Notice of Extraordinary General Meeting and Takeover Offer Bid Implementation Agreement

Notice of Extraordinary General Meeting and Takeover Offer Bid Implementation Agreement

Notice is given that an Extraordinary General Meeting of the Company will be held on 17 December 2018 at 10.30 am (AEDT) at:

PricewaterhouseCoopers, Sydney
One International Towers
Watermans Quay
Barangaroo, Sydney
Australia

Reason for Extraordinary General Meeting

As announced on the Company’s website, on 31 October 2017 the Company issued John O’Connor and Margaret O’Connor (the Noteholders) (in equal proportions) 100 million Series A Convertible Notes raising $15 million. The Company also issued the Noteholders (in equal proportions) 66.7 million Series B Convertible Notes raising $10 million. (In this announcement, the Series B Convertible Notes will be referred to as the Convertible Notes).

On 24 September 2018, the Company concluded a new agreement for the issuance of $17.1 million in Series B Preference Shares as new equity to the Noteholders (in equal proportions), replacing the Series A Convertible Notes (and the impending obligation to redeem the Series A Convertible Notes on 31 October 2018).

The Noteholders were the vendors of Diona Pty Ltd (Diona) and the Series A Convertible Notes and the Convertible Notes were issued to the Noteholders to settle the final earn-out obligations between the Company and the Noteholders relating to the Company’s acquisition of the shares in Diona from the Noteholders in October 2015 (Diona Acquisition).

The Series B Preference Shares were issued pursuant to the Share Subscription Agreement to the Noteholders in consideration for the termination of the Series A Convertible Notes; to provide for a greater level of equity in the business of the Company; and to lower the funding costs associated with this source of capital. The Series A Convertible Notes were required to be redeemed for cash on 31 October 2018.

Under the Share Subscription Agreement, the Company is obliged to use its best endeavours to seek approval under item 7 of section 611 of the Corporations Act 2001 (Cth) (Corporations Act) by requisite majority of shareholders of the future issue of Shares to the Noteholders in the event of conversion of the Convertible Notes and the Series B Preference Shares (Future Conversion) at the Company’s 2018 Annual General Meeting or as soon as practicable thereafter and in any event, by 24 December 2018. The Extraordinary General Meeting is being called to satisfy this obligation.

The Company is seeking approval under item 7 of section 611 of the Corporations Act to the future issue of Shares to the Noteholders in the event of the conversion of the Convertible Notes and Series B Preference Shares (Resolution). This is an exemption to Section 606 of the Corporations Act which prohibits an individual (or corporation) obtaining more than 20% of the voting power of an Australian unlisted company with more than 50 members unless a full takeover offer is made. If approved the Noteholders will on conversion be permitted to hold more than 20% of the voting power without having to make a full takeover offer.

Takeover Offer Bid Implementation Agreement

On Friday 23 November 2018, the Company entered into a bid implementation agreement with Jupiter Civil Pty Ltd (ACN 630 129 903) as trustee for The Jupiter Unit Trust (Bidder), under which the Bidder proposes to acquire all the shares in the Company by way of an off-market takeover bid (Takeover Offer) (Bid Implementation Agreement). The Takeover Offer is a conditional off-market takeover bid to acquire all of the ordinary shares on issue in the Company on the commencement of the offer period plus any Shares issued by the Company upon any conversion of the Series A Preference Shares but will not extend to any Shares issued during the bid period as a result of the conversion of the Convertible Notes or the Series B Preference Shares.

The offer price under the Takeover Offer is $0.007 per Share.

The Bidder is a newly formed entity beneficially owned by David O’Connor and John Paul O’Connor, 2 members of the O’Connor Family (being the sons of the Noteholders). David O’Connor is currently the Executive General Manager Strategy and Growth – Calibre Group of the Company and John Paul O’Connor is the National Operations Manager – Diona of the Company. They have both worked for Calibre in a range of roles since Calibre’s acquisition of Diona.

The Takeover Offer will be subject to certain conditions which are set out in full in Schedule 1 of the Bid Implementation Agreement, which accompanies this announcement, including (among others):

  • that by the end of the bid period, the Bidder has received valid acceptances with respect to at least 75% of the ordinary shares in the Company held by shareholders who are not its associates and for which it has made an offer under the Takeover Bid (Minimum Acceptance Condition);
  • approval of the Resolution by the requisite majority at a general meeting of the Company;
  • no prescribed occurrences (which include, amongst other things, the occurrences as set out in section 652C(1) and (2) of the Corporations Act) occur with respect to the Company (which includes no conversion of any Convertible Notes or Series B Preference Shares), except the conversion of the Series A Preference Shares or otherwise to the extent agreed in writing by the Bidder; and
  • the lenders and financiers of the Company or its subsidiaries provide undertakings to the Bidder and the Company not to exercise, and not to state an intention to exercise, any rights they may have to terminate any financing arrangement, require repayment of funds, or enforce security over assets of the Company or its subsidiaries.

The Bid Implementation Agreement also provides that:

  • the Company is not prevented by exclusivity provisions, including no-shop and no-talk restrictions, and as a result, is free to solicit, procure or engage with any third party on any competing proposal to the Takeover Offer;
  • the Noteholders will waive the obligations of the Company under the Convertible Note Terms in relation to the Change of Control that occurs as a result of the Takeover Offer; and
  • the Company will not exercise its option to convert the Series B Preference Shares during the Takeover Offer unless the Takeover Offer has become unconditional and except only to the extent notified by the Bidder during the last 5 Business Days of the Offer Period of the Takeover Offer, at which time the Company will convert the number so notified.

The Noteholders have signed a deed confirming that they will accept the redemption of their Convertible Notes and Series B Preference Shares in the event a superior proposal is recommended by the Company’s directors before satisfaction of the Minimum Acceptance Condition. A copy of this deed is attached to this announcement.

David O’Connor and John Paul O’Connor have advised the Company that if the Takeover Offer is successful, they intend to seek to privatise the Company and undertake a recapitalisation to enable the Company to reduce its debt levels. They have also advised the Company that it is their intention to make an offer to management of the Company to take an ownership stake in the Company’s business following the Takeover Offer, in the event that the Takeover Offer is successful.

Under the Bid Implementation Agreement, once the Takeover Offer becomes unconditional, the Bidder may give the Company a notice requiring it to convert such number of Convertible Notes and/or Series B Preference Shares by the end of the Offer Period as the Bidder elects, and the Company must comply with that notice. It is expected that if the Takeover Offer becomes unconditional, the Company will be required to convert (pursuant to such notice it receives from the Bidder) a number of Convertible Notes and/or Series B Preference Shares so that the Bidder (through acceptances under the Takeover Offer) and the Noteholders (through the conversion of the Series B Preference Shares) will together hold at least 90% of the issued shares in the Company. This will allow the Bidder to proceed with compulsory acquisition of the Shares not held by the Bidder and its associates in accordance with the Corporations Act. David O’Connor and John Paul O’Connor have advised that the Company that they do not expect that the Bidder will seek conversion of any more Convertible Notes and/or Series B Preference Shares than necessary to result in the aggregate shareholding of the Bidder and the Subscribers being 90% of the Company’s issued ordinary shares at the end of the Offer Period.

The full terms of the Bid Implementation Agreement are attached to this announcement.

Independent Expert Report

The Company has appointed KPMG Corporate Finance as the Independent Expert to prepare the Independent Expert's Report, the purpose of which is to state whether or not, in its opinion, the issue of Shares to the Subscribers on the conversion of the Convertible Notes and the Series B Preference Shares is 'fair' and 'reasonable' to shareholders of the Company (Shareholders).

The Independent Expert has concluded that the Future Conversion is not fair but reasonable to the Shareholders, in the absence of a superior proposal.

The Independent Expert has assessed the value of a Share (inclusive of a premium for control) to lie in the range of $0.080 to $0.118 per Share, which compares to its assessed post-conversion value of an ordinary share in the capital of the Company (Share), on a minority interest basis, of between $0.011 and $0.014 per Share. As the range of the Independent Expert’s post-conversion values fall below its range of assessed value prior to conversion (inclusive of a premium for control), the Independent Expert has concluded that the Future Conversion is not fair to Shareholders.

However, the Independent Expert has concluded that the benefit to the Shareholders of an improved Company financial position following the conversion of the Series B Preference Shares (as described in further detail in the Independent Expert’s Report) improve the likelihood of the Company being able to continue to operate as a going concern, and these benefits outweigh the disadvantages (such as the Shareholders will not receive the full underlying going concern value for a Share in the event of a Future Conversion; or Shareholders’ interests will be significantly diluted through the issue of new Shares to the Subscribers). Accordingly, whilst the Independent Expert has concluded that the Future Conversion is not fair, it has concluded that the Future Conversion is reasonable in the absence of a superior proposal.

A complete copy of the Independent Expert's Report is provided in the Extraordinary General Meeting Notice of Meeting.

First Reserve Intentions

First Reserve Corporation (First Reserve) currently owns 61% of the Shares in the Company. First Reserve confirmed to the Company that it currently intends to vote its Shares in favour of any resolution put forward by the Company that is necessary to progress the transaction in accordance with the Convertible Note Subscription Agreements around the time the Convertible Notes were issued and the Share Subscription Agreements around the time the Series B Preference Shares were issued. As at the date of this Notice, the Company is not aware of First Reserve having changed its intentions since those dates.

First Reserve has also confirmed with the Company that it intends to accept the Takeover Offer, in the absence of a superior proposal and subject to the Independent Expert Report in respect of the Takeover Offer stating that the Offer is reasonable.

Directors’ Recommendation

The Directors recognise that the conversion of the Convertible Notes and the Series B Preference Shares, should conversion occur, is extremely dilutive to existing Shareholders. However, at the time that the Convertible Notes and Series B Preference Shares were issued, the Directors were of the view that the issue of those instruments was in the best interests of the Company taking into account all relevant circumstances, despite the potential for dilution. In particular, the Convertible Notes and Series B Preference Shares were issued because the Company did not have an alternative way to meet its obligations to make cash payments to the Subscribers under the terms of the Diona Acquisition and the Series A Convertible Notes.

The Independent Directors (being Geoffrey Tomlinson, Dod Wales, Raymond Munro and Graham Smith), also intend to recommend that Shareholders accept the Takeover Offer in the absence of a superior proposal. Given the potentially dilutive effect of the Convertible Notes and the Series B Preference Shares, the Independent Directors believe that entering into the Bid Implementation Agreement and securing the agreement of the Noteholders to the redemption of the Convertible Notes if there was an alternative Change of Control proposal (which is not otherwise permitted under the Convertible Note Terms), provides the best opportunity for a competing proposal for the Company or its assets to emerge. Even if no competing proposal emerges, the Independent Directors believe that providing Shareholders with the liquidity opportunity through the Takeover Offer, is in the best interests of Shareholders given the potential dilution that they are likely to be subject to if the Resolution is approved and the Convertible Notes or the Series B Preference Shares are converted.

Accordingly, the Independent Directors unanimously recommend that Shareholders vote in favour of the Resolution.

- ENDS -

Attachments

Notice of Extraordinary General Meeting Bid Implementation Agreement

Waiver and Acknowledgment Deed Convertible Note Terms

Series B Preference Share Terms

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