Statement of reasons
This notice applies to acts or omissions occurring on or after 17 November 2008 and expires on 31 December 2011.
RLV No. 3 Limited (RLV) has entered into an agreement with Fengli Group (Hong Kong) Company Limited (Fengli) for a private placement of RLV shares. The private placement agreement (the subscription agreement) has been entered into in conjunction with the proposed reverse listing of Minera Varry S.A. (Minera Varry) through RLV. Minera Varry holds the rights to operate an iron ore mine in Chile.
Under the subscription agreement, Fengli may subscribe for up to 200 000 000 RLV ordinary shares at US$0.125 per share (a total of US$25 million) along with 50 000 000 options to acquire RLV ordinary shares at US$0.125 per share (a total of US$6.25 million if exercised). The final exercise date of the options will be 3 years from their date of issue.
The private placement is to be structured in 2 tranches—
the first tranche of 100 000 000 RLV ordinary shares together with all (50 000 000) of the options (the placement options) will be issued to Fengli on or about the date of settlement of the Minera Varry reverse listing transaction (expected sometime in December 2008):
the second tranche of 100 000 000 RLV ordinary shares (the tranche 2 placement shares) will be issued to Fengli if certain production targets are met from the Minera Varry mining operation by July 2009. If the targets are not met, then either of RLV or Fengli may at its option give notice to the other terminating the obligation to subscribe for the tranche 2 placement shares.
The allotment of the tranche 2 placement shares, if it proceeds, will cause Fengli to increase its voting control in RLV above the 20% threshold in the fundamental rule of the Code. Accordingly, Fengli must obtain shareholder approval under rule 7(d) of the Takeovers Code (the Code) for its increase in control as a result of the allotment of the tranche 2 placement shares.
In the event that the allotment of the tranche 2 placement shares proceeds, and Fengli chooses to exercise any or all of its placement options, the resulting allotments will cause Fengli to increase its voting control from a position above 20%. Accordingly, Fengli must also obtain shareholder approval under rule 7(d) in the event that the allotment of the tranche 2 placement shares proceeds and it wishes to exercise any of its placement options.
The notice of meeting (which RLV is required to send to its shareholders under rule 7(d) of the Code) that contains the proposed resolution to approve the allotments to Fengli must specify certain particulars about the allotments, as set out in rule 16 of the Code.
It is impossible for RLV to comply with the requirements of rule 16(b) of the Code in respect of the allotment of the tranche 2 placement shares because it is unknown what the capital structure of RLV will be at the time of that allotment, assuming that it proceeds.
Similarly, RLV cannot comply with the rule 16(b) requirements in respect of the placement options because the calculations for the numbers and percentages require it to be known what number of the options are ultimately exercised by Fengli and whether there is any change to the capital structure of RLV before the expiry date of the options.
Accordingly, the Takeovers Panel has granted an exemption for—
Fengli from rule 7(d) of the Code in respect of any increase in its voting control that results from the allotment of voting securities to it as a result of the allotment of the tranche 2 placement shares or the exercise by Fengli of its placement options to the extent that the notice of meeting does not comply with rule 16 (b) of the Code; and
RLV from rule 7(d) of the Code in respect of the notice of meeting.
The Takeovers Panel considers that it is appropriate to grant an exemption in respect of the proposed allotments and that the exemption is consistent with the objectives of the Code because—
it is impossible for the actual number of voting securities to be allotted and the relevant percentages required by rule 16(b) of the Code to be stated in the notice of meeting, since these numbers and percentages are dependent on a number of factors that will not be known with certainty until after the notice of meeting is prepared; and
the conditions require the non-associated shareholders to approve the maximum increase in control by Fengli as a result of the allotment of the tranche 2 placement shares and the exercise of the placement options; and
if the non-associated shareholders approve the potential maximum allotment of voting securities to Fengli, then, by implication, the shareholders also approve any lesser percentage of voting rights that may be allotted to Fengli as a result of the allotment of the tranche 2 placement shares and the exercise of the placement options.