event that the first conversion (of £10 nominal per £100nominal of each holding of convertible loan stock into 20 new ordinary shares)became unconditional but the conversion of the balance of the convertible loanstock into dollar notes and the capitalisation issue did not becomeunconditional, holders of convertible loan stock would be left with 20 newordinary shares and £90 nominal of convertible loan stock per £100 nominal ofstock originally held. This situation could only occur if, after the firstconversion became unconditional, the admission of the dollar notes arising fromconversion, and of the new ordinary shares arising from the capitalisationissue, to the Official List and to trading on the London Stock Exchange's marketfor listed securities failed to become effective. The conversion of the balanceof the convertible loan stock into dollar notes cannot, under the terms of theproposals, become unconditional unless the capitalisation issue also becomesunconditional. Particulars of the dollar notes-------------------------------The dollar notes will be created pursuant to resolutions of the board and willbe constituted by a trust deed to be executed between the company and The LawDebenture Trust Corporation p.l.c. as trustee. Holders of the dollar notes willbe bound by, and be deemed to have notice of, all of the provisions of the trustdeed. The dollar notes will be issued in registered form in amounts and integralmultiples of $1 and will be listed on the Official List and traded on the LondonStock Exchange's market for listed securities. The dollar notes will bearinterest at the rate of 7.5 per cent per annum, payable half yearly in arrear on30 June and 31 December of each year save that interest payable on 31 December2005 will be calculated as if it accrued with effect from 1 July 2005 (and that,as respects further issues of dollar notes as described below, the interest ratefor the first period following the date of issue of such notes will becalculated as if interest had accrued from the most recent interest paymentdate). Unless previously redeemed or purchased and cancelled by the company, the dollarnotes will be redeemed at par by three equal annual instalments commencing 31December 2012. If dollar notes have been purchased by the company and cancelled,the amount of dollar notes that the company will be obliged to redeem on anygiven redemption date will be reduced by the nominal amount of dollar notespurchased and cancelled prior to that redemption date (save in so far as suchnotes were purchased and cancelled prior to a previous redemption date and takeninto account in reducing the dollar note redemption requirement in relation tothat previous redemption date). Holders of dollar notes will be entitled to elect (and all holders ofconvertible loan stock will, as detailed under "Further terms" below, be deemedto have elected) to receive payments of interest and redemption monies due inrespect of their holdings of dollar notes in pounds sterling. Where any suchelection has been made (or deemed made) and remains in force, the amount of eachdollar payment that, absent the election, would be due to the electing holder inrespect of the dollar notes held by that holder will be converted to poundssterling by the company shortly ahead of the due date of the payment and theresultant conversion proceeds will be paid to the holder in lieu of the dollaramount that would otherwise be payable. Any election (or deemed election) toreceive payments in respect of the dollar notes in pounds sterling may berevoked by not less than 30 days' notice in writing to the company's registrarsahead of any date upon which a payment of interest or redemption monies willfall due. The dollar notes will be unsecured obligations of the company. The trust deedconstituting the dollar notes will contain no restrictions on further borrowingsby the company ranking in priority to or pari passu with the dollar notes savethat the company will covenant to procure that the overall borrowings of thegroup do not exceed an amount equal to 11/2 times the share capital and reservesof the group (as defined in the conditions to the dollar notes). The trust deed constituting the dollar notes will contain provisions pursuant towhich the trustee, on behalf of itself and the holders of the dollar notes, willirrevocably consent to one or more reductions of share capital and/or amountsstanding to the credit of the company's share premium account and/or capitalredemption reserve, up to a maximum aggregate amount of £6 million, and to therelease of the reserves thereby created to the distributable reserves of thecompany, subject only to the necessary consent of the court and provided alwaysthat such reduction(s) would not result in the company being in breach of theborrowing restriction set out in the conditions to the dollar notes. The directors have no immediate plans to propose a reduction in the capital ofthe company but they are concerned that, as the company's profits derive almostexclusively from the group's East Kalimantan operations, the future fundingrequirements of those operations may, at least for a period, restrict theability of, or make it fiscally inefficient for, the company's Indonesiansubsidiaries to pay dividends. In those circumstances, the directors would notwish constraints posed by the availability of distributable reserves in thecompany to inhibit the payment of dividends that the directors would, from acommercial viewpoint, feel able to recommend. This might mean that the directorswould wish to put forward proposals to increase the distributable reserves ofthe company. Further terms-------------As a further term of the conversion and capitalisation issue, interest on theconvertible loan stock will cease to accrue after 30 June 2005 (being the lastdate upon which interest was paid on the stock) but interest on dollar notesissued pursuant to the conversion will bear interest calculated as if accruingfrom 1 July 2005. As noted under "Particulars of the dollar notes" above, allholders of convertible loan stock will be deemed to have elected, in accordancewith conditions 4 and 5(D) endorsed on certificates issued in respect of thedollar notes, to receive interest and redemption monies payable in respect ofthe dollar notes to be issued pursuant to the conversion in pounds sterlingrather than in dollars. Any such election may be revoked by notice in writingto the company as set out in such condition 4. The new ordinary shares to be issued pursuant to the conversion andcapitalisation issue will upon issue rank pari passu in all respects with theexisting issued ordinary shares, save that the new ordinary shares issuedpursuant to the conversion will entitle the holders thereof to receive the newordinary shares to be issued pursuant to the capitalisation issue. The existingordinary shares are already admitted to trading on the London Stock Exchange'smarket for listed securities. No expenses of or incidental to the conversion or the capitalisation issue willbe charged to allottees of new ordinary shares and dollar notes. It is notconsidered that any UK stamp duty or stamp duty reserve tax should arise onissue of the new ordinary shares and/or dollar notes but should any such duty ortax be payable by any allottee on such issue, the company will refund the amountso payable to the relevant allottee. Conditions----------The proposals are conditional upon: • the passing of the extraordinary resolutions set out in the notices of the meetings of warrant holders, convertible loan stock holders and holders of ordinary shares, all convened for 12 September 2005; • the passing of the three resolutions set out in the notice of the extraordinary general meeting of the company convened for 12 September 2005; • as respects the first stage of the conversion as described under "Conversion and capitalisation issue" above (whereby £10 nominal per £100 nominal of each holding of convertible loan stock will be converted into 20 new ordinary shares), admission of the new ordinary shares arising to the Official List and to trading on the London Stock Exchange's market for listed securities and such admissions becoming effective; and • as respects the balance of the proposals, the first stage of the conversion becoming unconditional and admission of the dollar notes arising from the conversion and the further new ordinary shares arising from the capitalisation issue to the Official List and to trading on the London Stock Exchange's market for listed securities and such admissions becoming effective. Financial implications of the conversion and capitalisation issue-----------------------------------------------------------------Implementation of the conversion and capitalisation issue would result in theissue of up to 5,002,815 new ordinary shares and $4,972,310 nominal of dollarnotes. That compares with the 5,755,654 new ordinary shares (ignoring fractionalentitlements) that would fall to be issued on full conversion of the convertibleloan stock in accordance with its existing conversion terms. An effect of theconversion and capitalisation issue will therefore be to reduce by 752,839 thenumber of new ordinary shares that would otherwise fall to be issued as a resultof conversion of the convertible loan stock and to substitute therefor$4,972,310 (equivalent at the latest dollar sterling rate to £2,747,133) ofdebt. The annual interest payable by the company on the dollar notes to be issuedpursuant to the conversion will amount to some $372,923 (equivalent at thelatest dollar sterling rate to £206,035). That compares with the annual interestcurrently payable on the convertible loan stock of some £122,020 (equivalent atthe latest dollar sterling exchange rate to $220,856). On the basis of the latest dollar sterling exchange rate and of the mid marketquotations (as derived from the Daily Official List of the London StockExchange) as at the close of business on 2 August 2005 (the dealing day lastpreceding the date upon which the principal terms of the proposals wereannounced) of an ordinary share and £1 nominal of the convertible loan stock of,respectively, 233.5p and 450p, and assuming that the dollar notes will have amarket value equal to their par value, holders of convertible loan stock willobtain a 5 per cent increase in capital value as a result of exchange of theirholdings of convertible loan stock for new ordinary shares and dollar notespursuant to the conversion and capitalisation issue. No dividends have been paid on the ordinary shares in recent years. While thatsituation continues, the annual income receivable by holders of convertible loanstock in respect of the new ordinary shares and dollar notes that they wouldreceive on implementation of the conversion and capitalisation issue would, onthe basis of the latest dollar sterling exchange rate, represent an increase of69 per cent over the annual income receivable in respect of their existingholdings of convertible loan stock. Release of security for the convertible loan stock--------------------------------------------------The company, certain of its directors and MP are the object of actual andthreatened claims from the MEZ group (which owns 12.3 per cent of the issuedordinary shares of Makassar, a subsidiary of the company that serves as asub-holding company for the East Kalimantan operations of the group). The termsof the convertible loan stock contain provisions whereby, in the event that thecompany were to be placed in insolvent liquidation as a result of those claims,holders of the convertible loan stock would automatically convert their holdingsinto 98 per cent of the issued ordinary share capital of MP (a sub-holdingcompany within the group) as enlarged by such conversion. MP holds 68 per centof the issued ordinary share capital of Makassar. No similar conversion provisions have been included in the terms of the dollarnotes. In the opinion of the directors, the increases in the profitability ofthe group and in the market capitalisation of the company that have occurredsince May 2002 (when the convertible loan stock was issued) have been such thatthe theoretical possibility that the MEZ group claims could, if successful,cause the insolvency of the company is now sufficiently remote that theconversion rights referred to in the preceding paragraph no longer confer amaterial benefit on holders of the stock. Additionally, while the directors havealways considered the MEZ group claims to be without merit, they believe thatthe evolution of events since 2002 should provide additional support in provingthat such claims are baseless. Further issues of dollar notes and use of resultant proceeds------------------------------------------------------------Pursuant to the proposals, $30,000,000 nominal of dollar notes will be createdof which up to $4,972,310 will be issued pursuant to the conversion. Thedirectors propose to seek to issue the balance of the dollar notes by way ofmultiple placings, principally with substantial investors, over a period of upto four years so as to maintain an appropriate level of group indebtedness andto match (insofar as reasonably practicable) and meet the maturing obligationsand other funding requirements of the group, namely: • the maintenance of a cash buffer designed to ensure that, in the event of a material downturn in the price of crude palm oil, the group remains able, on realistic assumptions, to carry to maturity all immature oil palm plantings and to expand established milling capacity to an extent sufficient to process all crop from such immature areas as these come into production • the funding (in part) of debt repayments in respect of existing borrowings of the group that fall due over the next four years • the funding (in whole or part) of any monies that may become payable to the MEZ group pursuant to an acquisition of the minority shareholding held by the MEZ group in Makassar or otherwise as a result of settlement of the MEZ group claims. The directors currently envisage that, subject as provided below, not more than$10 million of dollar notes will be issued over the twelve months following thepublication of the circular (in addition to the $5 million of dollar notes to beissued pursuant to the conversion) and that the balance of the dollar noteswould, if market conditions permit, then be issued in stages over the succeedingthree years. Agreement has been reached between the company and the MEZ group that thereshould be an attempt to resolve the MEZ group claims by way of mediateddiscussions commencing in late September 2005. The directors are unable to judgethe likelihood of such discussions producing a settlement of the MEZ groupclaims but should they do so or should a settlement otherwise be agreed, theplanned timing of dollar note issues may be brought forward to assist in fundingsuch settlement. Whilst the directors believe that it is important that the group retainsflexibility as to the percentage of the group's overall funding that isrepresented by net debt (meaning the aggregate amount of borrowings and otherindebtedness of the group (other than intra-group indebtedness), less cash, bankdeposits and similar balances), as a general indication they believe that atarget level not exceeding 50 per cent of the aggregate of capital employed(meaning the aggregate amount of share capital, consolidated reserves (takingthe oil palm plantations at estimated fair value) and minority interests) andnet debt is appropriate to the group at its present stage of development. Applications will be made to the Financial Services Authority and to the LondonStock Exchange for such of the created but unissued dollar notes as may beissued within the twelve months following the date of publication of the dollarnote prospectus to be admitted upon issue to the Official List and to the LondonStock Exchange's market for listed securities, subject to due compliance withthe rules applicable to offering programmes. Additional conversion period----------------------------The company has agreed with The Law Debenture Trust Corporation p.l.c., astrustee for the holders of the convertible loan stock, that in the event thatthe conversion should fail to become fully unconditional, the terms of theconvertible loan stock will be amended so as to provide for an additionalconversion period during the month of November 2005. Interim results in respect of the six months ended 30 June 2005---------------------------------------------------------------Were it not for the recent changes to the accounting principles which a listedcompany is obliged to apply in preparing its accounts (being the change from UKGenerally Accepted Accounting Principles to International Financial ReportingStandards), the company would have expected to issue its interim results inrespect of the six months ended 30 June 2005 during September 2005. However, asa result of the changes, and the additional work that this will cause, the issueof the interim results will be delayed. The interim results will be issued by 28October 2005. Current trading---------------Although a drier period experienced during the second half of 2004 could havecaused some moisture stress, the directors are optimistic that the good rainfallreceived over 2004 as a whole will means that the East Kalimantan operationswill yield normally during 2005. On that basis, the FFB crop for 2005 has beenbudgeted at 331,000 tonnes. Some disruption to operations occurred in April and May 2005 as a result ofsevere flooding from the Belayan and Mahakam rivers following exceptionallyheavy rainfall during that period but the directors do not expect this to resultin a material shortfall against budget in terms of FFB harvested. Delays toharvesting caused by the disruption did, however, have some negative impact fora few weeks both on the quality of CPO output and on the CPO extraction rateachieved resulting in an estimated overall loss of potential sales revenues forthe period in question of 5 per cent. Following delays to the 2004 extension planting programme caused by disputesover land compensation payments with certain individuals from local villages,compensation relating to the 2005 extension planting area was negotiated andsettled with a single village head appointed by all of the affected individualsto negotiate on their behalf. It had been hoped that this methodology forsettlement would ensure that the 2005 land clearing programme could be completedwithout any delays. Regrettably, however, this has not proved the case and somedelays to the clearing programme are again being experienced followingrepresentations by certain of the affected individuals that the compensationarrangements to which they had agreed should be renegotiated. Given that alimited delay in the transfer of oil palm seedlings from nursery to field shouldhave no effect on the maturing of 2005 plantings, the directors do not currentlyexpect that the delays in question will have a material adverse impact on futurecrops expected from the 2005 extension planting programme. Higher world freight rates have in the past twelve months increased thedifferential between CPO prices CIF and FOB but CPO prices at present levelsstill provide the group with more than acceptable margins. Accordingly, thedirectors expect that 2005 will prove to be another good year. The City Code on Takeovers and Mergers--------------------------------------The company's largest shareholder, Emba, currently owns 7,203,983 ordinaryshares, representing 35.8 per cent of the issued ordinary share capital of thecompany, and £1,380,980 nominal of convertible loan stock, representing 45.3 percent of the outstanding convertible loan stock. That holding of convertible loanstock includes £10,000 nominal of convertible loan stock acquired on 17 August2005 in connection with the proposals by Emba from Emba Services Limited PensionScheme (which is acting in concert with Emba) at a price of 450p per £1 nominalof convertible loan stock. Implementation of the conversion and capitalisation issue would result in theexchange by Emba of its existing holding of convertible loan stock for 2,264,807new ordinary shares and $2,250,997 nominal of dollar notes. The aggregation ofthe new ordinary shares so received by Emba with Emba's existing holding ofordinary shares would result in Emba owning a total of 9,468,790 ordinaryshares, representing 37.7 per cent of the issued ordinary share capital of thecompany as enlarged by the new ordinary shares issued pursuant to the conversionand capitalisation issue. An effect of the conversion and capitalisation issuewould therefore be to increase the percentage of the voting rights attaching tothe company's share capital held by Emba. Under Rule 9 of the City Code on Takeovers and Mergers, except with the consentof the Panel on Takeovers and Mergers, any person who, together with personsacting in concert with him, holds not less than 30 per cent nor more than 50 percent of the voting rights of a public company and increases the percentage ofthe voting rights held by him is required to extend a general offer in cash toall remaining shareholders enabling, inter alia, such remaining shareholders toexit from their investment in the company concerned. Although implementation ofthe conversion and capitalisation issue would result in an increase in thepercentage of the voting rights attaching to the company's share capital held byEmba, the Panel on Takeovers and Mergers has agreed to waive the requirement fora general offer provided that Emba's increased percentage holding is approved byindependent shareholders of the company by way of an ordinary resolution takenon a poll. Therefore, the second resolution set out in the notice ofextraordinary general meeting convened for 12 September 2005 (which provides forapproval of Emba's increased percentage ownership of voting shares of thecompany) will be put to a poll on which Emba will not vote. Emba also owns 41,420 warrants and persons acting in concert with Emba own afurther 116,900 warrants. As stated above, implementation of the conversion andcapitalisation issue would result in an increase in the percentage of the votingrights attaching to the company's share capital held by Emba from 35.8 per centto 37.7 per cent. Were Emba and the persons acting in concert with it (togetherthe "concert group") to exercise in full the warrants held by them and no otherwarrants rights were exercised, the percentage of the voting rights attaching tothe company's share capital held by the concert group would be further increasedfrom 37.7 per cent to 38.1 per cent (or, if the conversion and capitalisationissue did not become unconditional but the concert group were to exercise infull the warrants held by it and no other warrant rights were exercised, suchpercentage would increase from 35.8 per cent to 36.3 per cent). Although the concert group has confirmed to the board that it has no currentintention of exercising any of the warrants held by it, the directors havenevertheless decided that the extraordinary general meeting convened for 12September 2005 will provide a suitable opportunity to obtain independentshareholder approval for the possible further increase in the percentage of thevoting rights attaching to the company's share capital held by the concert groupwere such warrants to be exercised. Thus the second resolution set out in thenotice of the extraordinary general meeting also provides for this approval. Asstated above, this resolution will be put to a poll on which Emba will not vote(and no other member of the concert group is eligible to vote as Emba is theonly member of the concert group that owns voting shares of the company). Meetings--------As already noted, the following meetings have been convened for 12 September2005, all of which are to be held at the offices of the company's solicitors,Ashurst, at Broadwalk House, 5 Appold Street, London EC2A 2HA: • a meeting of warrant holders to be held at 10.15 am • a meeting of convertible loan stock holders to be held at 10.20 am (or so soon thereafter as the meeting of warrant holders has been concluded or adjourned) • a class meeting of holders of ordinary shares to be held at 10.25 am (or so soon thereafter as the meeting of convertible loan stock holders has been concluded or adjourned) • an extraordinary general meeting of the company (at which only holders of ordinary shares may vote) to be held at 10.30 am (or so soon thereafter as the class meeting of holders of ordinary shares has been concluded or adjourned) The rights attaching to the warrants include provision that, save with theconsent of an extraordinary resolution of the warrant holders, the company mustnot (other than in certain limited circumstances) distribute capital profits orreserves or otherwise capitalise profits or reserves or modify the rightsattaching to the ordinary shares. Accordingly, the resolution set out in thenotice of the meeting of warrant holders (which will be proposed as anextraordinary resolution) provides for the warrant holders to sanction thecapitalisation issue and the modification of the rights attaching to theordinary shares that the passing of the third resolution set out in the noticeof extraordinary general meeting (which makes provision for implementation ofthe capitalisation issue) would effect. The resolution set out in the notice of meeting of convertible loan stockholders (which will be proposed as an extraordinary resolution) makes provisionfor implementation of the conversion and capitalisation issue. The resolution set out in the notice of the class meeting of holders of ordinaryshares (which will be proposed as an extraordinary resolution) provides forholders of ordinary shares to sanction the modification of class rightsattaching to the ordinary shares that the passing of the third resolution setout in the notice of extraordinary general meeting (which makes provision forimplementation of the capitalisation issue) would effect. In view of the fact that Emba is a substantial shareholder in the company andowns £1,380,980 nominal of convertible loan stock, the Listing Rules requirethat the conversion and capitalisation issue be treated as a related partytransaction and approved by an ordinary resolution of the company upon whichEmba does not vote. Accordingly, the first resolution set out in the notice ofextraordinary general meeting (which will be proposed as an ordinary resolution)provides for approval of the participation by Emba in the conversion andcapitalisation issue. Emba has undertaken not to vote on this resolution. Noassociate of Emba (as defined in appendix 1 to the Listing Rules) holds anyconvertible loan stock or voting shares of the company. The second resolution set out in the notice of extraordinary general meeting(which will be proposed as an ordinary resolution upon which Emba has againundertaken not to vote) provides for the approval required by the City Code onTakeovers and Mergers of the increases in the percentage of the voting rightsattaching to the company's share capital held by Emba and persons acting inconcert with it that would result from the conversion and capitalisation issueand could result from the exercise of warrants held by Emba and such persons asdetailed under "The City Code on Takeovers and Mergers" above. As statedthereunder, Emba has undertaken not to vote on this resolution (and no personacting in concert with Emba owns any voting shares of the company). The third resolution set out in the notice of extraordinary general meeting(which will be proposed as a special resolution) makes provision forimplementation of the capitalisation issue by providing for: • the articles of association of the company to be amended to permit the capitalisation issue to be made to the holders of the new ordinary shares arising from the conversion by the allotment to such holders of unissued ordinary shares credited as fully paid by way of capitalisation of share premium account; and • the directors to be authorised to make the capitalisation issue and to allot, pursuant to such issue, up to £1,098,178.75 nominal of securities of the company (comprising 4,392,715 new ordinary shares and representing 21.8 per cent of the issued ordinary share capital at the date of the circular) pursuant to such issue, such authorisation to expire on 21 October 2005. Recommendation--------------By reason of his family's interest in Emba and the fact that he is to be treatedas acting in concert with Emba, Mr R M Robinow, the chairman of the company, hastaken no part in any decision of the directors concerning the recommendations tobe made by the board to shareholders concerning the first resolution set out inthe notice of the extraordinary general meeting convened for 12 September 2005(which provides for approval of the participation by Emba in the conversion andcapitalisation issue) or the second resolution set out in such notice of meeting(which provides for approval of (i) the increase in the percentage interest inthe voting rights attaching to the share capital of the company held by Embathat would result from implementation of the conversion and capitalisation issueand (ii) the increase in the percentage interest in such voting rights held byEmba and persons acting in concert with it that could result from the exerciseof warrants held by Emba and such persons). As noted above, Emba will abstainfrom voting on such first and second resolutions. The independent directors (being all the directors other than Mr R M Robinow),who have been so advised by Canaccord, consider the participation of Emba in theproposals to be fair and reasonable so far as convertible loan stock holders,warrant holders, holders of ordinary shares and holders of preference shares areconcerned. The independent directors also consider, having been so advised by Canaccord,that the terms of the proposals and of the waiver by the Panel on Takeovers andMergers of the bid requirements of Rule 9 of the City Code with regard to (i)the increase in the percentage interest in the voting rights attaching to theshare capital of the company held by Emba that would result from implementationof the conversion and capitalisation issue and (ii) the increase in thepercentage of such voting rights held by Emba and persons acting in concert withit that could result from the exercise of warrants held by Emba and such personsto be fair and reasonable and in the best interests of convertible loan stockholders, warrant holders, holders of ordinary shares and holders of preferenceshares. In providing their advice as referred to above, Canaccord has taken into accountthe commercial assessments of the directors. All the directors are of the opinion that the proposals are in the bestinterests of convertible loan stock holders, warrant holders, holders ofordinary shares and holders of preference shares as a whole. Accordingly the board recommends that: • warrant holders vote in favour of the resolution set out in the notice of the meeting of warrant holders convened for 12 September 2005 • convertible loan stock holders vote in favour of the resolution set out in the notice of the meeting of convertible loan stock holders convened for 12 September 2005 • holders of ordinary shares vote in favour of the resolution set out in the notice of the class meeting of holders of ordinary shares convened for 12 September 2005 • shareholders vote in favour of the three resolutions set out in the notice of the extraordinary general meeting. The independent directors (and persons connected with them within the meaning ofsection 346 of the Companies Act 1985) intend to vote in favour of the first andsecond resolutions set out in the notice of the extraordinary general meeting inrespect of their own beneficial holdings which amount in aggregate to 714,810ordinary shares (representing 3.5 per cent of the issued ordinary share capitalof the company). All directors (and persons so connected with them) intend tovote in favour of all other resolutions referred to above in respect of theirown beneficial holdings which amount in aggregate to 137,900 warrants(representing 8.9 per cent of the warrants in issue), £95,125 nominal ofconvertible loan stock (representing 3.1 per cent of the outstanding convertibleloan stock) and 714,810 ordinary shares (representing 3.5 per cent of the issuedordinary share capital of the company). Emba has undertaken to vote in favour of the resolutions set out in the noticesof the meetings of warrant holders and convertible loan stock holders and of theclass meeting of ordinary shareholders, and in favour of the third resolutionset out in the notice of the extraordinary general meeting in respect of itsholdings of 41,420 warrants (representing 2.7 per cent of the warrants inissue), £1,380,980 nominal of convertible loan stock (representing 45.3 per centof the outstanding convertible loan stock) and 7,203,983 ordinary shares(representing 35.8 per cent of the issued ordinary share capital of thecompany). Trustee-------The Law Debenture Trust Corporation p.l.c. as trustee (the "Trustee") for theholders of the convertible loan stock has not been involved in the formulationof the company's proposals outlined in the circular and, in accordance withnormal practice, expresses no opinion as to the merits of the passing of theextraordinary resolution set out in the notice convening the meeting ofconvertible loan stock holders. The Trustee has, however, authorised it to bestated that on the basis of the information contained in the circular and theterms of the extraordinary resolution set out in the notice convening themeeting of convertible loan stock holders, it has given consent to the issue ofsuch notice, and of the circular of which the notice forms a part, to interalia, holders of the convertible loan stock, and has no objection to theinformation contained therein being presented to the holders of the convertiblestock for their consideration. Further information-------------------Copies of the circular and of the dollar note prospectus will be available forinspection at the Document Viewing Facility of the UK Listing Authority up toand including the date of the extraordinary general meeting convened for 12September 2005 and may be obtained free of charge from the company at itsregistered office, Third Floor, 40-42 Osnaburgh Street, London NW1 3ND. Copiesof the circular and of the dollar note prospectus are also being placed on thecompany's website at www.rea.co.uk. Expected timetable------------------Latest time and date for receipt of proxies for use in connection 10.15 am onwith the meeting of warrant holders 10 September 2005 Latest time and date for receipt of proxies for use in connection 10.20 am onwith the meeting of convertible loan stock holders 10 September 2005 Latest time and date for receipt of proxies for use in connection 10.25 am onwith the class meeting of holders of ordinary shares 10 September 2005 Latest time and date for receipt of proxies for use in connection 10.30 am onwith the extraordinary general meeting 10 September 2005 Meeting of warrant holders 10.15 am on 12 September 2005 Meeting of convertible loan stock holders 10.20 am on 12 September 2005Class meeting of holders of ordinary shares 10.25 am on 12 September 2005 Extraordinary general meeting 10.30 am on 12 September 2005 Record date 12 September 2005 CREST accounts credited in respect of new ordinary shares issued 13 Septemberpursuant to the conversion 2005 Proposals fully unconditional 14 September 2005 CREST accounts credited in respect of dollar notes issued 14 Septemberpursuant to the conversion and new ordinary shares issued 2005pursuant to the capitalisation issue Definitive share certificates despatched in respect of new 21 Septemberordinary shares and dollar notes issued pursuant to the conversion 2005and capitalisation issue Enquiries---------John OakleyR.E.A. Holdings plc 020 7419 0100 Definitions-----------Unless the context otherwise requires, the following definitions applythroughout this press release "board" or the directors of the company"directors" "Canaccord" Canaccord Capital (Europe) Limited "capitalisation the proposed capitalisation issue of up to 4,392,715 newissue" ordinary shares to be allotted, credited as fully paid, to the holders of the new ordinary shares arising pursuant to the conversion on the effective proportionate basis of 144 new ordinary shares for every £100 nominal of convertible loan stock held, such shares to be allotted credited as fully paid by way of capitalisation of share premium account "company" or R.E.A. Holdings plc"REA" "conversion" the proposed conversion of the outstanding convertible loan stock on the proportionate basis of 20 new ordinary shares and $163 nominal of dollar notes for every £100 nominal of convertible loan stock held "conversion and the conversion and the capitalisation issue which wouldcapitalisation together result in the exchange of the outstandingissue" convertible loan stock for new ordinary shares and dollar notes on the proportionate basis of 164 new ordinary shares and $163 nominal of dollar notes for every £100 nominal of convertible loan stock held "convertible loan the £3,050,497 nominal of 4 per cent convertible loan stockstock" 2012 of the company currently in issue "dollar notes" $30,000,000 nominal of 7.5 per cent dollar notes 2012/14 of the company of which up to $4,972,310 nominal is proposed to be issued pursuant to the conversion and the balance (ranking pari passu and forming a single issue therewith) is proposed to be issued for cash or other appropriate consideration, as required and as markets permit, over a period of up to four years "Emba" Emba Holdings Limited "group" the company and its subsidiaries "latest dollar the exchange rate of £1=$1.81 ruling on 15 August 2005, thesterling rate" latest practicable date prior to the publication of the circular "Listing Rules" the listing rules of the Financial Services Authority "London Stock London Stock Exchange plcExchange""Makassar" Makassar Investments Limited, a member of the group "MEZ group" Mr M E Zukerman and entities associated (or understood to be associated) with him, including Bodley Investment Company, M. E. Zukerman & Co. Incorporated, M. E. Zukerman Investments Limited and The Zukerman Family Trust, or, where the context so requires, any one or several of such individual and entities "MEZ group actual and threatened claims by the MEZ group against theclaims" company, certain of its directors and MP as described under "MEZ group claims" in Part VIII of the dollar note prospectus or, where the context so requires, any one or several of such claims "MP" Makassar Participation plc, a member of the group "new ordinary up to 5,002,815 new ordinary shares proposed to be issuedshares" pursuant to the conversion and capitalisation issue "Official List" the list maintained by the Financial Services Authority in accordance with section 74(1) of the Financial Services and Markets Act 2000"ordinary ordinary shares of 25p each in the capital of the companyshares" "preference 9 per cent cumulative preference shares of £1 each in theshares" capital of the company "proposals" the proposals, details of which are set out in the circular, for (i) the conversion and capitalisation issue, and (ii) the creation of additional dollar notes "shareholders" holders of ordinary shares and/or preference shares "warrants" the 1,548,807 warrants of the company currently in issue, each entitling the holder to subscribe for one ordinary share at a price of 73.5p either in cash or by surrender of 0.735 preference shares This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
R.e.a.hldgs.