17th Mar 2006 15:38
Cape PLC17 March 2006 CAPE PUBLIC LIMITED COMPANY (THE "COMPANY") NOTICE OF EXTRAORDINARY GENERAL MEETING PROPOSED SCHEME OF ARRANGEMENT IN RESPECT OF ASBESTOS LIABILITIES • Pursuant to an order made by the Court on 8 March 2006, a document containing the Scheme and an explanatory statement is being sent to Scheme Creditors on or around today's date. • The Scheme Meetings to approve the Scheme are being convened for 16 May 2006. • Certain elements of the original Scheme proposals and, in particular, a number of the rights attaching to the PLC Scheme Share, included in them a "long-stop" date of 30 December 2005, by which the Scheme was required to have become effective. • As the Scheme did not become effective by 30 December 2005, it is necessary to seek shareholders' approval for the revival of the rights attaching to the PLC Scheme Share, subject to the Scheme becoming effective by 30 June 2006. • A circular (the "March Circular") is being sent to the shareholders today. The March Circular provides shareholders with details of the Scheme as now proposed and contains a notice convening the EGM for the purpose of passing the Resolution. 1. INTRODUCTION On 16 June 2005, Cape announced proposals to provide for the long-term financingof a great majority of all future asbestos-related claims likely to besuccessfully made against the Group, including the establishment of an initial£40 million fund, into which Cape will have ongoing top-up funding obligations,to be used in the settlement of Scheme Claims in conjunction with the Scheme.Details of the Scheme as then proposed were set out in the June Circular whichwas sent to shareholders on 16 June 2005. On 11 July 2005, the shareholders of Cape approved the Scheme (subject to anysubsequent modifications and amendments) and on 15 July 2005 Cape completed theissue of 29,090,910 new Ordinary Shares to raise approximately £32 million(before expenses), of which the balance is to be used to part-fund the Scheme.Cape's original proposed Scheme timetable was that the document containing theScheme would be sent to Scheme Creditors in August 2005 and that the meetings ofScheme Creditors to approve the Scheme would be held in October 2005. However, as explained below, feedback to the Scheme from interested parties anda reassessment of the estimate of the amount of future Scheme Claims hasresulted in a delay to the initial proposed timetable and amendments to thefunding arrangements for the Scheme. On 21 July 2005, Cape announced that it had received feedback to its Schemeproposals from a number of relevant and interested parties; that some partieshad requested that due to the complicated nature of the proposals the timetableshould be extended to provide a further opportunity to review and evaluate theproposed Scheme prior to the Scheme Meetings; that as a consequence, Cape wouldnot be seeking the Court's permission to convene the Scheme Meetings on thetimetable originally envisaged; and that Cape would continue to consult withinterested parties. Cape subsequently announced that the actuarial review of the Scheme Companies'future liability for Scheme Claims had not taken full account of all claims thatmay be made against the Scheme Companies. On 16 November 2005, Cape announcedthe revised actuarial estimate for future Scheme Claims and in consequencecertain amendments to the Scheme have been made, as referred to in more detailbelow. On 28 February 2006, Cape announced that it had funded independent legal andfinancial reviews of the Scheme. Cape also announced that these reviews hadraised a number of issues regarding the Scheme as a result of which Cape hadagreed to make certain amendments to its proposals (some of which would requirethe approval of its shareholders). Pursuant to an order made by the Court on 8 March 2006, the document containingthe Scheme and an explanatory statement is being sent to Scheme Creditors on oraround today's date. The Scheme Meetings to approve the Scheme are beingconvened for 16 May 2006. Certain elements of the original Scheme proposals included in them a "long-stop"date of 30 December 2005, by which the Scheme was required to have becomeeffective. In particular a number of the rights attaching to the PLC SchemeShare, which are included in the Cape Articles adopted on 11 July 2005, areexpressed to fall away if the Scheme had not become effective by 30 December2005. As the Scheme did not become effective by 30 December 2005, it isnecessary to seek shareholders' approval for the revival of the rights attachingto the PLC Scheme Share, subject to the Scheme becoming effective by 30 June2006. It is also necessary to seek shareholders' approval of certain amendmentsto the Cape Articles consequential upon the amendments to the Scheme's fundingarrangements and arising out of the independent legal and financial reviews ofthe Scheme referred to above. The Resolution to this effect will be proposed atan Extraordinary General Meeting to be held on 12 April 2006. If the Resolutionis not passed at the EGM the Scheme cannot become effective, even if SchemeCreditors were to vote to approve the Scheme. 2. BACKGROUND TO AND REASONS FOR THE SCHEME Each of the Scheme Companies is a company in the Group. In the past, the Group'sindustrial activities in the UK often involved the use of asbestos. This hasmeant that a number of people both inside and outside the Group's premises mayhave been exposed to asbestos and its associated health risks. Whilst the largemajority of the Group's UK employees have not been affected, unfortunately anumber of employees, contractors and others who have come into contact with theGroup's asbestos-related activities have been and will be diagnosed withasbestos-related conditions. Such persons may in the future bring a claim forcompensation against one or more Group Companies. Whilst these companies havecertain periods of insurance cover, there remains significant financial exposurewhere there is either no or only partial insurance cover or the insurer isinsolvent. Claims against the Group will continue for the foreseeable future. It remainsvery difficult to predict with any certainty what the levels of these claimswill be, when they will arise and the financial consequences of these claims onthe continued solvency of the Group Companies. Indeed, if there was a materialdeterioration in the Group's trading performance or a significant increase ineither the number of asbestos-related claims or the quantum of damages the Grouphad to settle, it is unlikely that, in the absence of further external funding,the Group would be able to continue to meet claims. In those circumstances it ispossible that the Directors would be faced with no alternative other than torealise the Group's principal assets and to commence the breaking up of theGroup. It is therefore important that the Group remains in a position togenerate the resources needed to meet these claims as and when they fall due. Anumber of other companies faced with the same issues have been forced intoinsolvency, often leaving claimants, where there is no insurance cover, withlittle prospect, if any, of receiving compensation. The Group is at present generating sufficient funds to discharge its liabilitiesas and when they fall due and the Directors expect this situation to continue.Nevertheless, the uncertainty over asbestos-related claims in the future ishaving a prejudicial effect on the growth and development of the Group'sbusinesses. As a result of the uncertainty it is likely that the Group has lost a number ofbusiness opportunities, and absent the Scheme will continue to do so, as thereare certain significant organisations in the Group's fields of activity whichhave limited or placed conditions on their dealings with the Group, for example,by demanding guarantees or bonds in circumstances in which they would not do soof the Group's competitors. The Directors believe that such restraints on theGroup's ability to expand should be alleviated to a significant extent if theScheme were in place. The purpose of the Scheme is to provide long term financing of the claims ofScheme Creditors in a manner which on the one hand provides the Group withsignificant protection from the risk of insolvency and on the other hand, byreason of the enhanced opportunities which this protection provides, makes itmore likely that over time the Group will be able to discharge its liabilitiesto Scheme Creditors in full. The intention is that the Scheme will provide the Group with a stronger and moresecure financial base. The Directors believe that from this base the Groupshould be better able to generate the resources needed to secure the continuedpayment of compensation to Scheme Creditors. The Directors also believe that theScheme, if implemented, should remove a significant obstacle to the Group'sgrowth and should assist the Group in increasing its business activities. 3. THE SCHEME A key element of the Scheme is the establishment of long-term funding of SchemeClaims, which represent a great majority of the Group's present and futureasbestos-related claims arising out of its UK activities, in a manner which isdesigned to make the Group better able to generate the necessary resources. Thelong-term funding will be held and "ring fenced" in CCS, a subsidiary of Cape,and will be under the control of the directors of CCS which will include twoindependent Scheme Directors. The initial funding of £40 million is beingprovided as to £22 million from the proceeds of the fundraising in July 2005from Cape's shareholders, £3 million from the Group's existing resources and £15million from a new bank facility with Barclays Bank PLC. This initial level offunding represents not less than the estimate of an independent actuary(Tillinghast) of the amounts payable by the Scheme Companies in respect ofScheme Claims not met by insurance recoveries (including recoveries receivedfrom the FSCS) over at least the following eight Financial Years (commencing on1 January 2006) together with the running costs of CCS for the next threeFinancial Years. This funding will be invested by CCS in accordance with investment criteriawhich will be determined by, and may only be altered with the consent of, theindependent Scheme Directors. The level of funding will be independently reviewed every three years, startingin 2008, to determine the funding required to cover expected claims over thefollowing nine Financial Years. If the review reveals that there is a shortfall,Cape will top up the funding over the next three years out of available cashflows. The intention is that following each top-up payment there should besufficient monies available to CCS to fund the payment of claims againstIncluded Scheme Companies not met by recoveries from an insurer or the FSCS forthe following six Financial Years together with three years of CCS's runningcosts. The obligations of Cape to top up the fund will be limited to 70 per cent. ofthe consolidated adjusted operational cashflow of the Group. Provided that Capecontinues to contribute that percentage to the Scheme Fund then, subject to therights of Recourse Scheme Creditors, Cape and the other Scheme Companies will beprotected from the risk of insolvency so far as Scheme Claims are concerned. TheDirectors believe that this protection should significantly enhance the abilityof the Group to grow its business. Should Cape be unable to meet its top-up obligations as the result ofinsufficient cash flows and the level of funding fall below a specified level,only a percentage of each Scheme Claim will be paid unless and until the fundingis restored to that specified level. In the event of no future funds beingavailable, pro-rata payments will be made until the funding is exhausted.In return for the setting up of this initial funding and ongoing top-upobligations, the Scheme Creditors will be bound, except in certain limitedcircumstances, only to recover payment of their settled or agreed Scheme Claims(including damages and costs) from CCS and not the relevant Included SchemeCompany. The Scheme, if approved by Scheme Creditors and sanctioned by theCourt, will be binding on both present and future Scheme Creditors. CCS will pay all Scheme Claims that it has agreed to pay under the SchemeGuarantee in full whilst the Scheme Funding Percentage is 60 per cent. orgreater. Should the Scheme Funding Percentage fall below 60 per cent., CCS willpay Scheme Creditors at a rate (the Payment Percentage) determined by the SchemeDirectors until it is able to recommence full payments. The Scheme Directors shall at any time be entitled to require that a furtherindependent actuarial review of the value of the Scheme Claims is undertaken inorder to be able to ascertain the current level of funding and to determine thePayment Percentage. The Company's funding obligation will not be affected bythis review. The Scheme will not seek to limit the amount recoverable under any Scheme Claimand the Scheme Claims that are brought will continue to be made against therelevant Group Company as at present. An essential aspect of the Scheme is thatclaimants' legal rights to bring claims against the Group are not prejudiced asthe Scheme relates only to the enforcement of such established claims. In orderto preserve the rights of certain Scheme Creditors under particular insurancepolicies and any future rights they might acquire against the FSCS, the Schemewill provide that, in certain limited circumstances Scheme Creditors will haverecourse against the Group to enforce their claims. For employers' liabilitycover after 1971 (after 1975 in Northern Ireland), when such insurance becamecompulsory, FSCS provides compensation in accordance with its rules where theinsurer is now insolvent either to the insured company (if it is solvent) or, ifthe insured company is insolvent, to the claimant. For employers' liabilitycover taken out prior to it being compulsory for employers to do so, FSCS willonly provide compensation where both the insurer and the insured (i.e. theemployer) are insolvent. FSCS provides compensation in cases where 'relevantpersons' (as defined in the Financial Services and Markets Act 2000) are unable,or likely to be unable, to satisfy claims against them. Insurance companies arerelevant persons for these purposes. In order to protect the interests of Scheme Creditors, a special voting sharehas been created in each of CCS and Cape. The rights attaching to these sharesare designed to ensure that (subject to the passing of the Resolution at theEGM) the Scheme Assets are only used to settle Scheme Claims and ancillary costsand impose restrictions on dividends and other distributions by Cape. Cape maynot make any distribution until 2008 and thereafter may only make distributionsif the amount of funding available to CCS is greater than 110 per cent. of theamount of projected Scheme Claims in the current and following five FinancialYears (together with three years of CCS's running costs) and is expected toremain not less than 110 per cent. of that amount until the end of the nextFinancial Year. The special voting shares are to be held by Law Debenture as anindependent third party on trust for Scheme Creditors. The board of CCS willinclude two independent Scheme Directors, appointed by Law Debenture, torepresent Scheme Creditors' interests. The first Scheme Director is Lord MeghnadDesai. A further Scheme Director will be appointed by Law Debenture prior to thehearing at which the Court will be asked to sanction the Scheme. The Scheme will not seek to address all potential asbestos-related claims whichmay be made against the Group and there remains the risk that other claims forasbestos-related diseases may continue to be made by the claimants outside theScheme. Potential asbestos-related liabilities not covered by the Scheme willinclude (i) Shipyard Claims (including claims brought outside of the relevantagreements direct against Cape by former employees of the shipyards), (ii) anyclaim brought by the purchasers of the Group's manufacturing operations whichwere sold in 2002, (iii) any claim not governed by the law of a jurisdictionwithin the UK, (iv) any claim brought by individuals or companies outside the UKexcept in relation to a claim arising out of a person's employment in the UK,(v) any claim brought by a person where it is inherently impossible at theScheme record date to identify the person entitled to bring the claim (such asFuture Financial Dependency Claims) and (vi) Reimbursement Claims. The Directorsbelieve that the Scheme Claims will represent the great majority of all futureasbestos-related claims likely to be successfully made against the Group. For each Scheme Company there will be two classes of Scheme Creditor (RecourseScheme Creditors and General Scheme Creditors) and in order for the Scheme to beapproved, each Scheme Company's Scheme requires such creditors within each classof creditors to vote in favour of the Scheme as represent not less than 75 percent. by value of claims and 50 per cent. by number of those claimants whoattend and vote at the relevant class meetings, whether in person or by proxy.Following approval by the requisite majorities of Scheme Creditors, the sanctionof the Court will be sought. It should be stressed that in order for the Scheme to be approved by the Courtit must have the overwhelming support of Scheme Creditors and there remains asignificant risk that either this support may not be forthcoming or the Courtmay not sanction the Scheme and the Scheme may therefore not become effective.If the Scheme is not approved, the Group will continue to manage claims as itdoes at present. The Directors reserve the right to agree to any modificationsto the Scheme which the Court may approve or impose, provided that the Directorsare satisfied that the Scheme as modified remains in the best interests of theScheme Companies. As stated in the June Circular, if the Scheme does not become effective, the netproceeds of the fundraising in July 2005 will not be refunded to shareholders.The Directors would use the balance of the proceeds which have been allocated tothe Scheme: • to reduce Group borrowings; • to provide working capital; • to invest in organic growth of the overseas business, particularly in the Middle East and on Sakhalin Island, and other opportunities; and • to fund suitable acquisition opportunities which expand the range of services or extend existing Group activities. No part of the proceeds would be specifically allocated to meet asbestos-relatedclaims. In these circumstances, the payment of asbestos-related claims would,based on the recent history of settlements, continue to be funded from futurecashflows generated by the Group's trading operations. However, should thefuture pattern as regards timing and quantum of claims prove to be materiallyand adversely different from the historic trend, there could be a materialadverse effect on the Group's financial position. 4. PROJECTED FUTURE ASBESTOS-RELATED CLAIMS AGAINST THE SCHEME COMPANIES For the purpose of the Scheme and in particular to determine the amount requiredto be made available to fund payments under the Scheme, Cape first commissionedTillinghast to review and provide an estimate of all of the Scheme Companies'unpaid and uninsured UK asbestos-related claims as at 31 December 2004(including future claims). This review included all such future claims apartfrom claims which may be brought by persons whose employment transferred to theGroup at the time that Cape acquired the business known as the UK DarchemContracting Business in 1992 in respect of their exposure to asbestos prior totransfer of their employment to the Group. Tillinghast is part of Towers Perrin, the global professional services firm, andprovides global actuarial and management consulting services to companiesadvising on risk financing and insurance-related matters. Unpaid claims do not represent an exact calculation, but rather are estimates ofthe expected future costs of the ultimate settlement of claims. As such,estimates of unpaid asbestos-related claims are inherently uncertain. In providing its estimates Tillinghast has relied, without audit or independentverification, on both historical financial and non-financial data and otherquantitative and qualitative information supplied by the Scheme Companies.Tillinghast has also used disease emergence studies conducted in the UK by theHealth and Safety Executive (HSE) as well as several academic studies includingstudies of mesothelioma specific to the UK. Due to the historical nature of theinformation provided by the Scheme Companies, there are variances in itscompleteness. This further increases the inherent uncertainty in Tillinghast'sestimates, although this uncertainty should decrease over time as theinformation is further expanded and updated. In this first review, on the basis set out above, Tillinghast's best estimate ofthe aggregate projected discounted value, net of insurance, of all the SchemeCompanies' unpaid UK asbestos-related claims (including claims against theAdditional Companies that are not Dissolved Group Companies - see below) was£80.9 million. This represented the best estimate within the range of the lowand high estimates contained in Tillinghast's review of £49.5 million and £160.2million respectively. The discount rate applied was 5 per cent. per annum. Following Tillinghast's initial review it became apparent that in consequence ofintra-Group arrangements between Scheme Companies and certain subsidiaries andformer subsidiaries of Cape that were not Scheme Companies (the AdditionalCompanies), a creditor of an Additional Company might have a claim against aScheme Company as well. It also became apparent that as a result of sucharrangements there might be claims against Scheme Companies by the AdditionalCompanies. Tillinghast were accordingly asked to conduct a second review.Tillinghast's initial review had included an assessment of the claims that mightbe made against the Additional Companies that had not been dissolved orliquidated but not claims against the Dissolved Group Companies. The secondreview was to estimate the Scheme Companies' potential liability for theactivities of the Dissolved Group Companies. Neither review encompassedpotential claims against the Darchem Companies. For the purpose of their reviews, Tillinghast assumed that the Scheme Companieswill be liable in respect of all claims that arise as a consequence of exposurecaused by the Additional Companies, whether or not such exposure occurred duringthe operation of any relevant arrangements with the Scheme Companies. Thisassumption was made because there is no realistic basis on which Tillinghastcould split claims that are likely to arise out of exposure that occurred duringthe operation of relevant arrangements and claims that are likely to arise as aconsequence of exposure outside the operation of these arrangements. Tillinghastalso assumed that the Scheme Companies will be liable even in relation to claimsagainst Dissolved Group Companies in respect of which there were no relevantarrangements and therefore no known basis on which any Scheme Company could beliable. This assumption was made because there is no realistic basis on whichTillinghast could split claims between those Dissolved Group Companies wherethere were such arrangements (Additional Companies) and those where there werenot. The reviews taken together are therefore unrealistically pessimistic, butshareholders and Scheme Creditors are nonetheless being made aware of thefinancial effects of these claims, assuming that they could all be successfullymade against a Scheme Company. Unless and until, in relation to the AdditionalCompanies, these claims are determined by the Court, the Scheme Companies willnot know what proportion of these claims they are liable for, if at all. For the purposes of the estimate of the Scheme Companies' potential liabilityfor the activities of the Dissolved Group Companies, Tillinghast also assumedthat the solvent insurers of the Dissolved Group Companies, but not the FSCS,will in the future respond to claims against the Dissolved Group Companies.Insofar as the FSCS is concerned this is likely to be an unrealisticallypessimistic view. This is because the FSCS may cease to respond to certainclaims (i.e. where insurance was provided to the Dissolved Group Companies by anow insolvent insurer during periods where there may have been relevantarrangements with a Scheme Company). However the FSCS is likely to continue torespond to other claims. Tillinghast's best estimate of the aggregate projected discounted value, net ofinsurance recoveries, of all the Scheme Companies' unpaid UK asbestos-relatedclaims (including all claims against the Dissolved Group Companies (other thanthe Darchem Companies)) is £119.4 million. This estimate is contained in thesecond Tillinghast Review and represents the best estimate for all such claimswithin the range of the low and high estimates of £70.2 million and £240.3million respectively. The discount rate applied is 5 per cent. per annum.Tillinghast's best estimate assumed that the level of damages payable toclaimants in respect of pleural plaques claims would remain as the current lawthen stood, being the first instance decision in Grieves and others v FT Everard& Sons and others (2005) ("Grieves"). Since the date of the second TillinghastReview an appeal of Grieves has been heard by the Court of Appeal. By amajority, the Court of Appeal held that pleural plaques are not themselvesactionable even when combined with the stress and anxiety they engender. Leavehas been granted for a further appeal to the House of Lords. One of theassumptions Tillinghast made in their high estimate is that on appeal of theGrieves decision the Court of Appeal would re-instate the higher level of awardsof damages that were commonly accepted before the Grieves decision. One of theassumptions Tillinghast made in their low estimate is that the Court of Appealwould decide that awards should be reduced even further. In fact the Court ofAppeal expressed the view that if pleural plaques were actionable, the level ofdamages should be increased above the Grieves level, albeit not to the levelgenerally awarded before Grieves. In the meantime, there is in effect a stay onsuch claims. Although this is relevant to a large number of the claims currentlynotified to the Group, over the long term the effect on the amount of theGroup's overall asbestos-related liabilities is unlikely to be significant. Given the wide range of the estimates and the significant degree of uncertaintysurrounding the estimates, the Directors are unable to conclude that theaggregate projected discounted value, net of insurance recoveries, of all theScheme Companies' unpaid UK asbestos-related claims (including future claims)will amount to £119.4 million, nor is there any certainty that the total cost ofsuch claims will even fall within the range of estimates. Whether the Scheme Fund is sufficient to settle all Scheme Claims payable by CCSwill depend on the continued successful trading of the Group and the accurateprojection of Scheme Claims. Long term trading projections, as well as actuarialestimates of potential future claims, are inherently difficult to predict withaccuracy and the occurrence of any of the following may result in Cape beingunable to provide the further payments to ensure that CCS is fully funded: • if there is an extended and material deterioration in the Group's trading performance; • if there is either a significant one-off or continued increase in the number or value of Scheme Claims; • if there is an adverse change in the legal or regulatory environment surrounding asbestos-related diseases resulting in, for example, a significant increase in the amount of damages awarded and the costs associated with defending a claim or the admission of a new class or type of claimant whether in or outside the Scheme; or • if investment returns fall below, and the effect of inflation on Scheme Claims rises above, current expectations. However, the Directors are confident that, assuming there is no materialdeterioration in the Group's trading performance nor a significant increase ineither the number of asbestos-related claims or the quantum of damages or coststhe Group has to settle, nor any significant shortfall in the recoveries thatthe Directors expect the Group to make from its insurers and under third partyindemnities and the Scheme Fund achieves investment returns in line with currentexpectations, the Group will be able to ensure CCS is sufficiently funded tosatisfy all Scheme Claims. 5. BENEFITS OF THE SCHEME The Directors anticipate the Scheme will provide the Group with the followingbenefits: • the Group will be protected to a significant extent from the risks of insolvency of Included Scheme Companies if there is a significant increase in either the number of claims or the quantum of damages or costs the Group has to settle or a material deterioration in the Group's trading performance which would otherwise have caused the Group to be unable to settle Scheme Claims payable by it in full; • by providing Included Scheme Companies with significant protection from insolvency, and in due course permitting limited distributions to Cape's shareholders so long as ongoing funding requirements are met, the Scheme should put the Group on a more secure financial footing. The Directors believe that this protection should significantly enhance the ability of the Group to grow its business. By reason of the enhanced opportunities for the Group which this should provide, the Scheme should make it more likely that over time the Included Scheme Companies will be able to discharge liability to their Scheme Creditors in full; • the Group's profile and customer perception should be enhanced by the reduction in the risk of insolvency from liabilities for the Scheme Claims; • it should, in the medium term, enable the Company to be better placed to move to a position in which it would be able to declare dividends to shareholders as and when it is prudent so to do provided, among other things, the Scheme Funding Percentage is greater than 110 per cent. and is anticipated to remain at not less than 110 per cent. The Directors consider that the Scheme should be advantageous to SchemeCreditors for a number of reasons including the following: • the Scheme should provide more security to Scheme Creditors of Included Scheme Companies in that an initial fund of £40 million will be ring-fenced for the payment of Scheme Claims not covered by insurance. Based upon the valuation by Tillinghast this funding should be sufficient to pay in full Scheme Claims not met by insurance or recoveries from the FSCS which fall due during at least the next eight Financial Years (commencing on 1 January 2006); • following the three-yearly independent actuarial reviews, Cape will be obliged to top-up CCS's funding out of its available operating cashflows in equal instalments over the next three years so that following each top-up there should be sufficient monies to fund the payment of Scheme Claims for the following six Financial Years; • CCS's obligation to pay uninsured Scheme Claims is not dependent upon the continued solvency of the relevant Included Scheme Company or Included Scheme Companies. Absent the Scheme, the Included Scheme Companies are at risk of insolvency if there is a significant increase in any of the number and/or frequency of Scheme Claims or the quantum of damages or costs which the Scheme Companies have to settle or if there is a material deterioration in the Group's trading performance. In those circumstances Scheme Creditors would either not rank at all as creditors in the insolvency of the Scheme Company concerned or, at best, would rank as unsecured creditors in the insolvency. In the case of the former, the claimants would receive no payment in respect of their claims. In the case of the latter the Directors consider it likely that such claimants would receive little or no payment in respect of their claims; • the rights of the Scheme Shareholder will include powers to restrict and limit certain sales or disposals of the Group's assets and businesses. Such sales or disposals will require the consent of the Scheme Shareholder, which it may not give without the recommendation of the Scheme Directors and unless it considers that such sales or disposals would not be materially prejudicial to the interests of Scheme. 6. PRINCIPAL CHANGES TO THE SCHEME AND PROPOSED CHANGES TO THE ARTICLES OFASSOCIATION 6.1 Since the despatch of the June Circular a number of modifications have beenmade to the Scheme as originally described in the June Circular. The principalchanges since the June Circular are as follows: (a) In the light of the increased estimate of the aggregate projected discountedvalue, net of insurance, of unpaid UK asbestos-related claims against the SchemeCompanies and the Dissolved Group Companies resulting from the secondTillinghast Review described in paragraph 4 above, the top-up arrangements forfunding the Scheme have been varied. Cape originally expected the initial £40million fund to meet amounts payable by the Scheme Companies in respect ofScheme Claims (other than those covered by insurance) over the following twelveyears. Cape now expects the initial £40 million fund to meet such claims over atleast the following eight years. Cape originally proposed that the level ofScheme funding would be independently reviewed every three years to determinethe funding required to cover expected claims over the next thirteen years andwhilst the level of Scheme funding will continue to be independently reviewedevery three years, the revised proposal is that the independent review willdetermine the funding required to cover expected claims over the next nineyears. Cape continues to propose to top up the Scheme Fund annually over the followingthree years, to the extent that it is able to do so. However the intention isnow that following such payments there will be sufficient monies to fund thepayment of claims over the following six years and not, as previously proposed,the following ten years (together in each case with three years of CCS's runningcosts). If the level of funds in the Scheme were to fall below an amount equalto 60 per cent. of the amount of expected claims over the following six years(as compared with ten years as previously proposed) only a percentage of eachclaim would be paid unless and until the Scheme funding was restored to thatlevel. (b) The preservation of the Scheme Companies' solvency has always been afundamental purpose of the Scheme. To this end the Funding Agreement asdescribed in the June Circular provided that CCS could not take enforcementproceedings, for example seek to wind up Cape, in the event that Cape failed tocomply with its obligations under that agreement. It is proposed to delete thisprovision. As Cape's obligation to fund CCS under the Funding Agreement islimited to an amount equal to 70 per cent. of the Consolidated OperationalAdjusted Cashflow (as defined) Cape should only ever be required to make apayment to CCS in circumstances where it has the monies available to make thatpayment. Therefore, the Directors believe that it is appropriate (and notinconsistent with the purposes of the Scheme) that should Cape fail to complywith its obligations under the Funding Agreement CCS may seek to enforce itsrights under that agreement by applying for Cape to be wound up. (c) It is proposed to exclude from claims which would otherwise be covered bythe Scheme certain further categories of claim which were, at the time of theJune Circular, not proposed to be excluded. These claims include FutureFinancial Dependency Claims, Future Contribution Claims and ReimbursementClaims. Claims against Scheme Companies by other Included Scheme Companies willalso be excluded from the Scheme. (d) The special rights attaching to the Scheme Shares and the agreement ofBarclays Bank PLC to lend the £15 million to form part of the initial funding ofthe Scheme were conditional on the Scheme becoming effective by 30 December2005. The lending arrangements have been renegotiated with Barclays Bank PLC andthe Banking Agreement is now conditional on the Scheme becoming effective by 30June 2006. The special rights attaching to the CCS Scheme Share will now ceaseto have effect if the Scheme is not effective by 30 June 2006 and it is proposedthat the Articles of Association of the Company be amended, inter alia, to applythe same long-stop date to the special rights attaching to the PLC Scheme Share. 6.2 Since the Cape Articles were adopted in July 2005, a number of changes havebecome necessary for one or more of the following reasons, (a) to reflect thefact that the Scheme is in final form and a number of the ancillary agreementsrelating to the Scheme have now been executed, (b) to reflect the changes to thefunding arrangements, (c) to revive the special rights attaching to the PLCScheme Share (provided that the Scheme becomes effective by 30 June 2006) and(d) to take account of comments arising out of the independent legal andfinancial reviews of the Scheme described in paragraph 1 above.The notice convening the EGM, contained in the March Circular, sets out the fulltext of the proposed amendments to the Cape Articles. 7. EXTRAORDINARY GENERAL MEETING As referred to above, in order to enable the Scheme to become effective, ifapproved by the Scheme Creditors, it is necessary to amend the special rightsattaching to the PLC Scheme Share so that those rights will apply unless theScheme has not become effective by 30 June 2006. In addition it is proposed to make certain further changes to the Cape Articlesfor the reasons described above. Shareholders should note that the Scheme will not be capable of becomingeffective unless the Resolution is passed, even if it is approved by therelevant majority of Scheme Creditors. The March Circular is being sent to shareholders today. The March Circularcontains a notice convening the Extraordinary General Meeting to be held at 2.30p.m. on 12 April 2006 at 10 Snow Hill, London EC1A 2AL at which the Resolutionwill be proposed. Since the dividend on the Preference Shares is more than sixmonths in arrears, the holders of the Preference Shares will be entitled toattend and vote at the Extraordinary General Meeting. Copies of the March Circular will be available free of charge during normalbusiness hours on any day (except Saturdays, Sundays and public holidays) at theoffices of Travers Smith, 10 Snow Hill, London, EC1A 2AL from today's date for aperiod of one month. APPENDIXDEFINITIONS The following definitions apply throughout this announcement, unless the contextrequires otherwise: "Additional Companies" (a) Cape Boards Limited, Cape Claddings Limited, Cape Hire Limited, Cape Industrial Products Limited, Cape Insulation Products Limited, Cape Industrial Services (Scotland) Limited, Cape Offshore Services Limited and (b) Boltex Limited, Cape Darlington Limited, Cape Distribution Limited, Cape Distribution (Holdings) Limited, Cape Friction International Limited, Cape Universal Claddings Limited, Hunting Painting Contractors (Marine) Limited, Hunting Painting Contractors (Midlands) Limited, Hunting Painting Contractors (Northern) Limited, Hunting Painting Contractors (Wales) Limited, Marinite Limited, Nodit Limited, Plumefern Limited, Somesystem Limited, Teubfin Limited and Torpex Limited of which those companies listed in (b) are Dissolved Group Companies. "Banking Agreement" the secured facility agreement dated 27 August 2003 as conditionally amended and restated on 31 January 2006 between, inter alia, Cape, CISGL and Barclays Bank PLC. "Board" or "Directors" the directors of the Company and "Director" shall mean any one of them. "Cape Articles" the articles of association of the Company. "CCS" Cape Claims Services Limited, a subsidiary of the Company incorporated in England and Wales under registered number 5445427. "the CCS Scheme Share" the special voting share of £1 in the share capital of CCS that has been issued to the Scheme Shareholder. "CISGL" Cape Industrial Services Group Limited, a wholly-owned subsidiary of the Company, registered in England and Wales under registered number 3299544. "CISL" Cape Industrial Services Limited, a wholly-owned subsidiary of the Company, registered in England and Wales under registered number 3337119. "Companies Act" the Companies Act 1985 (as amended). "Company" or "Cape" Cape Public Limited Company, registered in England and Wales under registered number 40203. "Court" the High Court of Justice in England and Wales. "Darchem Companies" Somesystem Limited, Cape Darlington Limited and Datadeep Limited. "Dissolved Group Companies" those former subsidiaries of Cape that have been dissolved or are in liquidation. "EGM"or "Extraordinary General Meeting" the extraordinary general meeting of the Company convened for 2.30 p.m. on 12 April 2006 and any adjournment thereof. "Financial Year(s)" (a) financial year(s) of the Company. "FSCS" the Financial Services Compensation Scheme. "Funding Agreement" the conditional funding agreement dated 14 March 2006 between the Company and CCS. "Funding Requirement" the amount certified in accordance with the Funding Agreement as being required by CCS to settle the level of Scheme Claims anticipated to be payable by it over the following nine Financial Years plus three years of CCS's running costs. "Future Contribution Claims" claims for contribution from a Scheme Company by a person in relation to a claim made against that person where none of the acts or omissions on which the claim against that person is based have taken place at the Scheme record date. "Future Financial Dependency Claims" certain claims under the Fatal Accidents Act 1976, the Damages (Scotland) Act 1976 or the Fatal Accidents (Northern Ireland) Order 1977. "General Scheme Claim" a Scheme Claim which is not a Recourse Scheme Claim, as defined in the Scheme. "General Scheme Creditor" any Scheme Creditor who has a Scheme Claim which is a General Scheme Claim. "Group" the Company and its subsidiaries and "Group Company" or "Group Companies" shall, as the context may require, refer to one or any of such companies. "Included Scheme Company" a Scheme Company in respect of which the Scheme becomes effective. "June Circular" the circular to shareholders of the Company dated 16 June 2005. "Key Scheme Companies" Cape, CISL, Somewatch Limited and Predart Limited. "Law Debenture" The Law Debenture Trust Corporation p.l.c. "March Circular" the circular to shareholders of the Company dated 17 March 2005, containing (inter alia) a notice convening the EGM "Ordinary Share" an ordinary share of 25 pence in the share capital of the Company. "Payment Percentage" the percentage of each Scheme Claim payable by CCS that it is from time to time settling as defined in the Scheme Guarantee. "PLC Scheme Share" the special voting share of £1 in the share capital of the Company to be issued to the Scheme Shareholder. "Preference Shares" the 3.5 per cent. cumulative preference shares of £1 each in the share capital of the Company. "Recourse Scheme Claim" a Scheme Claim in respect of which any Scheme Company has any insurance coverage, as defined in the Scheme. "Recourse Scheme Creditor" any Scheme Creditor who has a Scheme Claim which is a Recourse Scheme Claim. "Reimbursement Agreements" the PLC Reimbursement Agreement and the CCSReimbursement Agreement. "Reimbursement Claims" a claim against a Scheme Company by or on behalf of an insurer of an Additional Company in respect of a claim that has been settled or determined, but which would, if made against the relevant Scheme Company after the Scheme record date have been a Scheme Claim, as defined in the Scheme. "Relevant Balance Sheet Date" the balance sheet date to which the audited accounts for the Relevant Financial Year are prepared. "Relevant Financial Year" the Financial Year immediately preceding the Financial Year in which the Company proposes to make a distribution, including the payment of dividends. "Resolution" the special resolution to be proposed at the EGM. "the Scheme" the proposed schemes of arrangement under section 425 of the Companies Act to be entered into by the Company and various Group Companies with Scheme Creditors in respect of Scheme Claims. "Scheme Assets" the amount of cash or equivalent held by CCS on the Relevant Balance Sheet Date out of which Scheme Claims may be settled, as defined in and certified in accordance with the Funding Agreement. "Scheme Claims" asbestos-related personal injury and industrial disease claims and other claims against any Scheme Company which are within the Scheme. "Scheme Companies" the Key Scheme Companies and those other Group Companies defined as such in the Scheme. "Scheme Creditors" those persons defined in the Scheme as such, being persons who are, or may in the future be, entitled to bring Scheme Claims. "Scheme Directors" the independent directors of CCS appointed by the Scheme Shareholder under the terms of the CCS Scheme Share and the Trust Deed. "Scheme Fund" the fund to be established in accordance with the terms and conditions of the Scheme. "Scheme Funding Percentage" the amount of the Scheme Assets expressed as a percentage of the Scheme Funding Requirement as defined in and certified in accordance with the Funding Agreement. "Scheme Funding Requirement" the amount as specified in accordance with the Funding Agreement as being required by CCS to settle the level of Scheme Claims anticipated to be payable by it over the following six Financial Years plus three years of CCS's running costs. "Scheme Guarantee" the conditional guarantee dated 14 March 2006 between CCS and each of the Scheme Companies, whereby CCS has agreed to settle Scheme Claims. "Scheme Meetings" the meetings of Scheme Creditors convened for 16 May 2006 for the purpose of approving the Scheme. "Scheme Shareholder" the holder of the Scheme Shares which in the first instance shall be Law Debenture. "Scheme Shares" the PLC Scheme Share and the CCS Scheme Share. "Shipyard Claims" asbestos-related claims the subject of the agreements. "Subsidiary" shall be defined by reference to sections 736 and 736A of the Companies Act. "Tillinghast" Tillinghast, a part of Towers Perrin, Forster & Crosby Inc. "Tillinghast Reviews" the independent actuarial reviews dated 8 June 2005 and11 November 2005 respectively of asbestos-related unpaid claims of (1) the Scheme Companies and the Additional Companies which are not Dissolved Group Companies and (2) the Scheme Companies and the Dissolved Group Companies (other than the Darchem Companies) as at 31 December 2004, prepared by Tillinghast. "Trust Deed" the conditional trust deed dated 14 March 2006 between Cape, CCS and Law Debenture. "UK" or "United Kingdom" the United Kingdom of Great Britain and Northern Ireland. GLOSSARY Pleural plaques lesions on the lining of the lungs which harden over time. NOTE Where used in this announcement, the terms "Scheme Claim" and "Scheme Creditor"may, depending on the context, refer to Scheme Claims and Scheme Creditors forthe purposes of the Scheme Meetings and/or those Scheme Claims and SchemeCreditors in relation to which or whom the Scheme becomes effective. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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