great schemes and arrangements, page-8

This is Mr Lincoln Augustus, first second cousin of Holymagiman. We are sitting here halfway up the slopes near Ladakh, viewing the scenery in the distance and thinking that all is well from our perspective.

And so, my dearest Mr Some Guy, we thought that it may be a most opportune time to repost a posting that we did so long ago when OIP was involved in a proposed Scheme of Arrangement.

We believe that ESG was supportive of that Scheme of Arrangement but we could well be wrong as the memory is waxing and waning with the progression of the years. We also believe that a lot of shareholders were opposed to that scheme, but again we could have been mistaken. We did not think much of that Scheme of Arrangement, but then was then and now is now, and much water has flowed under the bridge.

So here is the previous post regarding Schemes of Arrangement:



Firstly, a DEFINITION of a "Scheme of Arrangement"

For a definition of what a Scheme of Arrangement entails, please refer to:

http://www.anz.com/edna/dictionary.asp?action=content&content=scheme_of_arrangement



Scheme of arrangement

A reorganising of a company's capital structure or its debts which is binding on creditors and shareholders. There are two types: a creditors' scheme and a members' or shareholders' scheme.

A creditors' scheme is generally used by companies in financial difficulties. creditors may agree to defer payments in the hope of a better eventual return than they would receive if the company were liquidated.

A members' scheme is used to effect corporate reorganisations, including mergers, although it cannot be used to avoid the takeover provisions of the Corporations Law.

A scheme of arrangement is carried out in three steps:

1.The court is approached to order a meeting of creditors or shareholders directly affected;

2.The scheme must be approved by a vote of more than 50 per cent of the creditors or members present and voting who represent 75 per cent of the total debts or nominal value of the shares of those present and voting at the meeting; and

3.The scheme is referred back to the court for confirmation.

WHAT YOU HAVE TO NOTE IS THAT THERE ARE TWO CONDITIONS THAT MUST BE MET:

1. The scheme must be approved by more than 50 percent of the shareholders present (or by proxy) and voting

2. who represent 75 percent of the total value of shares.

What this means is that in the initial vote, ESG has one vote, Ingalls has one vote and this is of the same value as that of any other voting shareholder (you or Holymagiman) irrespective of whether one has one share or one million shares.

In other words, that first condition of 50 percent of the vote of shareholders present is based on the number of INDIVIDUAL shareholders who vote for or against the scheme.

Let us imagine a company which has 1000 small shareholders who have 1000 shares each, and 2 major shareholders who have 5,000,000 shares each.

Let us say that 400 shareholders attend a Scheme of Arrangement meeting, in person or by proxy to vote on a Scheme of Arrangement, and these 400 shareholders are made up of made up of the two major shareholders and 388 of the other small shareholders.

Let us assume that the two major shareholders and 98 of the small shareholders present (or in proxy) vote FOR the Scheme. This accounts for a total of (2 x 5,000,000) + (98 x 1,000) = 10,098000 shares.

The other 300 small shareholders vote AGAINST the Scheme of Arrangement. This accounts for a total of 300 x 1,000 shares = 300,000 shares.

The scheme of Arrangement is defeated because less than 50 percent of the members present (or in proxy) voted in favour of the scheme. The total number of shares owned by those who voted for the Scheme does not come into consideration at all in this instance, because the first condition was not met.

Let us assume another scene where all the small shareholders present (or proxy) vote for the scheme = 398 votes representing a total of 398 x 1,000 shares = 398,000 shares.

The two major shareholders vote against the scheme = 2 votes against, representing 10,000,000 shares.

The first condition for the scheme to succeed is met in that more than 50 percent of the members present voted for it.

However, the combined total of shares owned by those voting for the scheme (398,000) did not represent 75 percent of the total mumber of shares (398,000 shares voting for, 10,000,000 shares voting against)and so the scheme is not successful.

THE IMPLICATIONS OF THIS FOR SHAREHOLDERS

What this means is that if ALL or most of the minority shareholders of Company X voted against the scheme, and if the major shareholders and a few other shareholders voted for the scheme, and if those voting for the scheme do not represent 50 percent of the members present (or by proxy), then the scheme is defeated.

So, as an example, if 300 small shareholders of Company X vote against the Scheme, and the major shareholders and only 200 other shareholders vote for the scheme, then the scheme is defeated.

Therefore it is imperative for the shareholders opposed to the schems to either attend in person and vote or else to send in their proxy votes voting against the scheme.

Now coming back to the 108 million ESG shares traded today. It is interesting to note that Santos can only buy enough not to tip it over 19.99 percent PLUS shares allowed for by the "creep" provision. We feel that if Santos exceeds this total amount before the Scheme of Agreement is agreed, then Santos will be compelled to make a fullon-market takeover bid.

So some other parties have been buying, and this could well be that some parties are possibly building up an arbitrage position.

On the other hand,it could also mean that some other party is building up a position, maybe yes, maybe no. We find this a bit hard to consider, especially as Santos already have a mighty big foot inside the doorway with a 20 percent holding.

However, it appears that at this point in time, the Board of ESG feel that the Scheme with Santos is the best that they can get, and that means, to the family at any rate, that that as we feel that they should have a good inkling what THOSE reserve upgrades are going to be, that this is the best that they can see in Eastern Star, considering the location of its fields, possible stranding of reserves and the water issues at hand.

Of course we hasten to add that we have long since departed from Eastern Star for reasons that we have explained before, and the above asr only our views and should there fore be taken as just puffs of smoke and nothing more.

We hope most fervently that events eventuate so that you all get many times what is being offered now, if for no other reason than as a reward for your tenacity and patience.

Blessing of the Lord

MLA