GiddyUp-This letter from Minor to Oaks shareholders was...

GiddyUp-

This letter from Minor to Oaks shareholders was apparently sent out yesterday. I got it off a site I subscribe to. Quite a hostile letter. Ironic that they harp on about how badly the Oaks Directors have managed the company over the past 3 years and then threaten to replace them with Brett Pointon. Interested in your views on the risk of any change of control provisions on Oaks' MLRs as a result of a takeover:

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27/04/2011

Minor International General Council Steve Chojnacki today issued the following letter to Oaks Hotels shareholders:

On 21 April 2011 the Board of Directors of Oaks Hotels & Resorts Limited (?Oaks?) issued its Target's Statement in respect of the off-market takeover bid by Minor International through its subsidiary Delicious Food Holding (Singapore) Pte. Ltd. The Target's Statement fails to address the material risks and uncertainties highlighted in Minor International?s 13 April 2011 letter to shareholders (copied to the Oaks Board), is incomplete and misleading and raises new and significant concerns that should be highlighted to all Oaks shareholders.

The Target's Statement raises the following concerns amongst others:

The Oaks Board has not disclosed adequate information regarding Change of Control Provisions in its contracts which could lead to a material adverse effect on the Business

The Target's Statement does not include adequate or complete information regarding the change of control provisions in relation to its MLR contracts. The Oaks Board states that ?several? of its contracts have change of control provisions and that ?some? of these also enable the contract to be terminated if consent is not secured prior to a change in control. The difference between the two is not clear. In the context of the proposed sale of the shares formerly controlled by Brett Pointon, and now under the control of PricewaterhouseCoopers, and the Oaks Board?s active attempts to solicit competing offers for shares, Minor International considers it is imperative that the Oaks Board discloses in specific detail the properties and contracts to which these provisions relate, the precise terms of these provisions and the expected financial impact on the company should these termination or other rights be exercised. Minor International is concerned that such change of control provisions could have a material and adverse effect on Oaks? earnings. This is clearly information that shareholders and their professional advisers reasonably require to make an informed assessment whether or not to accept the Minor International offer and should be a matter of public disclosure.

The Company?s expansion into Dubai (Oaks Liwa Heights) has failed and could lead to a major impairment

The Company?s expansion into Dubai has been a failure and appears to have been mismanaged. In its announcement dated 15 April 2011, the Board stated that they ?expect the assets in Dubai to be impaired in the 30 June 2011 financial year end accounts. The impairment charge could extend to the entire carrying value of the assets unless circumstances change prior to finalisation of the accounts?. In the same announcement, the current carrying value of the assets is stated to be approximately A$5.3 million. In the Target?s Statement Independent Expert Report, the Board disclosed the outstanding losses, costs and contingent liabilities in relation to Oaks Liwa Heights amounts to approximately A$12.9 million. This amount is significant and exceeds the Company?s entire net profit for FY10. We are concerned by the failure of this project and the implications on the company?s ability to expand its business and manage new projects. It is highly concerning that the company attempted to address this situation by entering into a Deed of Assignment with an entity associated with a director in view of these circumstances. The Independent Expert Report prepared by KPMG Corporate Finance (?KPMG IER?) noted that the above transaction was subject to shareholder approval and that as of the date of the KPMG IER no approval has been sought. This effort to address the Dubai situation seems to have failed yet has been relied on by the Oaks Board to avoid a huge impairment issue (see page 34 of the KPMG IER), which in turn raises more questions around the Board?s business judgment. The Board has further failed to set out the steps that it intends to take to address this very serious matter.

Minor International calls on the Oaks Board to provide full and complete details of any expected impairment charge relating to the Oaks Liwa Heights property so that the market can appropriately assess this information by 5:00 pm on 29 April 2011.

The Oaks Board has allowed conflicts of interest to persist and has failed to seek shareholder approval for related party transaction

The Target's Statement highlights significant related party transactions which pose a serious risk of conflicts of interest. It is not clear that these transactions have been properly approved. This includes the entry into a Deed of Assignment for Oaks Liwa Heights with a related party without requisite shareholder approval. It also includes the sale of four MLRs and provision of vendor financing to an entity controlled by a Director's brother.

The Independent Expert KPMG states in its the KPMG IER that the entry into the Deed of Assignment with an entity associated with an Oaks director involves a related party and is therefore subject to shareholder approval which has not been sought. However as set out above Oaks has sought to rely on this to avoid a recording a major impairment in its financial statements. This brings into question the Oaks Board?s commitment to transparency and corporate governance. Based on Oaks?s track record, Minor International is concerned that there may be other related party transactions or material instances of conflicts of interest that have not been properly dealt with and/or disclosed to shareholders.

Minor International considers the Independent Expert?s Report to be flawed and misleading

The KPMG IER opinion is highly theoretical, fails to take proper account of the very real and significant issues facing Oaks which were adversely affecting the share price pre offer (as noted on page 60 of the KPMG IER). We believe the KPMG IER should have had specific regard to the following real and significant risks facing the Company when assessing the reasonableness of the Offer, namely:

? The Oaks shares have not traded at the level valued under the KPMG IER for three years, and the company?s pre offer market share price of $0.26 immediately prior to the Minor offer being announced is reflective of the company?s poor performance and failure to meet expectations over this extended period;
? the ?change of control provisions? and the impact it may have on future earnings, particularly in the context of a company with significant intangible assets (in an amount exceeding the amount of its total net assets);
? the ?inherent uncertainty? regarding Oaks? ability to continue as a going concern. Oaks has reported a deficiency of current assets to current liabilities in excess of $60 million. Oaks has $75 million in interest bearing financial debt, with the majority of the sum requiring payment on 31 July 2011; and
? Oaks faces significant management and strategic uncertainty as it currently lacks a Chief Executive Officer. The timeframe for appointment to this key position remains uncertain. Consequently, the ability of Oaks to address the issues that it is facing and implement its strategy is unclear.

The reasonableness opinion bears no meaningful relation to these factors as well as the recent trading price of Oaks shares. Minor International calls on the Oaks Board to issue a statement acknowledging the shortcomings of the KPMG IER by 5:00 pm on 29 April 2011.

Oaks' precarious financial position is an immediate and serious risk to the company

The Oaks Board has been unable to find a satisfactory resolution to the company?s very serious financial situation. Despite our repeated requests, the Oaks Board has failed to adequately keep shareholders informed of the steps it is taking to address this. The company has sold valuable and cash-generating MLR contracts to raise funds. Nearly all of the company?s bank debt is classified as current and constitutes a near-term threat to the company?s ability to continue as a going concern, as noted by the company?s auditors in their audit review report. The Oaks Board has also failed, despite our requests, to clarify to all shareholders the costs and expenses that have been incurred by the company (including bank fees and advisory fees) as a result of its inability to adequately and in timely fashion address the company?s financial situation.

Based on its past record, Minor International does not believe that the Oaks Board has the capacity or inclination to address the very serious risks facing the company. In light of this, Minor International is concerned that there may be additional significant risks to the company that are currently unknown to the market. The Oaks Board has a record of failing to adequately address the major risks facing the company, failing to communicate transparently with shareholders and failing to conduct the company?s business on an arms-length basis and in line with principles of good governance, resulting in an extremely poor share price performance. Unless the Oaks Board is able to adequately address the points raised in this letter we intend to vote to remove the current Oaks directors the subject of the resolutions at the shareholders meeting which has been convened for 27 May 2011. We also intend to ensure that the Oaks Board?s actions are thoroughly investigated and that the Oaks Board is held accountable for its actions. The response of the Oaks Board to these matters will be a relevant consideration under the "no material adverse change" condition of our offer pursuant to which we may consider withdrawing our offer.