BOZ - Application for Waiver from NZSX Listing Rule 7.3.1.
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Botry-Zen Limited (BOZ) | 3:47 pm, Friday 19 September 2008 | BOZ | 0.020 |
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19 September 2008
NZX Regulation Decision
Botry-Zen Limited
Application for Waiver from NZSX Listing Rule 7.3.1.
Background
1. Botry-Zen Limited (“BOZ” or “the Company”) is a company listed on the NZSX market.
2. Since the beginning of the year the Board and Chief Executive have been in an ongoing review of the Company’s capital requirements. This has occurred in consultation with the Company’s bank, Bank of New Zealand (“BNZ”).
3. BOZ held a $1.1 million overdraft facility with BNZ prior to the facility being re-negotiated in June 2008. This facility is secured over all present and future acquired property of the company. The overdraft was drawn down to $1.0 million as at 31 March 2008 but by 1 September 2008 the overdraft stood at approximately $1.8 million.
4. BNZ had allowed the facility to be overdrawn to this extent on the understanding that BOZ had secured additional equity capital by offering select “non public” investors up to 1.8 million convertible notes at an issue price of $1.00 per convertible note along with stapled options in the ratio of 20 options for every convertible note (“the Original Offer”).
5. In August 2008 BOZ called a special meeting (“the Meeting”) to consider the Original Offer. In particular shareholders were required to pass three Ordinary Resolutions, in accordance with NZSX Listing Rules (“Rule”) 7.3.1, 7.5 and 9.2.1, and a Special Resolution (due to the transaction being deemed a major transaction as defined in the Companies Act) in accordance with Rule 9.1.1 and section 129 of the Companies Act in order for the Original Offer to proceed.
6. All Ordinary Resolutions were passed, however the Special Resolution was not.
7. Immediately following the Meeting BOZ took urgent steps to explore capital raising opportunities.
8. On 1 September 2008 BOZ executed a share subscription agreement with Melic Innovators Limited (“Melic”) for the private placement of 25,000,000 ordinary shares raising $500,000 (“the Melic Issue”).
The Melic Issue was conducted in accordance with Rule 7.3.5(b).
9. In addition to the capital provided under the Melic Issue (and as a part of that transaction), Melic provided BOZ with a 3 year term loan of $500,000.
10. The shares issued to Melic represented 14.53% of the shares that BOZ is able to issue under Rule 7.3.5(b).
11. However, the amount of capital raised under the Melic Issue is not in itself sufficient to meet the Company’s working capital requirements. BNZ has agreed to continue to provide overdraft facilities to NZX Regulation Decision - BOZ Application for waiver from NZSX Listing Rule 7.3.1 the Company, but on the basis that BOZ raises additional capital in the short term. Because the facility is by way of overdraft it may be called at any time.
12. BOZ is now proposing to make a further private placement of 10,372,807 ordinary shares, and has executed a share subscription agreement, to Mr Claus Hartge at an issue price of 2 cents per share (the same as the Melic Issue) to raise a further $207,456 (“the Hartge Issue”).
13. Mr Hartge is the Managing Director of Hartge Ingredients BmbH & Co. KG, and has widespread commercial interests in international trading and agricultural activities within Europe and South America. He is familiar with the Company’s products BOTRY-Zen and ARMOUR-Zen. Mr Hartge does not at present have a holding in BOZ, nor is he related to any other existing shareholder.
14. The number of shares proposed to be issued pursuant to the Hartge Issue will exceed the 15% issue facility provided by Listing Rule 7.3.5(b) and will result in BOZ having issued 5.56% more shares than is allowed under Rule 7.3.5(b) without requiring shareholder approval.
Application
15. BOZ has applied to NZX Regulation (“NZXR”) for a waiver from Listing Rule 7.3.1 to permit the issue of 10,372,807 shares pursuant to the Hartge Issue.
16. BOZ makes the following submissions in support of its application:
(a) In the Board’s view the Hartge Issue is in the best interests of BOZ and its shareholders. In particular the ability of BOZ to continue to trade is dependent on the Company obtaining
additional capital over and above the Melic Issue. It has been made clear to the Company by BNZ that the current overdraft facility is the maximum which can be expected in the current
circumstances. This means that BOZ must identify other sources of capital urgently.
(b) It is the firm belief of the Board and management that the Hartge Issue represents the only practical means of raising the capital required in the necessary timeframe. In the event that BOZ is unable to secure the capital it requires it is the Board’s view that it is highly likely that the company will be placed into receivership. The assets of BOZ are such that it is unlikely that their sale will be managed in a way that provides a return to shareholders commensurate with what the Board considers to be the true value of these assets. It is accordingly in the interests of shareholders that additional capital is urgently provided to the Company.
(c) In effect the shareholders have already provided approval to the Company for additional capital to be raised without first being offered an opportunity to participate in a rights issue. Three of the four resolutions required for the Original Offer to proceed were approved by shareholders at the Meeting. The fourth resolution was passed by the Ordinary Resolution threshold but did not meet the higher Special Resolution threshold required by the Companies Act.
(d) If the matter were taken to shareholders again it would only require an Ordinary Resolution for approval. The immediate past meeting indicates that this approval would be given.
NZX Regulation Decision - BOZ
Application for waiver from NZSX Listing Rule 7.3.1
(e) The shares issued pursuant to the Hartge Issue are being issued at a premium market price at the time the issuer was announced. Even after the announcement of the Hartge Issue to the
market on 3 September BOZ’s share price has remained stable, indicating that the market is of the view that the price being paid for the shares is fair.
(f) The Hartge Issue will not result in any existing shareholder materially increasing its effective control of the Issuer. Mr Hartge does not presently have any holding in BOZ nor is he related to any other shareholders. His proposed holding is not one that will confer any significant control.
(g) The is no value dilution from existing shareholders to incoming shareholders because the shares were issued at a premium market price. In fact, the value transfers in reverse. Accordingly, in an economic sense there is no dilution of existing shareholder value.
(h) There will also be no significant voting control dilution resulting from the Hartge Issue. Melic has consented to the Hartge Issue and expects that it will proceed. The other major shareholders in BOZ are interests associated with Southern Viticulture Limited (“Southern Viticulture”).
BOZ has advised that Southern Viticulture do not wish to put further funds into the Company at this time. Presuming the Hartge Issue proceeds the total issued capital of BOZ will be
207,456,139 shares. Southern Viticulture currently holds 21,088,124 shares and Melic holds 26,690,00 shares (please refer to table below showing both parties respective holdings pre and
post the Hartge Issue). As displayed in the table below, the control enjoyed by Southern Viticulture and Melic is not at present a voting control but they do, each individually, have the
ability to prevent a compulsory acquisition occurring in accordance with the Takeovers Code.
This ability will remain for both Melic and Southern Viticulture post the Hartge Issue.
Interests Shares Pre Hartge
Issue Post Hartge
Issue
Melic 26ʼ690ʼ000 13.54% 12.86%
Southern
Viticulture 21ʼ088ʼ124 10.70% 10.17%
(i) BOZ recognises that the obligation to obtain shareholder approval for an issue of shares under Rule 7.3.1 is backed by a policy consideration that shareholders should have the opportunity to meet and discuss the proposal with management and the Board. With respect to this policy consideration BOZ makes the following submissions:
(i) BOZ needs the money urgently. It is plain from the announcements already made that any additional funding must be provided by way of equity rather than debt. Debt would
incur a funding cost and give rise to considerable issues for directors under the Companies Act.
(ii) BNZ expects the Company to access more capital and for that to occur quickly. The BNZ overdraft facility can be called at any time and BOZ expects BNZ to perceive a shareholder meeting very negatively. BNZ expected that the last shareholder meeting
NZX Regulation Decision - BOZ Application for waiver from NZSX Listing Rule 7.3.1would be a formality and was disappointed when the meeting passed Ordinary Resolutions but failed to pass the Special Resolution.
(iii) BOZ expects that a Notice of Meeting could not be prepared, approved and despatched before the second week of October. BOZ does not want to risk its future and the interests of all shareholders by delaying securing the additional capital.
(iv) The Hartge Issue is conditional upon a waiver being granted, rather than on shareholder approval being obtained. This reflects the degree of risk Mr Hartge was prepared to assume as to the time period before an allotment would be made. BOZ cannot rule out the possibility that Mr Hartge would not wait for a shareholders meeting and BOZ believes it cannot expose itself to the risks inherent in such a delay.
(v) The need for additional capital was the subject of the Meeting. The background to that need was fully canvassed both in the Notice of Meeting and at the Meeting itself.
Ordinary Resolutions were passed at that Meeting for the purposes of the Rules approving the raising of additional capital by way of a placement rather than a pro rata rights issue.
Shareholders accordingly approved both the need for additional capital and the fact that it would not be pro rata.
(vi) The terms of the Hartge Proposal differ from those put before the meeting. Nevertheless they have been announced to the market over a week ago. However BOZ has not received any shareholder communication indicating any dissent or indeed any
requirement for further information in relation to the Hartge Issue. This absence of shareholder enquiry contrasts with the level of enquiry received by BOZ following announcement of the proposals considered at the Meeting. The absence of shareholder
enquiry may reflect not only an acceptance of the need for capital but also that the Hartge Issue is not a complex issue and little would be gained by a meeting to evaluate the
proposal.
(vii) Further, in the present circumstances BOZ submit that they are unable to afford the associated costs with taking the matter to shareholders for approval.
(viii) In summary, when considering the acknowledged desirability of there being an opportunity to discuss and evaluate a proposal, BOZ submits that this needs to be balanced against, and in the Board’s view is clearly outweighed by, the urgency of BOZ's
need for capital, the risks of delay, the costs of the meeting, and the discussions which have already occurred at shareholder level.
Rules
17. Rule 7.3.1 provides:
Prohibition on Issue: No Issuer shall issue any Equity Securities (including issue on
Conversion of any other Security) unless:
(a)the precise terms and conditions of the specific proposal to issue those Equity Securities have been approved (subject to Rule 7.3.3) by separate resolutions (passed by a simple
majority of Votes) of holders of each Class of Quoted Equity Securities of the Issuer whose rights or entitlements could be affected by that issue, and that issue is completed
within the time specified in Rule 7.3.2; or (b) the issue is made in accordance with any of Rules 7.3.4 to 7.3.8.
18. Rule 7.3.5 provides:
An Issuer may issue Equity Securities if:
(a)the issue is not made in whole or in part to any Director of the Issuer, Associated Person of a Director or Employee (as defined in Rule 7.3.6) of the Issuer; and (b)the total number of Equity Securities issued, and all other Equity Securities of the same Class issued pursuant to this Rule 7.3.5 during the shorter of the period of 12 months preceding the date of the issue and the period from the date on which the Issuer was Listed to the date of the issue, will not exceed the aggregate of:
(i) 15% of the total number of Equity Securities of that Class on issue at the commencement of that period; and
(ii) 15% of the number of the Equity Securities of that Class issued during that period pursuant to any of Rules 7.3.1(a), 7.3.4, 7.3.6 and 7.3.8; and
(iii) any Equity Securities of that Class issued pursuant to this Rule 7.3.5 during that period, the issue of which has been ratified by an Ordinary Resolution of the Issuer; and less
(iv) 15% of the number of Equity Securities of that Class which have been acquired or redeemed by the Issuer during that period (other than Equity Securities held as Treasury Stock).
Decision
19. On the basis that the information provided to NZXR is full and accurate in all material respects, NZXR grants BOZ a waiver from the requirement in Rule 7.3.1 to seek shareholder approval for the Hartge Issue on the following conditions:
(a) That when the shares are issued to Mr Hartge, they are not issued at a price that is less than the 20 Business Day Volume Weighted Average Price of BOZ shares.
(b) That for the purposes of calculation under Rule 7.3.5(b), for a period of 12 months commencing on 1 September 2009 (being the lapsing of 12 months following the Melic Issue), if BOZ wishes
to issue shares in reliance on Rule 7.3.5 (“Further 7.3.5 Issue”) the shares issued pursuant to the Hartge Issue are deemed to have been issued on the day prior to the Further 7.3.5 Issue.
Reasons
20. In coming to the decision to grant BOZ the waiver in respect of Rule 7.3.1, NZXR has considered that:
(a) The requirement to seek shareholder approval for issues under Rule 7.3.1 is supported by the following two broad policy considerations.
(i) Firstly, shareholders holdings should not be diluted, both in terms of their voting power and the economic value of their holding, without their consent.
(ii) Secondly, where an offer is to be made that will dilute shareholders holdings, shareholders should have the opportunity to meet and discuss the terms of the proposal with management and the Board of the company.
(b) BOZ has demonstrated that the dilutionary policy considerations will not be significantly impugned by the Hartge Issue. In particular NZXR notes that the with regards to economic
value dilution, the shares were issued at a premium to market price, and that therefore value transfers from Mr Hartge to BOZ shareholders rather than the reverse. With respect to dilution of
voting rights, the overall dilution to all shareholders will be approximately 5%. NZXR also notes that no shareholder will be diluted below a threshold that confers any voting control and that the two shareholders that do exercise a certain control over the Company, being Melic and Southern Viticulture’s ability to block a compulsory acquisition in accordance with the Takeovers Code, will retain that control.
(c) The condition imposed in paragraph 19(a) will prevent a further dilution of shareholders interests without express approval. This condition will allow BOZ to issue the amount of shares it would have been able to issue under Rule 7.3.5 over 2 years but in a more condensed timeframe, whilst still limiting the total number of shares that may be issued without
shareholder approval.
(d) The circumstances where an Issuer is able to demonstrate that the policy considerations behind Rule 7.3.1 have been sufficiently addressed to warrant waiving the Rule will be extremely rare.
In the present circumstances NZXR considers the following facts indicate that waiving the Rule will be for the benefit of all shareholders and accordingly were material to NZXR’s decision in
this regard:
(i) BOZ requires additional capital to meet the Company’s working capital requirements. BNZ has agreed to continue to provide overdraft facilities but only on the basis that BOZ raises additional capital in the short term. This overdraft facility may be called at any time.
(ii) The Board and management of BOZ have stated to NZXR that they consider the Hartge Issue represents the only practical means of raising the capital required in the necessary
timeframe.
(iii)In the event that BOZ is unable to secure the capital it requires it is the Board’s view that it is highly likely that the Company will be placed in receivership.
(iv) A term of the Hartge Issue is that a waiver from the Rules is granted, rather than shareholder approval obtained. This reflects the fact that Mr Hartge may not be prepared to wait until a meeting is called to receive the shares.
(v) In the present circumstances, the Company cannot afford the costs associated with taking the Hartge Issue to shareholders for approval.
(vi) In summary, it has been put to NZXR that without this waiver it is highly like that BOZ will be placed in receivership.
Confidentiality
21. No application has been made for confidentiality or delayed publication of this decision and the decision will be published in accordance with Rule 1.7.2.
ENDS.
NZX Regulation Decision - BOZ
Application for waiver from NZSX Listing Rule 7.3.1
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