PVCS.L Regulatory News (PVCS)

PV Crystalox Solar PLC

Notice of General Meeting and Posting of Circular

PV Crystalox Solar PLC (the "Company") announces that it is today posting a circular to Shareholders containing a Notice of General Meeting to be held at the offices of Norton Rose LLP, 3 More London Riverside, London SE1 2AQ at 11.00 a.m. on 19 November 2013 for the purpose of approving the resolution required to effect the Return of Cash of 7.25p, announced earlier this year, through a structure involving an issue of B Shares and/or C Shares which may enable Shareholders, subject to applicable overseas restrictions and tax laws, to elect to receive proceeds from the Return of Cash as income or capital or any combination of the two.

A copy of the Circular is available from the Company's website at www.pvcrystalox.com

Capitalised terms used herein will have the meaning given to them in the Circular.

The full text of the Chairman's letter and the expected timetable of events included in the Circular are reproduced below.

Enquiries:

Matthew Wethey +44 (0) 1235 437160

Group Secretary

PV Crystalox Solar PLC

Chairman's letter

1. Introduction

The Directors announced on 13 December 2012 that the Group expected to return cash to Shareholders in a manner that would provide Shareholders with an element of choice as to the form in which they receive cash. The move to the standard segment was in part undertaken to enable the Return of Cash to be undertaken in a tax efficient manner. I am writing to you to provide further details of the proposed Return of Cash to Shareholders. On 11 September 2013, the Company's shareholders approved the move by the Company from the premium segment to the standard segment of the Official List, and the move to the standard segment became effective on 10 October 2013. The Board has decided to effect the Return of Cash through a structure involving an issue of B Shares and/or C Shares which may enable Shareholders, subject to applicable overseas restrictions and tax laws, to elect to receive their cash proceeds as income or capital or any combination of the two.

Under this proposal, referred to as the "B/C Share Scheme", for every 1 Existing Ordinary Share held at the Record Time, 7.25 pence would be returned to Shareholders through the issue to them of either one B Share, which will be redeemed by the Company for 7.25 pence, or one C Share, on which a dividend of 7.25 pence will be payable.

Shareholders (other than Overseas Shareholders resident, or with a registered address, in a Restricted Territory) will be able to elect for either B Shares or C Shares as described in paragraph 3 below.

Shareholders who do not make a valid election for either B Shares or C Shares will be deemed to have elected for C Shares in respect of all of their B/C Share Entitlement.

In order to maintain (subject to market fluctuations) the market price for Ordinary Shares at approximately the same level as prevailed immediately prior to the implementation of the B/C Share Scheme, a proportional share capital consolidation of the Company's Existing Ordinary Shares is also proposed. Shareholders will receive 5 New Ordinary Shares in substitution for every 13 Existing Ordinary Shares held at the Record Time. Details of the Share Capital Consolidation are summarised in paragraph 4 below.

This structure has been chosen to complete the Return of Cash because:

● it gives all Shareholders (with the exception of Overseas Shareholders resident, or with a registered address in, a Restricted Territory) choice how they receive their cash, which is intended to afford UK tax-resident Shareholders flexibility in the tax treatment of their proceeds; and

● it treats all Shareholders equally relative to the size of their existing shareholdings in the Company.

This Circular sets out details of the B/C Share Scheme and explains why the Directors consider the B/C Share Scheme to be in the best interests of the Company and Shareholders as a whole.

In order to comply with applicable companies legislation, the B/C Share Scheme and certain related matters require the approval of Shareholders at a general meeting of the Company, to be held at the offices of Norton Rose LLP, 3 More London Riverside, London SE1 2AQ at 11.00 a.m. on 19 November 2013. A notice convening the General Meeting is set out at the end of this Circular. The Board is recommending to Shareholders that they vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors intend to do for their respective individual beneficial holdings of, in aggregate, 46,799,923 Ordinary Shares, representing approximately 11.2 per cent. of the current issued share capital of the Company.

The terms of the B/C Share Scheme are summarised in paragraph 3 of this Part I.

2. Current trading and prospects and background to the proposed Return of Cash

The photovoltaic industry in which the Group operates is in crisis with massive structural oversupply and uneconomic pricing prevailing.

On 18 May 2012, the Group advised in its Interim Management Statement that the Group had been negotiating compensation for the termination of a long term wafer supply contract. A satisfactory agreement had been reached and this resulted in a cash settlement of approximately €90 million before tax, which the Group received and recognised as income during H1 2012.

On 19 November 2012, the Group advised in its Interim Management Statement that trading conditions remained extremely challenging due to the vast overcapacity in the PV industry. This oversupply, which originated primarily in China, maintained downward pressure on prices across the value chain during the eighteen months to November 2012. Spot wafer prices continued to fall and at that time were 77 per cent. below the level of April 2011 and remained significantly below industry production costs.

On 13 December 2012, the Board announced that it had completed a strategic review of the business which has taken account of these adverse market conditions and the Group's significant net cash balance, and that the outcome of this review was that the Group would carry out a radical restructuring while retaining its core production capabilities and returning excess cash to shareholders. As part of this programme, the Board announced the decision to discontinue its polysilicon production facility in Bitterfeld, Germany and to substantially reduce its production output at its UK ingot and German wafer operations.

On 21 March 2013, as part of the results for the 12 months to 31 December 2012, the Group announced that:

"During the year to 31 December 2012 it incurred an EBIT loss of €110.1 million (2011: loss of €67.5 million)driven primarily by non-cash write-downs. Firstly, the Group's production capital equipment was written down by €82.5 million. Secondly, the Group wrote-down its inventories by €41.5 million and thirdly, the onerous contract provision in respect of long-term polysilicon supply agreements was increased by €42.0 million. Finally, there was a loss of €9 million in respect of the discontinued polysilicon operation and €22 million in respect of the fall in wafer volume and average selling prices. On the positive side there were cash settlements in respect of the cancellation of customer contracts of €90.6 million. In summary, the Group generated €67.1 million additional net cash from operating activities in the year despite reporting an EBIT loss of €110.1 million.

The Group will continue with its cash conservation strategy in 2013 while current market conditions persist. The Group has adjusted its operations to align with anticipated sustainable short term market demand so that the ongoing business will be broadly cash neutral in 2013. Wafer production volumes have been halved from 2012 levels, and the Group continues its focus on cost control and inventory management including trading of excess polysilicon where necessary. The Board believes that the adjustment of operations to align with anticipated sustainable short term demand will enable generation of positive cash flows during 2013 and leave the Group well positioned should the market begin to recover."

In July this year, the Company completed the disposal of its polysilicon production facility in Bitterfeld (the "Plant") to a management buy-in team. Polysilicon production at the Plant was suspended in November 2011, from which time the Plant operated in idle mode, and a decision to permanently discontinue operations at the Plant was taken at the end of 2012. Pre-tax losses of €78 million were recorded in relation to the Plant for the year ended 31 December 2012 due largely to the decision to write down the value of the Plant. No consideration was received for this transaction but the acquirer (Silicon Products Research Engineering Production GmbH, "Silicon Products") has taken over the Plant and its staff together with the associated obligations and liabilities, including those relating to the repayment of grants and subsidies of approximately €18.4 million. The Company has contributed €12.3 million to Silicon Products.

On 15 August 2013, as part of the interim results for the six months ended 30 June 2013, the Group announced that:

"The Group recorded a loss before tax of €0.9 million, being the sum of the profit before tax on ongoing operations of €1.5 million and a loss before tax on discontinued operations of €2.4 million. The Group EBIT of €1.5 million, whilst an improvement from the loss of €12.2 million in the same period last year, was just marginally above breakeven. The Group EBIT was made up of the net position of a profit on ongoing operations of €3.9 million and a loss on discontinued operations of €2.4 million."

and also that:

"While the Group continues to believe in the positive long-term outlook for PV, it is mindful that the current market pricing is incompatible with a sustainable business. The Group has a healthy net cash balance and maintains significant manufacturing operating capacity. The Board will continue to monitor closely market trends and developments and to position the Group for the eventual return of a more rational business environment."

On 11 September 2013, the Company's shareholders approved the move from the premium segment to the standard segment of the Official List, and the move to the standard segment became effective on 10 October 2013.

There have been no subsequent material developments.

The Board has also reviewed the options for achieving a more efficient capital structure for the Company and has consulted with major institutional shareholders in this regard. The Board's guiding principle has been one of creating flexibility to return value to Shareholders.

In deciding the amount of cash to be returned to Shareholders, the Board has considered its expectations for the PV industry in general and the segments in which the Group operates; the Board has also considered the amount of cash that the Group will have to retain in order to maintain flexibility in the strategic options available to the Group including returning to more normal production levels.

Consequently, it is proposing the Return of Cash to all Shareholders amounting to approximately £30.2 million in cash (7.25 pence per Existing Ordinary Share), by way of a B/C Share Scheme, which gives Shareholders (with the exception of Overseas Shareholders resident, or with a registered address, in a Restricted Territory) a choice between receiving the cash in the form of income or capital.

3. The Share Alternatives

Each Shareholder (with the exception of Overseas Shareholders resident, or with a registered address, in a Restricted Territory) will be able to choose between the two Share Alternatives described below as to how they receive their cash proceeds under the B/C Share Scheme. This is intended to give UK resident Shareholders the flexibility to receive their cash proceeds as income or capital, or any combination of the two. It is also possible that equivalent treatment may be available in certain other jurisdictions (but Shareholders should take their own professional advice in this regard). Each Share Alternative is expected to return 7.25 pence of cash per B Share or C Share.

Shareholders should read Part IX of this Circular which outlines the different tax consequences of the Share Alternatives in the UK. Shareholders who are in any doubt as to their tax position, or who are subject to taxation in a jurisdiction other than the UK should consult an appropriate professional adviser.

Shareholders who do not make a valid election, and all Overseas Shareholders resident, or with a registered address, in a Restricted Territory, will be deemed to have elected for the Income Option in respect of ALL of their B/C Share Entitlement.

Alternative 1-Income Option

For shares validly elected (or deemed elected) to the Income Option, a Shareholder will receive one C Share for each Existing Ordinary Share held at the Record Time. It is expected that the C Share Dividend of 7.25 pence will become payable in respect of each such C Share by 4 December 2013 and that the cash proceeds of the C Share Dividend will be sent to relevant Shareholders by 11 December 2013. The cash received under Alternative 1 (Income Option) should be taxed as income for UK individual shareholders. Part IX of this Circular provides further details on the UK taxation in relation to the Return of Cash.

If all Shareholders elect (or are deemed to have elected) for the Income Option (and assuming that Resolution 1 is passed at the General Meeting), 416,725,335 C Shares will be issued by the Company pursuant to the Return of Cash.

Once the C Share Dividend has been paid, each relevant C Share will be reclassified as a Deferred Share having negligible value and carrying extremely limited rights. If it so chooses, the Company may then take steps to purchase the Deferred Shares for an aggregate consideration of one penny and then cancel the Deferred Shares. In view of the negligible amount of the aggregate consideration, Shareholders will not be entitled to have any part of the aggregate consideration paid to them.

Alternative 2-Capital Option

For shares validly elected to the Capital Option, a Shareholder will receive one B Share for each corresponding Existing Ordinary Share held at the Record Time and will receive 7.25 pence in respect of each such B Share.

If all Shareholders validly elect for the Capital Option (and assuming Resolution 1 is passed at the General Meeting), 416,725,335 B Shares will be issued by the Company pursuant to the Return of Cash.

Where B Shares are issued to satisfy valid elections for the Capital Option, it is expected that each such B Share will be redeemed by the Company for 7.25 pence by 4 December 2013 and cancelled by the Company on redemption. It is expected that the redemption proceeds will be sent to relevant Shareholders by 11 December 2013. The cash received under Alternative 2 (Capital Option) should be taxed as capital for UK individual shareholders. Part IX of this Circular provides further details on the UK taxation in relation to the Return of Cash.

It is intended that all Shareholders will receive the Return of Cash at the same time, whether this is effected by the issue of B Shares or C Shares or a combination of the two.

Overseas Shareholders resident, or with a registered address, in a Restricted Territory will not be eligible for the Capital Option and so will be deemed to have elected for the Income Option in respect of all of their B/C Share Entitlement.

Information relating to the B Shares, C Shares and Deferred Shares

None of the B Shares, C Shares or the Deferred Shares will be admitted to the standard segment of the Official List or to trading on the London Stock Exchange's main market for listed securities, nor will the B Shares, C Shares or Deferred Shares be listed or admitted to trading on any other recognised investment exchange.

The B Shares, C Shares and Deferred Shares will have limited rights. The rights and restrictions attached to the B Shares, C Shares and the Deferred Shares are set out more fully in Parts VI, VII and VIII of this Circular respectively.

Further information

The two Share Alternatives summarised above are explained in further detail in paragraph 4 of Part V of this Circular. In addition, Part II of this Circular sets out some frequently asked questions to help Shareholders understand what is involved in the B/C Share Scheme, including worked examples on page 15 of how each of the Share Alternatives summarised above would affect Shareholders. Shareholders should also read Part IX of this Circular (and the entire Circular) in full.

4. Share Capital Consolidation

As part of the B/C Share Scheme, the Company proposes to undertake the Share Capital Consolidation. The purpose of the Share Capital Consolidation is to seek to ensure that, subject to market fluctuations, the market price of each New Ordinary Share immediately following the implementation of the B/C Share Scheme is approximately the same as the market price of each Existing Ordinary Share immediately beforehand. The Share Capital Consolidation should also allow historical and future financial information in relation to the Company to be compared on a per-share basis before and after the B/C Share Scheme.

The value proposed to be returned pursuant to the B/C Share Scheme represents approximately 62 per cent. of the Company's market capitalisation (based on the average closing middle market price for the three business days prior to the posting of the Circular of 11.75 pence per Existing Ordinary Share). As a result of the Share Capital Consolidation, the number of ordinary shares in issue will be reduced by a broadly equivalent percentage (being 62 per cent.), with Shareholders receiving 5 New Ordinary Shares for every 13 Existing Ordinary Shares held at the Record Time.

Following the Share Capital Consolidation, it is expected that there will be approximately 160,278,975 New Ordinary Shares in issue on the Admission Date. The New Ordinary Shares, when issued and fully paid, will rank for all dividends declared, made or paid after the date of allotment and issue of the New Ordinary Shares (except in respect of the C Share Dividend which is proposed in respect of C Shares only).

The New Ordinary Shares will, subject to Admission, be traded on the London Stock Exchange's main market for listed securities and will be equivalent in all material respects to the Existing Ordinary Shares. After the B/C Share Scheme, Shareholders will own the same proportion of the Company as they did immediately beforehand, subject to fractional entitlements.

A fractional entitlement will arise as a result of the Share Capital Consolidation unless a holding of Existing Ordinary Shares is exactly divisible by 13. For example, a Shareholder holding 14 Existing Ordinary Shares would be entitled to 5 New Ordinary Shares and a fractional entitlement of 0.385 of a New Ordinary Share after the Share Capital Consolidation. These fractional entitlements will be aggregated and sold in the market and, as the proceeds from the sale of any such fractional entitlement (net of any expenses) will be less than £5.00, Shareholders will have no entitlement or right to the proceeds of sale but instead any such proceeds will be retained by the Company.

Following the Capital Reorganisation, New Ordinary Share certificates are expected to be sent to Shareholders who hold their Existing Ordinary Shares in certificated form by 11 December 2013, and the CREST accounts of Shareholders who hold their Existing Ordinary Shares in uncertificated form are expected to be credited with New Ordinary Shares at approximately 8.00 a.m. on 27 November 2013.

5. Tax

A guide to certain UK tax consequences of the B/C Share Scheme under current UK law and HM Revenue & Customs' practice is set out in Part IX of this Circular.

Shareholders who are subject to tax in a jurisdiction other than the UK, or who are in any doubt as to the potential tax consequences of the B/C Share Scheme, should consult an appropriate professional adviser.

6. Share Plans

The Company has established an employee benefit trust for the purpose of satisfying share options and awards under the Share Plans. As at 17 October 2013, 10,660,848 Existing Ordinary Shares are held in the trust and, in respect of such shares the independent trustee of the trust will have the same rights as other holders of Existing Ordinary Shares under the Return of Cash. It is currently intended that the trustee will participate in the Return of Cash and will elect for the Capital Option in respect of all the Existing Ordinary Shares held within the trust.

Further details of the implications of the proposed B/C Share Scheme on options and awards that have been granted under the PV Crystalox Solar Share Plans are set out in paragraph 11 of Part V of this Circular.

7. Overseas Shareholders

Overseas Shareholders' attention is drawn to paragraph 6 of Part V of this Circular. In particular, Overseas Shareholders (other than those in Restricted Territories) should note that, by making a valid election for the Capital Option, such Shareholders will be deemed to represent, warrant, undertake and/or agree (as applicable) in the terms set out in paragraph 6 of Part V of this Circular. Furthermore, Overseas Shareholders resident, or with a registered address, in a Restricted Territory will be deemed to have elected for the Income Option in respect of all of their B/C Share Entitlement. The tax consequences of the B/C Share Scheme may vary for Overseas Shareholders and, accordingly, Overseas Shareholders should consult their own independent professional adviser without delay.

8. Risk factors

Shareholders' attention is drawn to the risk factors in Part IV of this Circular and in particular to the risk factors headed "Price of wafers on the spot market remains below cash cost of production", "Contracted polysilicon feedstock continues to exceed our own internal requirements", "The loss of a major long term contract customer might adversely impact the Group's financial performance" and "Overcapacity in the PV industry reduces module prices and adversely impacts on profitability" which the Board considers to be the key risk factors which may have an adverse impact on the future trading of the Group. Shareholders' attention is also drawn to the risk factors in Part IV of this document under the heading "Risks relating to the B/C Share Scheme".

9. General Meeting

Implementation of the B/C Share Scheme and certain related matters require the approval of Shareholders at a general meeting of the Company. Set out at the end of this Circular is a notice convening the General Meeting to be held at the offices of Norton Rose LLP, 3 More London Riverside, London SE1 2AQ at 11.00 a.m. on 19 November 2013 which is being held for the purpose of approving the Return of Cash.

Two resolutions will be proposed at the General Meeting as special resolutions (the passing of which requires not less than 75 per cent. of the votes cast to be in favour).

Resolution 1: To approve the Return of Cash and related matters

Resolution 1 proposed at the General Meeting will adopt the new Articles of Association incorporating the rights and restrictions attaching to the B Shares, C Shares and Deferred Shares and approve and authorise certain steps to be taken by the Company and its Directors for the purposes of implementing the B/C Share Scheme.

Resolution 2: To authorise the Company to purchase its own shares

Resolution 2 is to authorise the Company to buy back up to 16,027,897 New Ordinary Shares (being the shares created by the Share Capital Consolidation). Resolution 2 is therefore conditional on Resolution 1 being passed, and replaces the authority granted at the Annual General Meeting of the Company on 23 May 2013 which authorises the Company to buy back up to 41,672,533 Existing Ordinary Shares.

A summary explanation of the Resolutions to be proposed at the General Meeting can be found at paragraph 12 of Part V of this Circular.

10. Action to be taken

Action Shareholders should take in relation to the General Meeting

Shareholders will find enclosed a Form of Proxy for use in connection with the General Meeting. Whether or not you intend to be present at the meeting, you are asked to complete the Form of Proxy in accordance with the instructions printed thereon and return it to the Company's Registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA so as to arrive as soon as possible, but in any event by no later than 11.00 a.m. on 15 November 2013.

If you hold shares in CREST, you may appoint a proxy by completing and transmitting a CREST Proxy Instruction to Equiniti Limited (under CREST participant ID number RA19), so that it is received no later than 11.00 a.m. on 15 November 2013.

Completion of a Form of Proxy or the giving of a CREST Proxy Instruction will not prevent you from attending the General Meeting and voting in person (in substitution for your proxy vote) if you wish to do so and are so entitled.

Actions Shareholders should take in relation to the B/C Share Scheme

The procedure for making elections under the B/C Share Scheme depends on whether your Existing Ordinary Shares are held in certificated or uncertificated form and is summarised below.

Shareholders (other than Overseas Shareholders resident, or with a registered address, in a Restricted Territory) may elect for any combination of the Share Alternatives provided that the total number of Existing Ordinary Shares in respect of which an election is made does not exceed a Shareholder's total holding as at the Record Time.

Shareholders need to make their own decision regarding any election(s) they make under the B/C Share Scheme between the Share Alternatives and are recommended to consult their own independent professional adviser.

(a) Existing Ordinary Shares held in certificated form

Shareholders (other than Overseas Shareholders resident, or with a registered address, in a Restricted Territory) who hold Existing Ordinary Shares in certificated form should make any election for the Share Alternative(s) suitable for them by completing the Form of Election, in accordance with the instructions printed thereon, and returning it as soon as possible and, in any event, so as to be received by post or using the accompanying reply paid envelope if posting from inside the United Kingdom or (during normal business hours only) by hand by the Company's Registrars, Corporate Actions, Equiniti Limited, at Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA, by no later than 4.30 p.m. on 26 November 2013. Shareholders who do not complete and return a valid Form of Election by 4.30 p.m. on 26 November 2013 will be deemed to have elected for the Income Option in respect of their entire B/C Share Entitlement.

Overseas Shareholders with a registered address in a Restricted Territory will not be sent a Form of Election and will be deemed to have elected for the Income Option in respect of all of their B/C Share Entitlement.

(b) Existing Ordinary Shares held in uncertificated form

Shareholders (other than Overseas Shareholders resident, or with a registered address, in a Restricted Territory) who hold their Existing Ordinary Shares in uncertificated form should refer to the applicable procedures and related timings set out in paragraph 4 of Part X of this Circular. Any Shareholder whose TTE Instruction does not settle by 4.30 p.m. on 26 November 2013 will be deemed to have elected for the Income Option in respect of their entire B/C Share Entitlement.

The CREST Manual may also assist you in making a TTE Instruction.

Shareholders who do not make a valid election, and all Overseas Shareholders resident, or with a registered address, in a Restricted Territory, will be deemed to have elected for the Income Option in respect of ALL of their B/C Share Entitlement.

11. Recommendation

The Board considers the Proposals to be in the best interests of Shareholders as a whole. Accordingly, the Board recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting as the Directors intend to do for their respective individual beneficial holdings of, in aggregate, 46,799,923 Existing Ordinary Shares, representing approximately 11.2 per cent. of the total issued share capital of the Company as at 17 October 2013 (being the latest practicable date prior to the publication of this Circular).

The Board makes no recommendation to Shareholders in relation to elections for the B/C Share Scheme itself. Shareholders need to take their own decision in this regard and are recommended to consult their own independent professional adviser.

Yours sincerely

John Sleeman

Non-executive Chairman

Expected timetable of principal events