RNS No 8081p
INTERNATIONAL TOOL & SUPPLY
2nd October 1998
PART 1
INTERNATIONAL TOOL & SUPPLY plc ("ITS")
Scheme of Reconstruction to transfer assets of ITS to new US company, Offshore
Tool & Energy Corporation ("OTE"), which will seek admission to the
Alternative Investment Market of the London Stock Exchange ("AIM")
* ITS proposes scheme of reconstruction to transfer its two businesses into a
new US Company, Offshore Tool & Energy Corporation
* OTE to seek admission to Alternative Investment Market of London Stock
Exchange ("AIM"), subject to the approval of the shareholders of ITS ("ITS
Shareholders")
* Following Admission, OTE will specialise in construction and repair of
offshore cranes, the manufacture of equipment and component parts for the
offshore oil and gas, dredging, marine and mining industries, the
manufacture of engineered systems for enhanced oil recovery projects and
the marketing and servicing of a range of oil and gas production and
environmental products.
Introduction
ITS announces proposals for a scheme of reconstruction of ITS by way of the
transfer of its assets, subject to its liabilities, to a new Delaware company,
Offshore Tool & Energy Corporation ("Proposals"). Following implementation of
the Proposals, which involve a members' voluntary winding up of ITS, shares in
OTE ("OTE Shares") will be distributed to ITS Shareholders on the basis
described below.
A circular describing the Proposals ("the Circular") will be sent to ITS
Shareholders today. An AIM Admission Document for OTE ("Admission Document")
will be sent to ITS Shareholders with the Circular. Application will be made
later today to the London Stock Exchange for the OTE Shares to be admitted to
AIM ("Admission"), subject to the satisfaction of certain conditions (further
details of which are set out below). It is expected that Admission will
become effective on 6 November 1998.
The Proposals require the approval of ITS Shareholders by special resolution
at two Extraordinary General Meetings, to be held on 28 October 1998 ("the
First EGM") and on 5 November 1998 ("the Second EGM"), and of holders of
existing ITS warrants ("Warrants") ("Warrantholders") by extraordinary
resolution at a Warrantholders meeting to be held on 28 October 1998
("Warrantholders' Meeting").
Background to, and reasons for, the Proposals
During the course of 1997 the board of ITS ("the ITS Board" or "the ITS
Directors") has taken positive steps to reorganise ITS in order for it to
focus on its most profitable activities and to ensure that the resources
available to ITS and its subsidiaries ("the Group") were channelled as
effectively as possible.
As a consequence of this, ITS has sold its supply services division and
environmental services business. This has allowed ITS to concentrate on two
core activities, the steam generator business, run by the Engineered Systems
Division, and the production and supply of engineered and disposal products
principally for the oil and gas off-shore industry, run by the Drilling
Services Division.
However, the disposals have reduced ITS to a size where the ITS Directors
believe that it no longer has sufficient critical mass to justify its quoted
status. The ITS Directors have therefore embarked on a search for an industry
partner who can help to establish ITS as a significant manufacturer of
specialised products serving the oil and gas industry world wide, and also
provide the financial, trading and management resources required to create a
successful and profitable business.
The ITS Board identified Aero International LLC ("Aero") as a suitable merger
partner. Aero is based in Mobile, Alabama, USA, and comprises four business
units: American Aero Cranes ("American Aero Cranes") and Titan ("Titan") both
of which design and manufacture cranes used in the offshore oil and gas
industry and which comprise the Crane Division of Aero, Mobile Pulley &
Machine Works ("MPMW"), which operates a foundry for the casting and
manufacturing of component and replacement parts used in the offshore oil and
gas, dredging, marine and mining industries, and Mobile Pulley Marine Services
("MPMS"), which provides fabrication, machining and assembly services to MPMW
and the industries serviced by MPMW. MPMW and MPMS comprise the Marine
Equipment Division of Aero.
The ITS Directors believe that the merger with Aero introduces complementary
businesses into the Group and provides the necessary management resources
required, not only to manage them, but also develop the business further.
Accordingly, ITS, OTE and Aero have today entered into the Reorganisation
Agreement in order to effect the merger of the ITS and Aero businesses ("the
Reorganisation Agreement" or "the Definitive Agreement").
The Reorganisation Agreement is conditional upon, inter alia, the
reconstruction of ITS as described in this announcement and in the Circular.
Further information relating to Aero and OTE, as it will be constituted on
Admission, is set out below and in the Admission Document.
A timetable for the implementation of the Scheme is set out below.
The Scheme
As mentioned above, in order to effect the transfer to OTE as quickly as
possible, the reconstruction is to be carried out by means of a scheme ("the
Scheme") involving a members' voluntary winding up of ITS under section 110 of
the Insolvency Act 1986 ("the Act"). The Act governs the winding up of English
companies generally, regardless of financial condition, and ITS Shareholders
should not regard the choice of this statutory mechanism for the
reconstruction as a reflection upon the financial condition or viability of
ITS. Pursuant to the Scheme, the ITS Directors will be required to make a
statutory declaration to the effect that ITS will be able to pay its debts
within the 12 months following the date of the Second EGM.
The terms and conditions of this Scheme are set out in the Section 110
Agreement. Liquidators ("the Liquidators") will be appointed to complete the
transactions provided for by the Section 110 Agreement and carry out a
members' voluntary winding up of ITS. The entire undertaking of ITS
(comprising all of its assets, subject to its liabilities) will be transferred
to OTE. ITS Shareholders on the register at the close of business on 26
October 1998 ("the Record Date") will receive OTE Shares and/or cash in lieu
of fractional entitlements on the basis described below. Details of the
Section 110 Agreement are set out in the Circular.
Distribution to Shareholders
An aggregate of 20,500,000 OTE Shares will be issued under the Proposals in
respect of ITS Shareholders who are registered in the register of members of
ITS at the Record Date and Warrantholders who are deemed to hold ITS Shares on
the basis described below. Such number of OTE shares will represent 41 per
cent of the issued share capital of OTE as at the date of admission of its
shares to trading on AIM.
Under the Scheme, it is therefore expected that an ITS Shareholder who does
not exercise statutory dissenters' rights will receive one OTE Share for
approximately every 12.04 ITS Shares held on the Record Date (on the
assumption that no Warrantholders or option holders over ITS Shares
("Optionholders") exercise their rights to subscribe for ITS Shares pursuant
to the Warrants or Options prior to the Record Date and the Warrants are
treated in the manner described below).
In the event that Warrants and/or Options are exercised by Warrantholders or
Optionholders prior to the Record Date, the number of ITS Shares which may be
exchanged for one OTE Share will be adjusted such that the 20,500,000 OTE
Shares are exchanged pro rata amongst all of the holders of ITS Shares on the
Record Date (and of outstanding Warrants on the basis described below). In the
event that all outstanding Warrants and Options are exercised prior to the
Record Date, it is expected that an ITS Shareholder who does not exercise
statutory dissenters' rights will receive one OTE Share for approximately
every 12.92 ITS Shares held by him on the Record Date.
Fractional entitlements to OTE Shares will not be allotted to ITS Shareholders
but will be aggregated and sold in the market. The net proceeds (after
deduction of the costs of sale) will be distributed pro rata to ITS
Shareholders entitled to them, save that amounts of less than #3.00 will be
retained for the benefit of OTE. Accordingly, it is expected that any ITS
Shareholders with 12 or fewer (if no Warrants or Options are exercised prior
to the Record Date) ITS Shares, or who hold more than approximately 13 or more
ITS Shares in amounts not evenly divisible by approximately 12.04, will
receive cash in respect of their fractional entitlements if such amount of
cash exceeds #3.00. Such numbers of ITS Shares may be subject to adjustment so
as to ensure that the 20,500,000 OTE Shares are allotted. Details of these
arrangements are set out in the Circular.
Further details of OTE and its share capital are set out below and in the
Admission Document.
ITS Shareholders who validly exercise their statutory right to dissent from
the Scheme will be entitled, if the Scheme is carried into effect, to have
their interest in ITS purchased by the Liquidators which have been appointed
by ITS for a cash sum determined in accordance with the Act, and will not be
entitled to receive OTE Shares. ITS Shareholders who wish to dissent must not
vote in favour of the resolution to approve the Proposals at the First EGM
(whether in person or by proxy) and must lodge a written notice of dissent at
the registered office of ITS within seven days after the First EGM. Further
information concerning dissenters' rights is set out the Circular.
Unless otherwise agreed by the parties to the Section 110 Agreement, if ITS
Shareholders holding more than 2 per cent in aggregate of the ITS Shares in
issue (or such higher percentage as the ITS Directors may decide, subject to
the approval of the parties to the Reorganisation Agreement) validly give
notice of dissent, the Scheme will not be implemented and the resolution to
wind up ITS will not be proposed by the ITS Directors at the Second EGM.
The Warrant Proposal
Warrantholders may exercise their Warrants in accordance with the terms and
conditions of issue of such Warrants at any time such that ITS Shares are
issued to them prior to the Record Date. Warrantholders will be eligible to
participate in the Proposals in respect of such ITS Shares. If Warrantholders
wish to exercise their Warrants they are advised that ITS should receive the
relevant documentation so as to ensure that the relevant ITS Shares are
registered in their name prior to the Record Date.
Alternatively, under the Proposals, Warrantholders will be eligible to receive
OTE Shares in respect of the outstanding Warrants held by them on the Record
Date. Under the terms of the Scheme, each Warrantholder will receive OTE
Shares in respect of his outstanding Warrants as at the Record Date as if
every five outstanding Warrants held by him at such date instead constituted
one ITS Share and the provisions of the Scheme in relation to ITS Shareholders
applied to him in respect of such deemed holdings of ITS Shares.
Warrantholders will be required to validly complete, sign and return US Person
Certificates or Non-US Person Certificates in respect of such deemed holdings
of ITS Shares (as well as any ITS Shares held by them) as detailed below.
Any Warrantholders who are in doubt to what action they should take, should
seek their own financial advice immediately.
Based on the closing mid-market price of an ITS Share 30 September 1998 (being
the date prior to the suspension of the ITS Shares) of 4p, the implied
valuation of a Warrant under the Proposals is 0.8p.
In determining the proposals to be offered to Warrantholders under the Scheme
the ITS Directors have had regard to the following factors:
The Proposals should provide Warrantholders with the possibility of exercising
their Warrants and participating in the Scheme pari passu with existing ITS
Shareholders or being deemed to be ITS Shareholders and participating in the
Scheme on the basis described above. This means Warrantholders can decide on
their individual course of action having regard to their personal position.
The implied valuation of a Warrant represents a premium to the current
theoretical value of a Warrant if it was exercised today (as the exercise
price of a Warrant is 5p per share compared to the closing middle market price
on 30 September 1998 (the last business day prior to the suspension of the ITS
Shares) of 4p), as a value should be attached to the time during which the
Warrants could be exercised if the scheme had not been proposed;
In the three months prior to the announcement of the Proposals the range of
the closing middle market price of an ITS Share was 6.25p to 4p per share; and
The directors of ITS and OTE wish to maximise the cash available to the new
group, as they believe it can be better used to maximise shareholder value
through investing in the business of OTE following completion of the
Proposals.
A Warrantholders' Meeting is being convened for 11.15 am on Wednesday 28
October 1998 (or as soon thereafter as the First EGM shall have concluded or
been adjourned). At this meeting, an extraordinary resolution will be
proposed to modify the terms of the Warrants so as to enable the Scheme to be
implemented. The extraordinary resolution will require the approval of 75 per
cent of the votes cast (whether in person or by proxy) at the meeting.
Irrevocable undertakings to vote in favour of such extraordinary resolutions
have been received from Warrantholders representing 91.3 per cent. of the
aggregate number of Warrants outstanding as at 1 October 1998 (being the
latest practicable date prior to the publication of the Circular).
Optionholders
Optionholders who wish to receive OTE Shares should exercise their Options to
subscribe for ITS Shares such that ITS Shares are issued to them prior to 26
October 1998 ("the Record Date"). Any options which are outstanding on the
Record Date will lapse.
Non-US Person Certificate
ITS Shareholders will find enclosed with the Circular a certificate which is
required to be properly completed, signed and returned by ITS Shareholders who
are Non-US Persons as a condition to the receipt of OTE Shares, and which
accompanies the Circular ("a Non-US Person Certificate") for signature and
return in accordance with the instructions set out therein. A Non-US Person
is a person who is not a US Person. A US Person ("US Person") is a person who
is located in the United States and any other persons who are US Persons as
that term is defined in Rule 901 of Regulation S of the Securities Exchange
Commission ("SEC") under the United States Securities Act of 1933 ("Securities
Act") , as further described in the US Person Certificate and the Non-US
Person Certificate. ITS Shareholders should note that the Certificate,
contains certain warranties and acknowledgements who are required to be given
by each ITS Shareholder which is a Non-US Person entitled to receive OTE
Shares in accordance with certain requirements of the Securities Act.
Neither share certificates for OTE Shares nor cash in lieu of fractional
entitlements to OTE Shares will be sent to ITS Shareholders prior to the
receipt by IRG plc, which ITS has nominated for this purpose, from the
relevant ITS Shareholder who is a Non-US Person of a Non-US Person Certificate
properly completed and signed in accordance with the instructions set out in
the Non-US Person Certificate. Pursuant to the Laws of the Sate of Delaware,
OTE Shares not properly claimed in this way by ITS Shareholders within five
years after the date of completion of the Reorganisation Agreement ("the
Effective Date") may devolve to the State of Delaware and be sold by and for
the account of the State of Delaware along with any dividends which may have
been declared on such OTE Shares.
If ITS Shareholders are unable to enter into the warranties and
acknowledgements set out in the Non-US Person Certificate they should contact
IRG plc, in accordance with the instructions set out in the Non-US Person
Certificate. IRG plc will forward a US Person Certificate to such ITS
Shareholders for completion, signature and return. The provisions below in
relation to US Persons will then apply.
ITS Shareholders should not wait until the completion of the Scheme before
they complete, sign and return the Non-US Person Certificate. In order to
receive entitlements at the earliest possible opportunity, a validly completed
and signed Non-US Person Certificate should be returned to IRG plc at Balfour
House, 390/398 High Road, Ilford, Essex IG1 1NQ, so as to be received no later
than 11 am on 3 November 1998.
If ITS Shareholders are in any doubt about this aspect of the Proposals, they
should contact IRG plc (ref International Tool & Supply plc) by post at
Balfour House, 390/398 High Road, Ilford, Essex, IG1, 1NQ, or by telephone on
telephone number 0181 639 2000.
US Persons
Because the OTE Shares will not be registered under the Securities Act, US
Persons (as described above) will not be furnished with a copy of the Circular
nor the forms of proxy referred to therein, and will not receive OTE Shares
upon completion of the Scheme, unless any such US Persons deliver to ITS and
OTE (or such other persons as they shall nominate for such purpose) a properly
completed and signed US Person Certificate pursuant to which each such US
Person will be required to represent and warrant, if true, that such holder
is an accredited investor as such term is defined in Regulation D of the SEC
under the Securities Act. US Person Certificates have been posted as of the
today's date to all US Persons who are ITS Shareholders (as disclosed as such
in the register of members of ITS), and ITS will provide US Person
Certificates to all banks, brokerage firms, securities clearing houses and
other entities who notify ITS that they hold ITS Shares in nominee names on
behalf of US Persons who are beneficial holders of ITS Shares.
US Persons who properly complete, sign and deliver the US Person Certificate
in accordance with the instructions set forth in the certificate will be
posted a copy of the Circular and the forms of proxy referred to in the
Circular. Such US Persons will not be required to complete and return a
Non-US Person Certificate.
OTE Shares which would otherwise have been issuable to US Persons except for
the failure of any such holders to properly complete, sign and deliver a US
Person Certificate by the Effective Date in the manner described above (and
further described in the instructions set out therein) will be aggregated and
sold in the market. The net proceeds (after deduction of the costs of sale)
will be distributed to such US Persons.
The Sale of the Supply Division
As previously announced, on 2 January 1998 ITS's wholly owned subsidiary,
International Tool & Supply Inc., sold the supply division and certain related
assets, to a company formed by Kendal Gladys and Charles Hipp, who at that
stage were directors of ITS. Mr Gladys was also a director of International
Tool & Supply Company, Inc. ITS subsequently discovered that immediately
thereafter Messrs Gladys and Hipp sold their interests on to a third party at
a price which the ITS Directors believe represented a substantial profit. As a
result, on 3 February 1998 ITS commenced a legal action against Messrs Gladys
and Hipp in Harris County Court, Texas. The action alleges that Messrs Gladys
and Hipp defrauded ITS and ITS shareholders and breached fiduciary duties owed
to ITS by failing to disclose their arrangement to immediately resell the
Supply Division, at a significantly greater price than that paid to ITS.
On 2 January 1998, the Supply Division was sold to Messers Gladys and Hipp for
$2.5 million. The business was re-sold on the same day to a third party for
approximately $5 million who in turn re-sold the business on the same day for
approximately $6 million.
ITS has claimed it is entitled to recover the full profit achieved from the
sale. On 22 April 1998, Messrs Gladys and Hipp filed a counterclaim against
ITS and a third party petition against the ITS Directors (except Mr O'Brien),
Hugh Mumford (a former ITS Director) and Bernard Duroc-Danner (who the
counterclaimants allege acted as a shadow direct of ITS) for, inter alia,
fraud and breach of contract. The ITS Directors believe that the counterclaim
lacks any merit and was filed solely in an attempt to divert attention from
the actions of Messrs Gladys and Hipp. ITS and the ITS Directors intend to
vigorously defend the claim.
On 1 September 1998, ITS assigned to ITS Investments Inc. all of ITS's rights
and duties in prosecuting and defending the litigation. As of the same date,
ITS Investments Inc. has indemnified the ITS Directors and Mr Mumford in
relation to the expenses which they have incurred and will incur in relation
to the proceedings. Further information in relation to the assignment of the
litigation and the indemnity is set out in the Circular.
The assets to be transferred by ITS pursuant to the Scheme include the issued
shares in ITS Investments Inc. ITS Investments Inc. has agreed to indemnify
ITS, and OTE has agreed to indemnify ITS and the Liquidators, in respect of
any liabilities incurred by them in connection with the litigation.
Conditions to the Implementation of the Scheme
Implementation of the Scheme is subject to a number of conditions including,
inter alia, the passing of the special resolutions set out in the Notices of
the First EGM and Second EGM and the extraordinary resolution set out in the
notice of Warrantholders Meeting. These notices are contained in the
Circular.
The Scheme is also conditional on the OTE Shares being admitted to trading on
AIM. Details of the conditions to be satisfied prior to the implementation of
the Scheme are set out in the Circular.
Extraordinary General Meetings and Warrantholders' Meeting
To become effective the Proposals require the approval of 75 per cent of the
votes cast at each of the First and Second EGMs. In addition, the
implementation of the Scheme is conditional, inter alia, upon the aggregate
number of ITS Shares held by Shareholders who dissent from the Scheme not
exceeding 2 per cent of ITS's issued shares (or such higher percentage as the
ITS Directors may decide, subject to the approval of the parties to the
Reorganisation Agreement) and the passing of the extraordinary resolution to
be proposed at the Warrantholders' Meeting, as well as the OTE Shares being
admitted to trading on AIM. If the resolution proposed at the Second EGM is
duly passed, but Admission does not subsequently take place, ITS will be
placed into liquidation but the rest of the Proposals will not become
effective.
Irrevocable undertakings to vote in favour of the resolutions to be proposed
at the First EGM and the Second EGM have been received from Shareholders
representing 50.8 per cent of the aggregate number of ITS Shares in issue as
at 1 October 1998 (being the latest practicable date prior to the publication
of the Circular).
Expected Timetable
Latest time for receipt of proxy forms for
the First EGM 11 am on 26 October 1998
Latest time for receipt of proxy forms for the 11.15 am on 26 October 1998
Warrantholders' Meeting
Record Date close of business on 26 October 1998
First EGM 11 am on 28 October 1998
Warrantholders' Meeting 11.15 am on 28 October 1998
Latest time for lodging proxies for Second EGM 11 am on 3 November 1998
Second EGM 11 am on 5 November 1998
Listing of ITS Shares on AIM cancelled 6 November 1998
Effective Date and dealings in OTE Shares commence 6 November 1998
on AIM
Definitive certificates for OTE Shares despatched 13 November 1998
(or, if later, on receipt of each executed Non-US Person
Certificate from the relevant ITS Shareholder
Cheques despatched in respect of fractional entitlements 6 December 1998
of OTE Shares
MORE TO FOLLOW
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