MGL
08/03/2016 17:01
WAV/RULE
PRICE SENSITIVE
REL: 1701 HRS Mercer Group Limited
WAV/RULE: MGL: Waiver from NZX Main Board Listing Rule 9.2.1
NZX Regulation Decision
Mercer Group Limited (MGL)
Application for a waiver from NZX Main Board Listing Rule 9.2.1
8 March 2016
Waiver from NZX Main Board Listing Rule 9.2.1
Decision
1. Subject to the conditions set out in paragraph 2 below, and on the basis
that the information provided by Mercer Group Limited ("MGL") is complete and
accurate in all material respects, NZX Regulation ("NZXR") grants MGL a
waiver from NZX Main Board Listing Rule ("Rule") 9.2.1, to the extent that
MGL would be required to obtain shareholder approval, via an ordinary
resolution, for the Financing Package provided by Gresham Finance.
2. The waiver in paragraph 1 above is provided on the conditions that:
a. the Directors of MGL (other than Rolleston) certify to NZXR that:
i. the terms of the Financing Package are, in their opinion, in the best
interests of MGL and its shareholders who are not associated with Gresham
Finance, Rolleston, or Associated Persons of Gresham Finance or Rolleston;
ii. Rolleston did not influence the promotion of, or decision to, enter into
the Financing Package by MGL; and
iii. the Financing Package was negotiated on a commercial arm's length basis;
and
b. this waiver, its conditions and its implications are disclosed in MGL's
Annual and Half-Year reports.
3. The information on which this decision is based is set out in Appendix One
to this decision. This waiver will not apply if that information is not, or
ceases to be, full and accurate in all material respects.
4. The Rules to which this decision relates are set out in Appendix Two to
this decision.
5. Capitalised terms that are not defined in this decision have the meanings
given to them in the Rules.
Reasons
6. In coming to the decision to provide the waiver set out in paragraph 1
above, NZXR has considered that:
a. the policy of Rule 9.2.1 is to regulate transactions where a Related Party
to the transaction may gain favourable terms due to its relationship with the
Issuer. NZXR may waive the requirement to obtain shareholder approval of a
Material Transaction for the purposes of Rule 9.2.1, if it is satisfied that
the involvement of a Related Party in the transaction was unlikely to have
influenced the promotion of, or the decision to enter into, the transaction.
The granting of this waiver will not offend the policy behind Rule 9.2.1;
b. MGL urgently requires access to funding to pay down debt as well as
provide access to working capital. MGL has submitted, and NZXR has no reason
not to accept, that MGL has not been able to secure funding from any other
source, on as favourable terms as what has been offered by Gresham Finance.
The time required to seek shareholder approval for entry into the Financing
Package would be disproportionately onerous in the circumstances of this
application;
c. MGL has submitted, and NZXR has no reason not to accept, that the
negotiations of the Financing Package were run by the independent directors
on an arm's length and commercial basis. Further, Rolleston and Gresham
Finance are receiving no additional benefit for entering into the Financing
Package, but for in the ordinary course of business. The certification
required under the conditions to the waiver provides NZXR comfort regarding
the negotiation process undertaken; and
d. there is precedent for this decision.
Appendix One
1. MGL is Listed with its ordinary shares Quoted on the NZX Main Board.
2. MGL has previously provided information to the market about MGL's working
capital position and the uncertainty as to whether the bank will continue to
provide the facilities required, including:
a. MGL's Half-Year Preliminary Results for the period ended 31 December 2015,
released to the market on 29 February 2016; and
b. MGL's funding update, released to the market 2 March 2016.
3. MGL's current financial position is such that they require working capital
without the delay that would be involved in calling a shareholders' meeting.
MGL has suffered from poor operating performance over the past 18 months and
has bank debt of approximately $9 million with Bank of New Zealand ("BNZ").
4. BNZ have indicated that in order for MGL to continuing drawing on the BNZ
lending facility, MGL will be required at some point in the future to:
a. repay a portion of the BNZ lending facility; and
b. grant BNZ a security ranking above all other lenders.
BNZ has requested the support of MGL's shareholders.
5. Humphrey Rolleston ("Rolleston") is a director with a 27% shareholding in
MGL. Rolleston also owns Gresham Finance Limited ("Gresham Finance").
6. Gresham Finance is therefore a Related Party under Rule 9.2.3(c), as
Gresham Finance is an Associated Person of Rolleston, who is a Director and
substantial shareholder of MGL.
7. Gresham Finance currently has provided a $1 million loan to MGL at an
interest rate of 15% (the "First Loan"). The First Loan was not a material
transaction for the purposes of the Rules and therefore shareholder approval
was not required for MGL to enter into the First Loan.
8. Rolleston has offered to provide to MGL a financing package through
Gresham Finance. The details of the financing package include:
a. an additional loan of $2.5 million:
i. for a one year term;
ii. at 12% interest calculated daily and paid monthly;
iii. secured by a second ranking mortgage under BNZ;
iv. a default interest rate of 14%; and
v. an ability to repay the loan at any time before the end of the term;
(the "Loan Facility") and
b. underwriting MGL's receivable from MGL's recently divested Interiors
Division, to Mercer Interiors Limited to the value of $750,000,
(together with the Loan Facility, the "Financing Package").
9. The Financing Package was negotiated between the independent directors of
MGL and Rolleston, on an arm's length and commercial basis. This involved a
robust discussion and negotiations to achieve terms and conditions more
favourable to MGL. Apart from the interest rate on the Loan Facility, there
is no other benefit to Rolleston or Gresham Finance of entering into the
Financing Package.
10. Additionally, MGL has further negotiated a reduction in the interest rate
applicable on the First Loan, from 15% to 12%.
11. The First Loan is secured by way of a second security ranking behind BNZ.
Given the security position of Gresham Finance, it would be expensive to MGL
to get additional second ranking security to rank pari passu with Gresham
Finance. Therefore, MGL is concerned it would have to repay the First Loan
to get a second ranking security for a different lender. This would add
time, cost and complexity to the deal.
12. MGL has been unable to secure funding on reasonable commercial terms from
other potential funders and brokers in the timeframes required. Further, MGL
does not have time available to undertake the issuance of new equity through
an offer to all shareholders.
13. The value of the Financing Package will exceed 10% of MGL's Average
Market Capitalisation, making this a Material Transaction for the purposes of
Rule 9.2.2(c).
14. Due to the Financing Package being a Material Transaction with a Related
Party, Rule 9.2.1 has been triggered to require shareholder approval for
entry into the Financing Package.
Appendix Two
Rule 9.2 Transactions with Related Parties
Rule 9.2.1 An Issuer shall not enter into a Material Transaction if a Related
Party is, or is likely to become:
(a) a direct or indirect party to the Material Transaction, or to at least
one of a related series of transactions of which the Material Transaction
forms part; or
(b) in the case of a guarantee or other transaction of the nature referred to
in paragraph (d) of the definition of Material Transaction, a direct or
indirect beneficiary of such guarantee or other transaction,
unless that Material Transaction is approved by an Ordinary Resolution of the
Issuer.
Rule 9.2.2 For the purposes of Rule 9.2.1, "Material Transaction" means a
transaction or a related series of transactions whereby an Issuer:
(a) purchases or otherwise acquires, gains, leases (as lessor or lessee) or
sells or otherwise disposes of, assets having an Aggregate Net Value in
excess of 10% of the Average Market Capitalisation of the Issuer; or
(b) issues its own Securities or acquires its own Equity Securities having a
market value in excess of 10% of the Average Market Capitalisation of that
Issuer, save in the case of an issue pursuant to Rule 7.3.5 where only the
market value of those Securities being issued to the Related Party or to any
Employees of the Issuer are to be taken into account; or
(c) borrows, lends, pays, or receives, money, or incurs an obligation, of an
amount in excess of 10% of the Average Market Capitalisation of the Issuer;
or
(d) enters into any guarantee, indemnity, underwriting, or similar
obligation, or gives any security, for or of obligations which could expose
the Issuer to liability in excess of 10% of the Average Market Capitalisation
of the Issuer; or
(e) provides or obtains any services (including without limitation obtaining
underwriting of Securities or services as an Employee) in respect of which
the actual gross cost to the Issuer in any financial year (ignoring any
returns or benefits in connection with such services) is likely to exceed an
amount equal to 1% of the Average Market Capitalisation of the Issuer; or
(f) amalgamates, except for amalgamations of a wholly owned Subsidiary with
another wholly owned Subsidiary or with the Issuer:
(g) For the purposes of Rule 9.2.2(a), "Aggregate Net Value" means the net
value of those assets calculated as the greater of the net tangible asset
backing value (from the most recently published financial statements) or
market value.
Rule 9.2.3 For the purposes of Rule 9.2.1, "Related Party" means a person who
is at the time of a Material Transaction, or was at any time within six
months before a Material Transaction:
(a) a Director or executive officer of the Issuer or any of its Subsidiaries;
or
(c) an Associated Person of the Issuer or any of the persons referred to in
(a) or (b), other than a person who becomes an Associated Person as a
consequence of the Material Transaction itself (or an intention or proposal
to enter into the Material Transaction itself); or
(d) a person in respect of whom there are arrangements other than the
Material Transaction itself, intended to result in that person becoming a
person described in (a), (b), or (c), or of whom the attainment of such a
status may reasonably be expected, other than as a consequence of the
Material Transaction itself;
but a person is not a Related Party of an Issuer if:
(e) the only reason why that person would otherwise be a Related Party of the
Issuer is that a Director or executive officer of the Issuer is also a
Director of that person, so long as:
(i) not more than one third of the Directors of the Issuer are also Directors
of that person; and
(ii) no Director or executive officer of the Issuer has a material direct or
indirect economic interest in that person, other than by reason of receipt of
reasonable Directors' fees or executive remuneration; or
(f) that person is a Subsidiary of, incorporated joint venture of, or
unincorporated joint venture participant with, the Issuer and:
(i) no Related Party of the Issuer has or intends to obtain a material direct
or indirect economic interest in that Subsidiary, incorporated joint venture,
or unincorporated joint venture participant, other than by reason of receipt
of reasonable Director's fees or executive remuneration; and
(ii) the Issuer is entitled to participate, directly or indirectly, in at
least one half of the income or profits, and the assets, of that Subsidiary,
incorporated joint venture, or unincorporated joint venture participant.
End CA:00278968 For:MGL Type:WAV/RULE Time:2016-03-08 17:01:45
