ESC.L Regulatory News (ESC)

7 Jul 2005 14:20

Exeter Smaller Co's Income Fund Ld07 July 2005 7 July 2005 Exeter Smaller Companies Income Fund Limited (the "Company") and ESCIF Securities Limited (the "Subsidiary") Proposals to wind up the Company and the Subsidiary Introduction The Board of the Company announced in February 2005 that, having consulted withcertain large shareholders, it had concluded that the most appropriate wayforward would be for the Group to be placed in members' voluntary liquidation.Having consulted further with shareholders, the Company is today posting aCircular to all the holders of Ordinary Shares and ZDP Shares seeking theirapproval for the Company and the Subsidiary to be placed into early liquidationand setting out the proposals for the distribution of the Company's assets(after payment of its liabilities) on such winding up. The following text comprises edited extracts from the Chairman's letter toShareholders in the Circular. Reasons for the Proposals The total assets of the Group stood at only £12.9 million as at the close ofbusiness on 1 July 2005 (including £3.5 million remaining outstanding under theBank Loan). The Board has taken steps to reduce the Company's running costs wherepractically possible, including reducing the number of Directors, the fees paidto service providers and printing costs. Even so, the significantly reducedsize of the Company's portfolio means that it is anticipated that, in thecurrent financial year to 30 September 2005, expenses would be approximately£0.6 million. Your Board does not believe that the current size of the Group islarge enough to justify the ongoing cost base. The Directors therefore believethat it would be in the best interests of Shareholders for proposals to be putto Shareholders now for a voluntary winding up of the Company and theSubsidiary. The Subsidiary is not due to be wound up in the ordinary course until 30September 2007. The arrangements between the Company and the Subsidiary (as setout in the intra-group loan arrangements contained in the Loan Note and theContribution Agreement) provide for the Company to pay such amount to theSubsidiary as is required to satisfy in full the entitlement of the ZDP Shareson any winding up, or, to the extent that the Company does not have sufficientassets to satisfy such entitlement in full, the Company shall pay to theSubsidiary all of its remaining assets after payment of all other creditors ofthe Company. The Ordinary Shareholders do not have any entitlement to theassets of the Company unless and until the ZDP Shareholders have been repaid infull. Total assets would need to grow at over 20 per cent. per annum for theOrdinary Shares to have any value in September 2007. As a consequence, if the Company and the Subsidiary were to be wound up now, inthe absence of the Proposals, all of the Company's assets (including any revenuereserves) after payment of its liabilities would be attributable to the holdersof ZDP Shares. The support of each class of Shareholder will be needed for a winding up of theSubsidiary and the Company before 30 September 2007. However, as no dividend iscurrently being paid or is planned to be paid to Ordinary Shareholders and as itis extremely unlikely that such Shareholders would receive anything on a windingup of the Subsidiary on 30 September 2007, the Directors consider that only avery small part of the Company's assets should be allocated to the OrdinaryShares as part of the Proposals. The Proposals In February 2005, the Board indicated that it anticipated that, on an earlyliquidation of the Company, Ordinary Shareholders would receive 0.10p perOrdinary Share. However, after further consultation with major shareholders ofeach class of Share and after careful consideration of their views, the Boardhas felt it necessary to amend its proposals, as described below. The Proposals are now that each of the Company and the Subsidiary be placed inmembers' voluntary liquidation and that the Company's assets (after payment ofits liabilities and after deducting the costs of implementing the Proposals) onsuch winding up be distributed as follows:- For each Ordinary Share 0.09p For each ZDP Share the balance of the assets of the Group proportionately If the Proposals are implemented, no dividends will be declared or recommended,and holders of Ordinary Shares will not receive anything on the winding-upexcept as set out above. In order to effect the Proposals in relation to Ordinary Shares it will benecessary to amend the Loan Note and Contribution Agreement by means of theCompany and the Subsidiary entering into the Deed of Amendment. The amendmentsrequire the approval of the ZDP Shareholders at the ZDP Class Meeting and theSubsidiary at the Subsidiary Extraordinary General Meeting. Liquidation and Dealings The Liquidators will set aside sufficient assets in a Liquidation Fund to meetthe Company's liabilities including the costs of the Proposals (see "Costs ofthe Proposals" below). The Liquidators will also provide in the LiquidationFund for a Retention which they consider sufficient to meet any contingent andunknown liabilities of the Company. This Retention is currently expected not toexceed £40,000. On the basis of the published net asset value of the Company as at the close ofbusiness on 1 July 2005, the net assets of the Company available fordistribution to ZDP Shareholders on a liquidation would be approximately £9.1million (equivalent to approximately 103.4p per ZDP Share). This assumes thesuccessful realisation of all the investments at carrying values, the payment of0.09p per Ordinary Share to Ordinary Shareholders, the Retention not beingutilised and deducts the estimated costs of the Proposals (see "Costs of theProposals" below). Depending on prevailing market conditions and the Directors being satisfied thatthe Proposals will be approved by Shareholders, the Company may dispose of someof its portfolio prior to the Meetings. If Shareholders approve all theResolutions, the Company will repay the Bank Loan before filing the relevantResolutions with H. M. Greffier. It is expected that the Resolutions will befiled on Friday 29 July 2005, after completion of all the Meetings. Uponfiling, the winding-up will take effect. The size and timing of the liquidationdistributions will depend on the timing and amount actually realised on the saleof the investments. The Liquidators expect to make an initial capitaldistribution by Friday 12 August 2005, being the distribution of 0.09p perOrdinary Share to Ordinary Shareholders and an initial capital distribution toZDP Shareholders on the Register at the close of business on Friday 29 July2005. It is currently expected that the initial capital distribution to ZDPShareholders will be of a sum equivalent to the Company's realised resources(less the Liquidation Fund) which are available at the time of making thedistribution. Based on the assumptions stated in the previous paragraph andassuming that the entire portfolio has been realised prior to such distributionbeing made, the initial capital distribution would be approximately 102.9p perZDP Share. The assumed balance of the Company's assets, including the Retention, wouldpotentially be available for future distributions to ZDP Shareholders. The sizeand timing of any future distributions will again depend on the timing andamount actually realised on the sale of the Company's assets and also theongoing costs payable during the liquidation and settlement of any currentlyunknown or contingent liabilities. The Share Registers will be closed at the close of business on Friday 29 July2005 and, to be valid, all transfers must be lodged and transactions in CRESTsettled before that time. Transfers received by the Registrars after the closeof business on Friday 29 July 2005 will be returned to the person lodging them.Shareholders should be aware that dealings in the Shares after close of businesson Tuesday 26 July 2005 will be for cash settlement only. Dealings in Shares on the London Stock Exchange and the Channel Islands StockExchange will be suspended at the opening of business on Friday 29 July 2005 andat the same time the listing on the Official Lists will be suspended. If theProposals become effective, it is the intention of the Company and theSubsidiary to apply for the cancellation of the listings of the Ordinary Sharesand ZDP Shares on the Official Lists with effect from Tuesday 30 August 2005. Shareholders should note that the amount finally distributed may be differentfrom the current carrying value of the underlying investments due to a varietyof factors including movement in the value of the underlying assets, the levelat which assets can be realised, the exact amount payable due to the earlytermination of Swap Arrangement (as detailed below), settlement of any currentlyunknown or contingent liabilities and ongoing costs associated with running theCompany and the realisation process. Shareholders should also note that it cannot be guaranteed that the Company willbe able to dispose of its entire portfolio prior to the Liquidators making theinitial capital distribution. Support for the Proposals The Board has received irrevocable undertakings to vote in favour of theResolutions from Shareholders holding 44.1 per cent. of the issued OrdinaryShares and 60.2 per cent. of the issued ZDP Shares. Repayment of the Company's Bank Facility In connection with the Proposals, the remaining £3.5 million of the Bank Loan(which is due for repayment on 30 September 2007) will be repaid following theResolutions being passed and prior to the filing of certified copies of therelevant Resolutions with the H.M. Greffier in Guernsey. In addition, it isproposed that the Company's Swap Arrangements with Bank of Scotland will beterminated at the same time, which will trigger the requirement to pay breakagecosts. On the assumption that there are no changes to the relevant circumstances, it isestimated that the costs associated with the early repayment of the BankFacility and the early termination of the Swap Arrangements will beapproximately £155,000. This amount has been deducted for the purposes ofcalculating the estimated initial capital distribution referred to above. Theactual breakage costs associated with the early termination of the SwapArrangements payable by the Company will be dependent on the prevailing interestrates at the time of termination. Any change from the current estimate referredto above will affect the amount available for distribution to Shareholders. Costs of the Proposals The expenses incurred in relation to the Proposals (including all financialadvice, other professional advice, the current estimate of the breakage costsassociated with the early termination of the Company's Swap Arrangementsreferred to above, the compensation payable to the Manager and the Liquidators'charges) are currently estimated to amount to approximately £284,000. Extraordinary General Meetings and ZDP Class Meeting The implementation of the Proposals will require Shareholders to vote in favourof all the resolutions to be proposed at the ZDP Class Meeting and theExtraordinary General Meetings of the Company and the Subsidiary which have beenconvened on Friday 29 July 2005 starting at 10.00am. Recommendation The Directors, who have been advised by Collins Stewart Limited, consider thatthe Proposals are in the best interests of the Shareholders as a whole. Inproviding its advice, Collins Stewart Limited has placed reliance on theDirectors' commercial assessment of the Proposals. Expected timetable 2005 Latest time and date for receipt of forms of proxy for the Meetings 10.00 a.m. on Wednesday 27 JulySuspension of Shares from trading on the London Stock Opening of business on Friday 29 JulyExchange and the Channel Islands Stock Exchange and suspension of listing on the Official Lists ZDP Class Meeting 10.00 a.m. on Friday 29 JulyExtraordinary General Meeting of the Subsidiary 10.05 a.m. on Friday 29 JulyExtraordinary General Meeting of the Company 10.10 a.m. on Friday 29 JulyShare registers close Close of business on Friday 29 JulyFirst liquidation distribution by Friday 12 AugustCancellation of the listing of the Shares on the Tuesday 30 AugustOfficial Lists --Ends-- Enquiries: Hugh Field Collins Stewart Limited 020 7523 8325 The definitions used in this announcement are as set out in the Circular toShareholders dated 7 July 2005. Collins Stewart Limited is acting for Exeter Smaller Companies Income FundLimited and ESCIF Securities Limited and no one else in connection with theProposals and will not be responsible to any person other than Exeter SmallerCompanies Income Fund Limited and ESCIF Securities Limited for providing theprotections afforded to clients of Collins Stewart Limited or for providingadvice in relation to the Proposals. A copy of the Circular is available for inspection at the UKLA's DocumentViewing Facility at 25 The North Colonnade, Canary Wharf, London E14 5HS. This information is provided by RNS The company news service from the London Stock Exchange