ACN 050 542 553

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CMI LIMITED

Notice of General Meeting and Notice of Special Meeting of Class A Shareholders

including Explanatory Statement and Independent Expert’s Report in relation to a proposed selective capital reduction

This proposal affects your shareholding and your vote is important. Please take action by voting in person or by proxy.

Your Independent Directors recommend that you vote in favour of the resolutions at the relevant Meetings. If the resolutions are approved, Class A Shareholders will receive $0.95 for each Class A Share they hold.

For Meetings to be held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 10am and 11am

This is an important document and requires your immediate attention. You should read this document in its entirety. If you are in doubt as to what you should do, you should consult your investment or other professional adviser.

Key Dates

Key Dates
Date and time for determining eligibility to vote	7pm on Saturday, 12 May 2012
Latest date and time for lodgment of proxy forms
for the General Meeting	10am on Saturday, 12 May 2012
Latest date and time for lodgment of proxy forms
for the Special Meeting	11am on Saturday, 12 May 2012
General Meeting	10am on Monday, 14 May 2012
Special Meeting	11am on Monday, 14 May 2012
Suspension of trading of Class A Shares	7pm on Wednesday, 30 May 2012
Record Date	7pm on Wednesday, 6 June 2012
Payment / despatch of return of capital	Wednesday, 13 June 2012

All times referred to are to the time in Brisbane, Australia

Important notIces

read this document

You should read this document in its entirety before making a decision as to how to vote.

responsibility statement

The information concerning the Company contained in this document, including financial information and information as to the views, intentions and decisions of the Company has been provided by the Company and is the responsibility of the Company.

role of asIc and the asX

A copy of this document has been lodged with ASIC. Neither ASIC nor any of its officers take any responsibility for the contents of this document.

A copy of this document has been lodged with the ASX. Neither the ASX nor any of its officers take any responsibility for the contents of this document.

DefIneD terms

Capitalised terms used in this document are defined in the Definitions section commencing on page 2.

Table of Contents
Letter from the Independent Directors	1
Defnitions	2
How to Vote	3
Notice of General Meeting	4
Notes to Notice of General Meeting	5
Notice of Special Meeting of Class A Shareholders	7
Notes to Notice of Special Meeting of Class A Shareholders	8
Explanatory Statement	9
1. Purpose of this document	9
2. Background	9
3. Proposed Capital Reduction	9
4. Procedure	9
5. Benefts of Proposed Capital Reduction	10
6. Disadvantages of Proposed Capital Reduction	11
7. Timetable	12
8. Trojan litigation	12
9. Details of our Shareholders	13
10. Sources of Funds	15
11. Financial impact on Class A Shareholders, creditors and the Company	15
12. Taxation consequences	15
13. Additional information	16
14. Independent Expert’s Report	18
15. Recommendation	18
Independent Expert’s Report	19

CMI LIMITED NoTICEs of MEETINgs 2012

Letter from the Independent Directors

cmI LImIteD acn 050 542 553

11 April 2012

Dear Shareholder

On 8 March 2012 CMI Limited (the Company ) announced that it is proposing to undertake a selective reduction of its capital by cancelling all Class A Shares in return for a cash payment of $0.95 per Class A Share to the Class A Shareholders (the Proposed Capital Reduction ).

The total consideration of $0.95 per Class A Share payable to Class A Shareholders represents:

an 80% premium to the 12 month Volume Weighted Average Price ( VWAP ) prior to the announcement on 8 March 2012 of the Proposed Capital Reduction ( Announcement ) of $0.53;
a 51% premium to the 3 month VWAP prior to the Announcement of $0.63; and
a 32% premium on the last trade prior to the Announcement of $0.72.

In order for the Proposed Capital Reduction to proceed, approvals by special resolution of the Company’s shareholders at two separate meetings are required, namely:

a general meeting of the Company held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 10am (the General Meeting ); and
a special meeting of the Class A Shareholders held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 11am (the Special Meeting ).

Copies of:

the notices of each of the above Meetings; and
the Explanatory Statement which includes the Independent Expert's Report,

are attached. These documents include information that explains the effect of the Proposed Capital Reduction and Shareholders are encouraged to read this documentation in full.

Due to the litigation commenced by Trojan, the Board has delegated its powers in respect of this litigation to an independent board committee which comprises Danny Herceg and Darryl Somerville (the Independent Directors ); neither of the Independent Directors has a material personal interest in the legal proceedings commenced by Trojan against the Company. For further information about the legal proceedings please refer to section 8 of the attached Explanatory Statement.

The Independent Directors of the Company have closely considered the Proposed Capital Reduction, and believe it to be in the best interests of, and fair and reasonable to, the Class A Shareholders, the Ordinary Shareholders and to the Shareholders of the Company as a whole. The Independent Directors therefore recommend that you vote in favour of the resolutions at the relevant meetings.

To assist in your consideration of the Proposed Capital Reduction, the Independent Expert, Lonergan Edwards & Associates Limited, was commissioned to provide an independent expert’s report. In the opinion of the Independent Expert, the Proposed Capital Reduction is fair and reasonable to the Class A Shareholders, the Ordinary Shareholders and to the Company's Shareholders as a whole.

This proposal affects your shareholding and your vote is important. Please take action by voting in person or by proxy.

If you have any queries in regard to the proposal, you should consult your investment or other professional adviser or you can call the information line on 1300 859 277 (within Australia) or +61 2 8280 7752 (from overseas).

Yours sincerely

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Danny Herceg Independent Director CMI Limited

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Darryl Somerville Independent Director CMI Limited

CMI LIMITED NoTICEs of MEETINgs 2012

Definitions

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Term DefiniTion
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	Term	DefiniTion
	ASiC	means the Australian Securities and Investments Commission.
	Associate	has the meaning given by sections 10 to 17 of the_Corporations Act_.
	ASX	means ASX Limited (ABN 98 008 624 691) or, as the context requires, the fnancial market known as the ASX operated by it.
	Board	means the board of directors of the Company from time to time.
	Business Day	means a day on which banks are generally open for business in Brisbane, Queensland, excluding Saturdays, Sundays and public holidays.
	Class A Share	means a Class A Share in the capital of the Company.
	Class A Shareholder	means each person who is registered in the Register as the holder of Class A Shares in the Company.
	Company	means CMI Limited (ACN 050 542 553) a company incorporated in Queensland, whose registered offce is at 150 Robinson Road, Geebung, Queensland, Australia.
	Corporations Act	means the_Corporations Act 2001_(Cth).
	explanatory Statement	means the explanatory statement accompanying the Notice of General Meeting and Notice of Special Meeting of Class A Shareholders contained in this document.
	finance facilities	has the meaning set out in section 10.
	General meeting	means the proposed general meeting of the Company at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 at 10am to consider and, if thought ft, pass the special resolution set out in the Notice of General Meeting.
	independent Directors	means Messrs Danny Herceg and Darryl Somerville.
	independent expert	means Lonergan Edwards & Associates Limited.
	independent expert’s report	means the report by the Independent Expert, a copy of which is included in this document.
	Listing rules	means the Listing Rules of the ASX.
	meetings	means the General Meeting and the Special Meeting.
	notice of General meeting	means the notice of General Meeting of the Company set out on page 4 of this document.
	notice of Special meeting of Class A Shareholders	means the notice of Special Meeting of Class A Shareholders of the Company set out on page 7 of this document.
	option	means a right to subscribe for one Ordinary Share on exercise.
	ordinary Share	means a fully paid ordinary share in the capital of the Company.
	ordinary Shareholder	means each person who is registered in the Register as the holder of Ordinary Shares in the capital of the Company.
	Proceedings	means the litigation commenced by Trojan against the Company, its directors and various Shareholders (that is, proceeding number BS 6828 of 2011 in the Supreme Court of Queensland).
	Proposed Capital reduction	means the cancellation of all Class A Shares held by the Class A Shareholders in consideration for the payment to each Class A Shareholder of $0.95 for each Class A Share cancelled.
	record Date	means 7pm on Wednesday, 6 June 2012.
	register	means the register of members of the Company.
	Settlement Deed	has the meaning set out in section 8.3.
	Share registry	means the CMI Limited Share Registry, c/- Link Market Services, Level 12, 680 George Street, Sydney, New South Wales, Australia.
	Shareholders	means both Class A Shareholders and Ordinary Shareholders.
	Shares	means both Class A Shares and Ordinary Shares.
	Special meeting	means the proposed special meeting of the Class A Shareholders at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 at 11am to consider and, if thought ft, pass the special resolution set out in the Notice of Special Meeting of Class A Shareholders.
	Supplementary Deed	has the meaning set out in section 8.3.
	Trading Day	has the meaning in the Listing Rules.
	Trojan	means Trojan Equity Limited (ACN 113 436 141).

CMI LIMITED NoTICEs of MEETINgs 2012

cmI LImIteD acn 050 542 553

How to Vote

Venue

The General Meeting for Shareholders will be held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 10am.

The Special Meeting for Class A Shareholders will be held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 11am.

taKe actIon

This proposal affects your shareholding and your vote is important. Please take action by voting in person or by proxy.

VotIng

Voting in person

If you wish to vote in person, you should attend the Meetings.

Voting by proxy

If you are unable to attend the Meetings, please vote by completing and signing the relevant proxy form enclosed with this document as soon as possible but so that it is received no later than:

10am on Saturday, 12 May 2012 for proxy forms for the General Meeting. Proxy forms received after this time will be invalid.
11am on Saturday, 12 May 2012 for proxy forms for the Special Meeting. Proxy forms received after this time will be invalid.

Members may lodge proxy votes by logging in at www.linkmarketservices.com.au and clicking on the ‘Proxy Voting’ icon in the top right hand corner of the home page.

You may return the relevant proxy forms by posting them in the reply paid envelope provided by delivering them to the address below or by faxing them to Link Market Services Limited on facsimile number (02) 9287 0309 (International +61 (2) 9287 0309).

CMI Limited C/- Link Market Services Limited 1A Homebush Bay Drive Rhodes NSW 2138

For shareholders wishing to hand deliver proxy forms after 5pm on Friday, 11 May 2012 and before 10am or 11am (as applicable) on Saturday, 12 May 2012, they should be delivered between the hours of 9am and 10am or 11am (as applicable) to the Company at:

CMI Limited 150 Robinson Road Geebung QLD 4034

If the appointment of proxy is signed by an attorney, the power of attorney or a certified copy of it must also be sent.

If you have any questions, please call the information line:

Within Australia – 1300 859 277 From Overseas – +61 2 8280 7752

You can also visit the Company website at www.cmilimited.com.au.

CMI LIMITED NoTICEs of MEETINgs 2012

Notice of General Meeting

cmI LImIteD acn 050 542 553

Notice is given that a general meeting of the Company will be held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 10am.

Important: 1. For information relevant to your decision as to how to vote, please refer to the Explanatory Statement. You should also read the Notes to this Notice of Meeting.

2. Certain terms used below are defined in the Definitions section commencing on page 2.

The business of the meeting will be to consider and, if thought fit, pass the following resolution pursuant to sections 256B and 256C(2) of the Corporations Act as a special resolution:

THAT, subject to the approval by the Class A Shareholders of the Company of the special resolution contained in the Notice of Special Meeting of Class A Shareholders of the Company dated 11 April 2012, the share capital of the Company be reduced by the cancellation of all Class A Shares on issue as at the Record Date in consideration for the payment of $0.95 for each Class A Share cancelled, to be effected in accordance with the Corporations Act, the Company's Constitution and the ASX Listing Rules.

By Order of the Board

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Sharyn Williams Company Secretary CMI Limited

DATED 11 April 2012

CMI LIMITED NoTICEs of MEETINgs 2012

cmI LImIteD acn 050 542 553

Notes to Notice of General Meeting

VotIng entItLement

In accordance with the regulations under the Corporations Act the Company has determined that for the purpose of the General Meeting all Shares in the Company shall be taken to be held by the persons who held them as registered shareholders at 7pm on Saturday, 12 May 2012 ( Entitlement Time ).

This means that if you are not the registered holder of a relevant Share at that time you will not be entitled to vote in respect of that Share.

Subject to the voting exclusions noted below, all holders of Shares in the Company, (both Ordinary and Class A Shareholders), as at the Entitlement Time are entitled to attend and vote at the General Meeting.

VotIng eXcLusIon statement

In accordance with section 256C(2)(a) of the Corporations Act, the Company, will disregard any votes cast in favour of the resolution by:

any Class A Shareholder (being a person who is to receive consideration as part of the Proposed Capital Reduction) or any person whose liability to pay amounts unpaid on Shares is to be reduced as part of the Proposed Capital Reduction; and
an Associate of those persons.

However, the Company need not disregard a vote cast in favour if:

it is cast by a person as proxy for a person who is entitled to cast a vote in favour, in accordance with the directions on the relevant proxy form; or
it is cast by the person chairing the General Meeting as a proxy for a person who is entitled to cast a vote in favour, in accordance with a direction on the proxy form to vote as the proxy decides.

Further, the Company need not disregard a vote cast against this resolution by a Class A Shareholder or an Associate of a Class A Shareholder.

proXIes, attorneys anD corporate representatIVes

Please note that:

a member of the Company who is entitled to attend and cast a vote at the General Meeting has a right to appoint a proxy;
a proxy need not be a member of the Company;
a member who is entitled to cast two or more votes may appoint no more than two proxies and may specify the proportion or number of votes each proxy is appointed to exercise; and
if the member appoints two proxies and the appointment does not specify the proportion or number of the member’s votes each proxy may exercise, each proxy may exercise half the votes.

CMI LIMITED NoTICEs of MEETINgs 2012

cmI LImIteD acn 050 542 553

Notes to Notice of General Meeting

In addition, please note that:

to appoint a proxy, you should use the relevant proxy form which accompanies this document. If you wish to appoint two proxies, you should contact the Company for another proxy form;
in the case of an individual, you or your attorney duly authorised in writing should sign the proxy and, in the case of a corporation, the proxy must be executed in accordance with the Corporations Act;
if the proxy form is signed by an attorney, the attorney(s) must declare that he/she/they has/have not received any notice of revocation of appointment and a certified copy of the power of attorney, or the power itself, must be submitted to the Share Registry by the deadline for submission of proxies as outlined below; and
any corporation which is a member of the Company may appoint an individual to act as its representative in order to vote at the meeting. The appointment must comply with the requirements of the Corporations Act. The representative should bring to the meeting evidence of their appointment, including any authority under which it is signed.

Members may lodge proxy votes by logging in at www.linkmarketservices.com.au and clicking on the ‘Proxy Voting’ icon in the top right hand corner of the home page.

Proxies and powers of attorney (or original certified copies of powers of attorney) must be received not later than 10am on Saturday, 12 May 2012 at the address below or by faxing them to Link Market Services Limited on facsimile number (02) 9287 0309 (International +61 (2) 9287 0309).

CMI Limited C/- Link Market Services Limited 1A Homebush Bay Drive Rhodes NSW 2138

For shareholders wishing to hand deliver proxy forms after 5pm on Friday, 11 May 2012 and before 10am on Saturday, 12 May 2012, they should be delivered between the hours of 9am and 10am to the Company at:

CMI Limited 150 Robinson Road Geebung QLD 4034

CMI LIMITED NoTICEs of MEETINgs 2012

Notice of Special Meeting of Class A Shareholders

cmI LImIteD acn 050 542 553

A special meeting of Class A Shareholders of the Company will be held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 11am.

Important: 1. For information relevant to your decision as to how to vote, please refer to the Explanatory Statement. You should also read the Notes to this Notice of Meeting of Class A Shareholders.

2. Certain terms used below are defined in the Definitions section commencing on page 2.

The business of the meeting will be to consider and, if thought fit, pass the following resolution pursuant to sections 256B and 256C(2) of the Corporations Act as a special resolution:

THAT, subject to approval of the special resolution contained in the Notice of General Meeting of the Company dated 11 April 2012, the share capital of the Company be reduced by the cancellation of all Class A Shares on issue as at the Record Date in consideration for the payment of $0.95 for each Class A Share cancelled, to be effected in accordance with the Corporations Act, the Company's Constitution and the ASX Listing Rules.

By order of the Board

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Sharyn Williams Company Secretary CMI Limited

DATED 11 April 2012

CMI LIMITED NoTICEs of MEETINgs 2012

Notes to Notice of Special Meeting of Class A Shareholders

cmI LImIteD acn 050 542 553

VotIng entItLement

In accordance with the regulations under the Corporations Act the Company has determined that for the purpose of the Special Meeting all Shares in the Company shall be taken to be held by the persons who held them as registered shareholders at 7pm on Saturday, 12 May 2012 ( Entitlement Time ).

This means that if you are not the registered holder of a relevant Share at that time you will not be entitled to vote in respect of that Share.

All Class A Shareholders are entitled to attend and vote at the Special Meeting.

proXIes, attorneys anD corporate representatIVes

Please note that:

a member of the Company who is entitled to attend and cast a vote at the meeting has a right to appoint a proxy;
a proxy need not be a member of the Company;
a member who is entitled to cast two or more votes at the meeting may appoint no more than two proxies and may specify the proportion or number of votes each proxy is appointed to exercise; and
if the member appoints two proxies and the appointment does not specify the proportion or number of the member’s votes each proxy may exercise, each proxy may exercise half the votes.

In addition, please note that:

to appoint a proxy, you should use the relevant proxy form which accompanies this document. If you wish to appoint two proxies, you should contact the Company for another proxy form;
in the case of an individual, you or your attorney duly authorised in writing should sign the proxy and, in the case of a corporation, the proxy must be executed in accordance with the Corporations Act;
if the proxy form is signed by an attorney, the attorney(s) must declare that he/she/they has/have not received any notice of revocation of appointment and a certified copy of the power of attorney, or the power itself, must be submitted to the Share Registry by the deadline for submission of proxies as outlined below; and
any corporation which is a member of the Company may appoint an individual to act as its representative in order to vote at the meeting. The appointment must comply with the requirements of the Corporations Act. The representative should bring to the meeting evidence of their appointment, including any authority under which it is signed.

Members may lodge proxy votes by logging in at www.linkmarketservices.com.au and clicking on the ‘Proxy Voting’ icon in the top right hand corner of the home page.

Proxies and powers of attorney (or original certified copies of powers of attorney) must be received not later than 11am on Saturday, 12 May 2012 at the address below or by faxing them to Link Market Services Limited on facsimile number (02) 9287 0309 (International +61 (2) 9287 0309).

CMI Limited C/- Link Market Services Limited 1A Homebush Bay Drive Rhodes NSW 2138

For shareholders wishing to hand deliver proxy forms after 5pm on Friday, 11 May 2012 and before 11am on Saturday, 12 May 2012, they should be delivered between the hours of 9am and 11am to the Company at:

CMI Limited 150 Robinson Road Geebung QLD 4034

CMI LIMITED NoTICEs of MEETINgs 2012

cmI LImIteD acn 050 542 553

Explanatory Statement

1. purpose of thIs Document

This Explanatory Statement has been prepared for the purpose of section 256C(4) of the Corporations Act. The purpose of this Explanatory Statement is to provide Shareholders with all the information known to the Company that is material to Shareholders in deciding whether or not to approve the Proposed Capital Reduction.

This Explanatory Statement is dated 11 April 2012.

2. BacKgrounD

The Board (comprised of the Independent Directors) has resolved to put a proposal to Shareholders that all Class A Shares will be cancelled in return for a cash payment of $0.95 per Class A Share.

Importantly:

the Independent Expert has concluded that the Proposed Capital Reduction is fair and reasonable to the Class A Shareholders and to the Shareholders as a whole; and
in the opinion of the Independent Directors as at the date of this Explanatory Statement, the Proposed Capital Reduction:
will not materially prejudice the Company's ability to pay its creditors; and
is in the best interests of, and fair and reasonable to the Class A Shareholders, Ordinary Shareholders and to the Shareholders of the Company as a whole.

Further information on the advantages and disadvantages of the Proposed Capital Reduction is set out below.

3. proposeD capItaL reDuctIon

The Proposed Capital Reduction involves the reduction of the Company’s Share capital from 61,757,945 Shares to 33,752,634 Shares. This will be effected by the cancellation of 28,005,311 Class A Shares held by Class A Shareholders in consideration for a cash payment of $0.95 for every Class A Share cancelled.

4. proceDure

4.1 Corporations Act requirements

A company may reduce its share capital in a way that is not otherwise authorised by law if the proposed capital reduction:

(a) is fair and reasonable to the company's shareholders as a whole;
(b) does not materially prejudice the company's ability to pay its creditors; and
(c) is approved by shareholders.

The Corporations Act specifies different procedures for the necessary shareholder approval depending on whether the capital reduction is a selective capital reduction or an equal capital reduction. The Proposed Capital Reduction is a selective capital reduction as it does not apply to each holder of Ordinary Shares in proportion to the number of Ordinary Shares they hold, and the terms of the proposed reduction are not the same for each holder of Ordinary Shares.

CMI LIMITED NoTICEs of MEETINgs 2012

cmI LImIteD acn 050 542 553

Explanatory Statement

In accordance with the Corporations Act, the following shareholder approvals and other regulatory requirements must be obtained in order to implement the Proposed Capital Reduction as it is a selective capital reduction which involves only the cancellation of Class A Shares.

4.2 Special Resolution – General Meeting

The first special resolution must be passed at the General Meeting. The terms of this special resolution are set out in the Notice of General Meeting. No votes may be cast in favour of the resolution by any person who is to receive consideration as part of the Proposed Capital Reduction or whose liability to pay amounts unpaid on Shares is to be reduced, or by their Associates.

Under the Proposed Capital Reduction, Class A Shareholders will receive consideration for the cancellation of their Class A Shares. Accordingly, the Company will disregard any votes cast in favour of this resolution by Class A Shareholders. As a special resolution, the resolution must be passed by at least 75% of the votes cast by Shareholders who are present and entitled to vote on the resolution.

This special resolution is conditional upon the special resolution to be considered at the Special Meeting also being passed.

4.3 Special Resolution – Special Meeting

The second special resolution must be passed at a meeting of the Class A Shareholders whose Class A Shares are to be cancelled. The terms of the special resolution are set out in the Notice of Special Meeting of Class A Shareholders. Again, this special resolution must be passed by at least 75% of the votes cast by Class A Shareholders present and entitled to vote on the resolution.

This special resolution is conditional upon the special resolution to be considered at the General Meeting also being passed.

4.4 Explanatory Statement

This Explanatory Statement must set out all information known to the Company that is material to the decision on how to vote on the resolutions, except if this would be unreasonable because the Company has previously disclosed the information to its Shareholders.

4.5 Lodge Notice of Meeting with ASIC

In accordance with section 256C(5) of the Corporations Act, the Company has lodged with ASIC a copy of this Notice of Meeting and accompanying documentation prior to sending it to Shareholders.

5. BenefIts of proposeD capItaL reDuctIon

The benefits of the Proposed Capital Reduction are as follows:

the Independent Expert has concluded that the Proposed Capital Reduction is fair and reasonable to the Shareholders as a whole;
given the lack of liquidity of the Class A Shares, it will allow exit at higher than market prices for Class A Shares than recent trading prices:
an 80% premium to the 12 month VWAP prior to the announcement on 8 March 2012 of the Proposed Capital Reduction ( Announcement ) of $0.53;
a 51% premium to the 3 month VWAP prior to the Announcement of $0.63; and
a 32% premium on the last trade prior to the Announcement of $0.72;

CMI LIMITED NoTICEs of MEETINgs 2012

Explanatory Statement

cmI LImIteD acn 050 542 553

it will result in the resolution and discontinuance of the current legal proceedings instituted by Trojan (see the discussion in section 8). This should benefit Ordinary Shareholders due to the resulting ability of CMI management to focus more closely on the business operations of the Company without unnecessary distraction. In addition, significant legal and related professional costs will be avoided which would be incurred if the Proceedings were to proceed to trial. It should be noted that some of these costs might be recouped if the proceedings were found in favour of the Company;
the Class A Shares carry a high fixed dividend (in the event of a dividend being declared) making them an expensive source of capital for the Company if dividends are paid in the future, and the Proposed Capital Reduction will remove this expensive source of capital;
it will create a simplified capital structure, which will likely make it easier for Shareholders to understand their investment in the Company and which is likely to make it easier for the market to assess and value the Company; and
it will address concerns of Class A Shareholders generally about the market value of their Class A Shares.

6. DIsaDVantages of proposeD capItaL reDuctIon

The disadvantages of the Proposed Capital Reduction are as follows:

after the Proposed Capital Reduction is implemented, the Class A Shareholders will cease to enjoy any rights as Shareholders of the Company, including attendance and voting (where applicable) at meetings of the Company and participation in any future dividend payments;
to the extent that the Company benefits from any economic conditions that may arise in the future (for example, cost reductions and product development), the Class A Shareholders will not obtain any subsequent benefits arising from such upsides (for example, an increase in the price at which the Class A Shares may have traded); and
implementation of the Proposed Capital Reduction will be funded by the Company from existing cash reserves and a conservative level of borrowings. This will result in a geared position for the Company, which is currently ungeared.

CMI LIMITED NoTICEs of MEETINgs 2012

cmI LImIteD acn 050 542 553

Explanatory Statement

7. tImetaBLe

The Corporations Act and the ASX Listing Rules set out the procedure and timing for a capital reduction.

The General Meeting will be held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 10am. The Special Meeting will be held at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, Brisbane Queensland 4007 on Monday, 14 May 2012 commencing at 11am.

If the Proposed Capital Reduction is approved:

the trading of Class A Shares on ASX will cease at the close of trading on Wednesday, 30 May 2012; and
the Record Date for determining entitlements to the reduction of capital payment of $0.95 per Class A Share will be at 7pm on Wednesday, 6 June 2012, being 5 Trading Days after suspension of the Class A Shares of the Company on ASX. Any change to the suspension date will be announced to the ASX.

Payment of the consideration payable to Class A Shareholders in respect of the cancelled Class A Shares will be made on Wednesday, 13 June 2012 , being 9 Business Days after the suspension of trading of the Class A Shares of the Company on ASX. The payment will be made to Class A Shareholders via electronic funds transfer if their banking details are held by the Share Registry, or otherwise by cheque, posted to each Class A Shareholder at the address of the Class A Shareholder as it appears in the Company’s register.

8. trojan LItIgatIon

8.1 Background to litigation

On 5 August 2011 Trojan initiated the Proceedings in the Supreme Court of Queensland seeking a range of relief, including that the Company be wound up and damages for oppressive, discriminatory and prejudicial conduct on the part of the Company's former managing director Raymond David Catelan (deceased), directors Colin Gregory Ryan, Danny Herceg and Leanne Catelan, former director Richard Denis Catelan, and other parties.

Trojan has also sought divestiture orders, damages and an account of profits in respect of certain dealings in the Company's Shares in alleged contravention of the takeover provisions and the insider trading provisions of the Corporations Act.

8.2 Release of Danny Herceg

On 28 February 2012 the Company announced that Trojan has released and discharged Danny Herceg unconditionally from all claims, actions, suits or demands made in the Proceedings, and arising out of or relating to any conduct of Danny Herceg as a director of the Company or otherwise in relation to the Company.

As a result of this release and discharge, Danny Herceg no longer has a material personal interest in the successful completion of the Proposed Capital Reduction.

8.3 Settlement Deeds

On 8 March 2012 the Company announced that it had entered into a deed with Trojan, the largest Class A Shareholder, pursuant to which, subject to certain conditions, the Company will call and hold meetings of the Shareholders to consider the Proposed Capital Reduction (the Settlement Deed ).

CMI LIMITED NoTICEs of MEETINgs 2012

cmI LImIteD acn 050 542 553

Explanatory Statement

The Settlement Deed provides that:

the Company and Trojan will apply to adjourn the legal proceedings to 1 July 2012;
upon the successful completion of the Proposed Capital Reduction, Trojan will release and discharge the Company from all and any claims, actions, suits or demands and the Proceedings will be dismissed;
the Company will pay, upon the successful completion of the Proposed Capital Reduction, a sum of $130,000 towards Trojan's costs in the Proceedings; and
Trojan must do all things reasonably within its power to support the Company in obtaining Shareholder approval for the Proposed Capital Reduction.

On 8 March 2012 the Company, along with Colin Gregory Ryan, Richard Denis Catelan and Leanne June Catelan (the Releasees ), also entered into a further deed ( the Supplementary Deed ) with:

Trojan;
Troy Harry, the Managing Director of Trojan ( Harry ); and
two companies which hold Class A shares and are associated with Troy Harry and/or Trojan, namely Trojan House Pty Ltd ( Trojan House ) and Norfolk Enchants Pty Ltd ( Norfolk ).

Pursuant to the Supplementary Deed, Trojan, Harry, Trojan House and Norfolk forever release the Company and the Releasees from all claims of whatever nature and however arising which they have had, currently have or may at any time in the future (but for the Supplementary Deed) have against any of those entities arising out of, relating to or in any way connected with or incidental to:

the purchase and/or ownership by Trojan, Trojan House or Norfolk of shares in the Company;
the circumstances, allegations and claims referred to in the Proceedings;
the circumstances, allegations and claims upon which the Proceedings were based; or
t he conduct of the Company and/or the other respondents to the Proceedings in relation to any of the matters set out in the above bullet points.

The Supplementary Deed is subject to the Company complying with its obligations under the Settlement Deed and the other respondents to the Proceedings complying with their obligations under other settlement deeds between Trojan and those respondents.

9. DetaILs of our sharehoLDers

The Company advises that pursuant to orders of the Takeovers Panel dated 25 February 2011, Tinkerbell Enterprises Pty Ltd( Tinkerbell ) may not vote any of its Ordinary Shares at the General Meeting. On 5 April 2011 Tinkerbell lodged a judicial review application in the Federal Court (QUD73/2011) in respect of this Takeovers Panel decision. The application was heard in September 2011 but, as at the date of this Explanatory Statement, a decision is yet to be handed down. It is possible that the Federal Court will issue orders sometime between the date of this Explanatory Statement and the date of the Meetings which may allow Tinkerbell to vote its Ordinary Shares at the General Meeting.

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Explanatory Statement

As at 2 April 2012, the 20 largest Ordinary Shareholders of the Company were:

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name no. of Shares % of total Shares
Le Rae Pty Ltd 12,420,484 36.80%
Tinkerbell Enterprises Pty Ltd 3,112,422 9.22%
Almargem Pty Ltd 859,038 2.55%
Assetylene Pty Ltd 851,632 2.52%
Moat Investments Pty Ltd 825,337 2.45%
LJ Catelan Superannuation Fund Pty Ltd 730,217 2.16%
FW Holst & Co Pty Ltd 650,000 1.93%
Mr Philip Gordon Greenham 558,500 1.65%
M L Catelan Superannuation Fund Pty Ltd 512,649 1.52%
Mr Danny Herceg 500,000 1.48%
Mellett Super Pty Ltd 384,320 1.14%
Mr Peter Lancaster + Mrs Leonie Lancaster 370,000 1.10%
Norfolk Enchants Pty Ltd 335,000 0.99%
Aust Executor Trustees Ltd 329,413 0.98%
Australian Executor Trustees Limited 243,402 0.72%
Mr Gerald Francis Pauley 241,137 0.71%
Ms Rosalie Catherine Vaughan 223,052 0.66%
Mr David Marshall Spry 200,000 0.59%
Velkov Funds Management Limited 190,000 0.56%
Ausco Group Pty Ltd 167,000 0.49%
Total 23,703,603 70.22%
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As at 2 April 2012, the 20 largest Class A Shareholders of the Company were:

name	no. of Shares	% of total Shares
Trojan EquityLimited	3,028,000	10.81%
Taycol Nominees PtyLtd	1,695,674	6.05%
RBC Dexia Investor Services	1,695,673	6.05%
Mr Gabriel Berger	1,517,886	5.42%
Cooltrac PtyLtd	1,319,033	4.71%
Contemplator PtyLtd	819,237	2.93%
Mr Gerald Francis Pauley+ Michael James Pauley	551,452	1.97%
Ms Franciska Lasic	547,336	1.95%
Carluke Capital PtyLtd	369,089	1.32%
Ago PtyLtd	360,000	1.29%
Velkov Funds Management Limited	308,900	1.10%
Moat Investments PtyLtd	278,663	1.00%
Milton Yannis	240,555	0.86%
Mrs Robyn Jane Vogler	200,000	0.71%
Mr David Arthur Ifor Cardell	187,333	0.67%
Marko Nominees PtyLtd	172,367	0.62%
Australian Executor Trustees Limited	171,933	0.61%
Mr Gordon Coad & Miss ShirleyPratt	165,000	0.59%
Atkone PtyLtd	163,734	0.58%
Mr Benjamin Youngman Graham & Mrs Katerina Graham	162,000	0.58%
Total	13,953,865	49.82%

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Explanatory Statement

10. source of funDs

If the Proposed Capital Reduction is approved, the Company will return $0.95 to the Class A Shareholders.

The total consideration payable to Class A Shareholders if the Proposed Capital Reduction is implemented will be $26,605,045.

The Company intends to fund the Proposed Capital Reduction primarily by way of existing cash holdings, which are expected to be approximately $19 million at the time of the proposed payment date of Wednesday, 13 June 2012. The remaining amount will be funded from the Company's existing finance facilities totalling approximately $11 million with the National Australia Bank (the Finance Facilities ).

The Finance Facilities are comprised of a commercial bill facility of $8.5 million and an overdraft facility of $2.5 million made on normal commercial facility terms reviewable in May 2014 and May 2013, respectively.

11. fInancIaL Impact on cLass a sharehoLDers, creDItors anD the company

11.1 Class A Shareholders

If the Proposed Capital Reduction is approved by Shareholders and implemented, the Class A Shareholders will receive $0.95 per Class A Share.

As a result of the Proposed Capital Reduction, Class A Shares will be cancelled and the Class A Shareholders will cease to have any interest in the Company.

The taxation consequences of the Proposed Capital Reduction for Class A Shareholders are discussed below in the section titled “Taxation consequences”.

11.2 Creditors

As at the date of this Explanatory Statement, the Independent Directors are of the view that the Proposed Capital Reduction will not materially prejudice the Company’s ability to pay its creditors or to meet its debts as and when they fall due.

11.3 The Company

Following the Proposed Capital Reduction, the Company will have access to approximately $3.4 million under the Finance Facilities to fund the working capital of the business operations of the Company.

The interest expense on the funds borrowed (based on a total debt of approximately $7.6 million) under the Finance Facilities is expected to be around $600,000 per annum (based on current interest rates).

The costs to the Company, because of the need to pay interest under the Finance Facilities, are expected to increase in the longer term. The likely impact of the interest payments on the earnings of the Company’s continuing operations for the financial year ending 30 June 2012 is approximately $25,000 (assuming a proposed payment date of Wednesday, 13 June 2012).

The information provided in this section 11.3 is provided for illustrative purposes only and is not intended to provide an indication as to the precise impact that interest on the loan would have on the Company’s earnings in future financial years, or to serve in any way as a forecast as to what those earnings are likely to be.

12. taXatIon consequences

The following tax discussion is a simplified outline of the income tax position for those Australian resident Class A Shareholders discussed below. The information set out hereunder reflects the Australian income tax law as at 27 March 2012.

The discussion is general in nature only and should not be regarded as tax advice as to a particular Class A Shareholders position. Accordingly, it is recommended that all Class A Shareholders seek professional advice from a qualified taxation advisor specific to their own circumstances.

Class A Shareholders may make a gain or loss as a result of the selective capital reduction and subsequent cancellation of their shares by the Company. Any gain made in respect of the cancellation of the Class A Shares, which were acquired by Class A Shareholders for long term investment and held on capital account, should not be assessed as income according to ordinary concepts, but rather as a capital gain. The capital gain should be calculated as the difference between the capital proceeds received and the cost base of the Shares.

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Explanatory Statement

Alternatively, a capital loss may arise where the reduced cost base of a Class A Share exceeds the proceeds received by the Shareholder for the cancellation of the Shares. A capital loss cannot be offset against other income, but can be carried forward indefinitely to be offset against future capital gains.

The cost base of the Shares should generally be equal to the amount paid for the Shares.

If a Class A Shareholder makes a capital gain as a result of the cancellation of their Class A Shares, the Class A Shareholder may be eligible to claim the Capital Gains Tax ( CGT ) discount. Generally, an individual Class A Shareholder or a Class A Shareholder who is the trustee of a trust (that is treated as a flow-through entity for tax purposes) may be entitled to a 50% CGT discount if the Class A Shares have been held for longer than 12 months at the time of the CGT event (being the cancellation of the Shares). A superannuation fund may be entitled to a one third discount in the same circumstances. Any capital losses the shareholder has must be applied to the gross capital gain before utilisation of the CGT discount.

For a Class A Shareholder who had a cost base of more than 95 cents per Class A Share, they will incur a capital loss equal to that excess per Class A Share. In this situation, the loss can be offset against other capital gains realised in a financial year or carried forward and offset against future capital gains.

For Class A Shareholders who hold their Class A Shares as trading stock or on revenue account, different tax considerations will apply and separate taxation advice should be sought. Non-residents should also obtain separate taxation advice.

The Income Tax Assessment Act 1936 (Cth) (the 1936 Act) contains various integrity measures (in particular section 45B) which can operate to deem a capital payment (such as a return of capital paid by a company) to be an unfranked dividend for taxation purposes. The Directors of the Company have considered the risks of section 45B applying and are of the opinion that section 45B of the 1936 Act is unlikely to apply given all of the circumstances of the selective capital reduction.

13. aDDItIonaL InformatIon

13.1 Directors

The directors of the Company are:

Colin Ryan;
Danny Herceg;
Leanne Catelan; and
Darryl Somerville.

13.2 Director holdings

Details of beneficial holdings of Shares by directors of the Company as at the date of this Explanatory Statement are as follows:

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name no. of Shares
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Colin Ryan	Ordinary Shares – Nil
	Class A Shares – Nil
	Options – 300,000
Danny Herceg	Ordinary Shares – 500,000 (1.48%)
	Class A Shares – Nil
	Options – 300,000
Leanne Catelan	Ordinary Shares – 16,263,123 (48.18%)
	Class A Shares – Nil
	Options – Nil
Darryl Somerville	Ordinary Shares – Nil
	Class A Shares – Nil
	Options – Nil

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Explanatory Statement

No other director of the Company as at the date of this Explanatory Statement holds a beneficial interest in any Shares of the Company.

Danny Herceg and Leanne Catelan (excluding the 9.22% held by Tinkerbell which is a company controlled by Leanne Catelan) intend to vote in favour of the resolution at the General Meeting in respect of their personal holdings in the Company.

As discussed in section 7, Tinkerbell may not vote any of its Ordinary Shares at the General Meeting pursuant to orders of the Takeovers Panel dated 25 February 2011. However, the Company has been informed by Tinkerbell that it intends to vote in favour of the Proposed Capital Reduction if the Federal Court hands down a decision prior to the General Meeting which allows it to do so.

The Company notes that Tinkerbell does not have a relevant interest (as that term as defined in the Corporations Act) in any Class A Shares.

13.3 Changes in financial position

So far as is known to the directors of the Company, the financial position of the Company has not materially changed since 30 June 2011, that being the date of the last audited accounts of the Company despatched to the Shareholders in accordance with the Corporations Act, other than as previously disclosed to Shareholders and as set out in this Explanatory Statement by the Proposed Capital Reduction.

13.4 Options

If the Proposed Capital Reduction is approved, then all 28,005,311 Class A Shares will be cancelled and 33,752,634 Ordinary Shares will remain on issue. The Options on issue will be unaffected.

13.5 Payments or other benefits

In connection with the Proposed Capital Reduction, no payment or other benefit is proposed to be made or will be given to any director, secretary or executive officer of the Company or any related body corporate as compensation for the loss of, or as consideration for or in connection with his or her retirement from, office in the Company or any related body corporate.

13.6 No agreement or arrangement

There is no agreement or arrangement made between any director of the Company and any other person in connection with or conditional upon the outcome of the Proposed Capital Reduction other than the Settlement Deed and the Supplementary Deed, as described in section 8.3.

13.7 Capital structure of the Company

The issued share capital of the Company is 33,752,634 Ordinary Shares and 28,005,311 Class A Shares at the date of this document.

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Explanatory Statement

13.8 ASX announcements

Where statements in this Explanatory Statement refer to or are based on statements made in or announcements made by the Company to ASX, the Company will provide a copy of those announcements free of charge to any Shareholder who asks for them prior to the Meetings. Any requests for copies of those announcements may be made by calling the information line on 1300 859 277 (from within Australia) and +61 2 8280 7752 (from overseas).

Shareholders are also able to obtain copies of the Company’s most recent financial reports from the Company’s website at www.cmilimited.com.au.

13.9 Other material information

Other than as contained in this document there is no information material to the making of a decision (being information that is within the knowledge of any director of the Company) that has not previously been disclosed to Shareholders.

14. InDepenDent eXpert’s report

Attached to this Explanatory Statement is the Independent Expert’s Report. The Independent Expert has concluded that the Proposed Capital Reduction is fair and reasonable to the Class A Shareholders, Ordinary Shareholders and to the Shareholders of the Company as a whole.

15. recommenDatIon

The Independent Directors, Messrs Herceg and Somerville, have closely considered the Proposed Capital Reduction, the information contained in this Explanatory Statement and the Independent Expert’s Report, and have formed the view that the Proposed Capital Reduction:

is in the best interests of the Class A Shareholders, Ordinary Shareholders and Shareholders of the Company as a whole;
is fair and reasonable to the Class A Shareholders, Ordinary Shareholders and Shareholders of the Company as a whole; and
as at the date of this Explanatory Statement, will not materially prejudice the Company’s ability to pay its creditors.

The Independent Directors therefore recommend that you vote in favour of the resolutions proposed in the Notice of General Meeting and in the Notice of Special Meeting of Class A Shareholders as applicable.

Other than as disclosed in this Explanatory Statement, each Independent Director confirms that there are no circumstances which may reasonably be expected to be capable of influencing his decision to recommend the Proposed Capital Reduction to Shareholders.

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Independent Expert's Report

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The Independent Directors CMI Limited 150 Robinson Road Geebung Qld 4014

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29 March 2012

Subject: Proposed buy-back of Class A shares

Dear Sirs

Introduction

1 On 8 March 2012 CMI Limited (CMI) announced a proposal to make a selective capital reduction with regard to its Class A shares (the Proposed Transaction). If the selective capital reduction is approved the Class A shares on issue will be bought back by CMI at a price of $0.95 per share.
2 CMI currently has 28.0 million Class A shares on issue. The cost of the proposed buy-back will therefore be $26.6 million.
3 The Proposed Transaction is subject to approvals by the requisite special majorities of both ordinary and Class A shareholders meeting together and Class A shareholders meeting as a separate class.

Purpose of report

4 The Independent Directors of CMI have requested that Lonergan Edwards & Associates Limited (LEA) prepare an independent expert’s report (IER) stating whether the Proposed Transaction is fair and reasonable. Our report will accompany the Notice of Meeting and Explanatory Memorandum to be sent by the company to all CMI shareholders.
5 LEA is independent of CMI and has no other involvement or interest in the Proposed Transaction.

Summary of opinion

6 LEA has concluded that the Proposed Transaction is fair and reasonable.
7 In reaching this conclusion we compared the price of $0.95 per share at which the Class A shares are to be bought back with our assessed range of values of the Class A shares of $0.89 to $0.96 per share.
8 We also considered other factors to determine whether, on balance, the Proposed Transaction is fair and reasonable to both the ordinary and Class A shareholders of CMI. The key factors we have had regard to were:

Liability limited by a scheme approved under Professional Standards legislation

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Independent Expert's Report

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Class A shareholders’ perspective

(a) the Proposed Transaction price of $0.95 per share is within our assessed value range of the Class A shares of between $0.89 and $0.96 per share
(b) the Proposed Transaction consideration of $0.95 per share is at a significant premium to the prices at which Class A shares have generally traded prior to the Proposed Transaction being announced
(c) the buy-back price of $0.95 per share is higher than our estimate of the stock market price at which Class A shares would be likely to trade in the absence of the Proposed Transaction. On 28 February 2011 the board announced its intention not to recommence paying dividends on the Class A shares until FY14 (and potentially later), subsequent to which the Class A shares have generally traded in a range of $0.40 to $0.65 per share. It is reasonable to expect that the stock market price of the Class A shares would increase as the indicated dividend recommencement date draws nearer
(d) however the Proposed Transaction consideration of $0.95 per Class A share is below the face value of $1.20 per Class A share that would be distributed to Class A shareholders if there was an orderly realisation of assets and the net proceeds distributed to all CMI shareholders. In our opinion, we consider an alternative proposal along these lines to be highly unlikely
(e) the proposed consideration is materially less than the price the Class A shares should theoretically trade at if and when dividend payments on the Class A shares recommence. However this is not expected to occur before FY14 (at least). Furthermore if dividend payments were to subsequently cease for any reason, it is commercially reasonable to expect a significant time delay before dividends again recommenced
(f) in the absence of the Proposed Transaction, dividends on the Class A shares are unlikely to recommence until FY14 (and potentially later) given the stated dividend policy adopted by the CMI directors
(g) based on trading on the ASX, Class A shares have been largely illiquid. In contrast the Proposed Transaction provides liquidity, together with an opportunity to sell the investment without incurring transaction costs

Ordinary shareholders’ perspective

(h) the cost of the buy-back will be funded from internal cash resources together with a modest level of external borrowings, which will leave CMI in a conservative position as regards gearing and interest cover
(i) other things being equal, subsequent to the proposed buy-back, CMI ordinary shareholders will receive a greater annual dividend than would otherwise be the case in the absence of the Proposed Transaction (based on an assumed comparable dividend payout ratio of 40% to 50% of after tax profits)
(j) subsequent to completion of the Proposed Transaction, dividend payments to ordinary shareholders could commence some 12 months earlier than would otherwise be the case

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(k) completion of the Proposed Transaction will result in related legal proceedings being dismissed, which should benefit ordinary shareholders as a result of the ability of CMI management to focus on the business operations without unnecessary distraction, as well as significant legal and related professional costs which will not be incurred.

Conclusion

9 Having regard to the advantages and disadvantages of the Proposed Transaction from the perspective of both the ordinary and Class A shareholders, we consider that, on balance, the Proposed Transaction is fair and reasonable to CMI shareholders as a whole and to both CMI Class A shareholders and ordinary shareholders.

General

10 In preparing this report we have considered the interests of CMI shareholders as a whole. Accordingly, this report only contains general financial advice and does not consider the personal objectives, financial situations or requirements of individual shareholders.
11 The impact of approving the Proposed Transaction on the tax position of CMI Class A shareholders depends on the individual circumstances of each investor. CMI shareholders should read the Notice of Meeting (Taxation Implications) and consult their own professional advisers if in doubt as to the taxation consequences of the Proposed Transaction.
12 The ultimate decision whether to approve the Proposed Transaction should be based on each CMI shareholder’s assessment of their own circumstances. If CMI shareholders are in doubt about the action they should take in relation to the Proposed Transaction or matters dealt with in this report, shareholders should seek independent professional advice. For our full opinion on the Proposed Transaction and the reasoning behind our opinion, we recommend that CMI shareholders read the remainder of our report.

Yours faithfully

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Wayne Lonergan Authorised Representative

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Martin Holt Authorised Representative

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Section		Page
I	Key terms of the Proposed Transaction	5
	Terms	5
II	Scope of our report	6
	Purpose	6
	Basis of assessment	6
	Limitations and reliance on information	7
III	Profile of CMI	9
	Current operations	9
	Financial performance	9
	Financial position	10
	Share capital and performance	11
IV	Class A shareholders	15
	Valuation of the Class A shares	15
	Timing of dividend payments	15
	Discount rate	16
	Value of a Class A share	17
	Comparison to share market trading	18
	Return of capital	19
	Other considerations	20
	Summary	20
V	Ordinary shareholders	21
	Funding of buy-back	21
	Dividend payments	21
	Litigation	22
	Other considerations	22
	Summary	23

Appendices

A Financial Services Guide B Qualifications, declarations and consents C Glossary

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I Key terms of the Proposed Transaction

Terms

13 On 8 March 2012 CMI announced a proposal to make a selective capital reduction with regard to its Class A shares (the Proposed Transaction). If the selective capital reduction is approved the Class A shares on issue will be bought back by CMI at a price of $0.95 per share.
14 CMI currently has 28.0 million Class A shares on issue. The cost of the proposed buy-back will therefore be $26.6 million.
15 Two shareholder meetings are scheduled to occur:
(a) a combined meeting of both ordinary and Class A shareholders, at which any shareholder holding Class A shares voting in favour of the resolution is not able to be counted for the 75% test for the combined meeting
(b) a Class A shareholders meeting.
16 The Corporations Act 2001 (Cth) requires 75% of those voting in each of the separate combined and Class A shareholders meetings to vote in favour of the relevant resolution for the Proposed Transaction to be approved.
17 The terms, procedures and resolutions required for the Proposed Transaction are fully described in the Notice of Meeting and Explanatory Memorandum.

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II Scope of our report

Purpose

18 Section 256B(1) of the Corporations Act 2001 (Cth) permits companies to reduce their share capital if the reduction:
(a) is fair and reasonable to the company’s shareholders as a whole
(b) does not materially prejudice the company’s ability to pay its creditors
(c) is approved by shareholders.
19 There is no statutory requirement for a company to commission an IER in relation to a proposed selective capital reduction. However Australian Securities & Investments Commission (ASIC) Regulatory Guide 111 – Content of expert reports (RG 111) recommends that an IER accompany the Notice of Meeting to be sent to shareholders in relation to a proposed selective reduction of capital, in order to satisfy the information requirements under s256C(4) of the Corporations Act 2001 (Cth).
20 Consequently, the Independent Directors of CMI have requested that LEA prepare an IER stating whether, in LEA’s opinion, the Proposed Transaction is fair and reasonable to CMI shareholders as a whole. This report has been prepared to assist the Independent Directors of CMI in making their recommendations to the ordinary and Class A shareholders of CMI and to assist these shareholders assess the merits of the Proposed Transaction.
21 Our report should not be used for any other purpose or by any other party. The ultimate decision whether to approve the Proposed Transaction should be based on each shareholders’ assessment of their own circumstances, including their risk profile, liquidity preference, tax position and expectations as to value and future market conditions. If in doubt about the Proposed Transaction or matters dealt with in this report, CMI shareholders should seek independent professional advice.

Basis of assessment

22 In preparing our report we have given due consideration to the Regulatory Guides issued by ASIC including, in particular, RG 111.
23 RG 111 distinguishes “fair” from “reasonable” and effectively considers:
(a) a selective capital reduction to be “fair” if the buy-back price is equal to or greater than the value of the securities that are the subject of the selective capital reduction. A comparison must be made assuming 100% ownership of the securities
(b) a selective capital reduction to be “reasonable” if it is fair. A selective capital reduction may also be “reasonable” if, despite not being “fair” but after considering other significant factors, shareholders should approve the selective capital reduction in the absence of an alternative superior proposal.

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24 In LEA’s opinion, the most appropriate basis upon which to evaluate whether the Proposed Transaction is “fair and reasonable” is to consider all the circumstances of the Proposed Transaction and compare the likely advantages and disadvantages to and the overall impact on both ordinary and Class A CMI shareholders if the proposal is agreed to with the advantages and disadvantages to those shareholders if it is not.
25 Consequently we have considered:
(a) the market value of the Class A shares in CMI
(b) the value of the selective capital reduction consideration i.e. $0.95 per Class A share
(c) the extent to which (a) and (b) differ (in order to assess whether the Proposed Transaction is fair under ASIC RG 111)
(d) whether the Proposed Transaction is fair and reasonable to CMI shareholders as a whole as well as to the ordinary shareholders and the Class A shareholders.

Limitations and reliance on information

26 Our opinion is based on the economic, sharemarket, financial and other conditions and expectations prevailing at the date of this report. Such conditions can change significantly over relatively short periods of time.
27 Our report is also based upon financial and other information provided by CMI and its advisers. We understand the accounting and other financial information that was provided to us has been prepared in accordance with the Australian equivalents to International Financial Reporting Standards. We have considered and relied upon this information and believe that the information provided is reliable, complete and not misleading and we have no reason to believe that material facts have been withheld.
28 The information provided was evaluated through analysis, enquiry and review to the extent considered appropriate for the purpose of forming an opinion on the Proposed Transaction from the perspective of CMI shareholders. However, we do not warrant that our enquiries have identified or verified all of the matters which an audit, extensive examination or “due diligence” investigation might disclose. Whilst LEA has made what it considers to be appropriate enquiries for the purpose of forming its opinion, “due diligence” of the type undertaken by companies and their advisers in relation to (for example) prospectuses or profit forecasts is beyond the scope of an IER.
29 Accordingly, this report and the opinions expressed therein should be considered more in the nature of an overall review of the anticipated commercial and financial implications of the proposed transaction, rather than a comprehensive audit or investigation of detailed matters.
30 An important part of the information base used in forming an opinion of the kind expressed in this report is comprised of the opinions and judgement of management of the relevant companies. This type of information has also been evaluated through analysis, enquiry and review to the extent practical. However, it must be recognised that such information is not always capable of external verification or validation.

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31 We in no way guarantee the achievability of budgets or forecasts of future profits. Budgets and forecasts are inherently uncertain. They are predictions by management of future events which cannot be assured and are necessarily based on assumptions of future events, many of which are beyond the control of management. Actual results may vary significantly from forecasts and budgets with consequential valuation impacts.
32 In forming our opinion, we have also assumed that the information set out in the Notice of Meeting is complete, accurate and fairly presented in all material respects.

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III Profile of CMI

Current operations

33 Established in 1991 and listed on the ASX in 1993, CMI is an Australian-based company with operations focused on:
(a) the manufacture and distribution of electrical cables and components for industrial and mining applications through CMI Electrical
(b) the manufacture and distribution of accessories for the four wheel drive (4WD), sports utility vehicles and trade market segments via the TJM Products 4WD Megastores network throughout Australia and other international distribution centres.

CMI Electrical

34 CMI Electrical specialises in the manufacture and distribution of electrical cables and associated components for industrial, mining, infrastructure, commercial, petrochemical and information technology applications throughout Australia and the surrounding regions. High value coupler and receptacle products are also exported to the mining sectors in Indonesia, Papua New Guinea and China.
35 Operations are conducted from one manufacturing and several distribution facilities in Australia. The manufacturing plant is located at Meadowbank in Sydney and operates to international quality standards ISO9001:2008 and ISO14001:2004.

TJM Products

36 The TJM Products division is one of Australia’s largest distributors and marketers of specialty 4WD and light commercial vehicle accessories. Its product range encompasses bull bars, side / rear protection bars, roof racks, fuel / water tanks, winches, suspension, snorkels, towbars, lighting and other specialist accessories. The division’s manufacturing factory in Brisbane operates to the international quality standards ISO9001:2008.
37 Accessories produced or marketed are compatible with a majority of the 4WD and light commercial models marketed in Australia and overseas by leading manufacturers such as Toyota, Nissan, Holden, Ford, Mitsubishi, Mazda, Isuzu, Jeep and Land Rover. Major brand names which are manufactured or distributed by the division are TJM, XGS Gold Suspension, TJM Winches and Airtec Snorkels.

Financial performance

38 The financial performance of CMI for the three years ended 30 June 2011 (FY11), as well as the six month period to 31 December 2011, is set out below:

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CMI – financial performance
	Year to 30 Jun 09	Year to	Half year
		30 Jun 11	31 Dec 11
	$m	$m	$m
Operating revenue EBITDA – before non-recurring items Depreciation and amortisation EBIT – before non-recurring items Net interest received / (paid) Non-recurring items Profit / (loss) before income tax Income tax expense Profit / (loss) after tax from continuing operations Discontinued operations Profit after tax and discontinued operations Non-recurring items Gain / (loss) on disposal of PPE Impairment expense Insurance recoveries related to fire Write off assets damaged in fire
	7.3 11.1 20.1 11.1 (2.1) (0.9) (1.1) (0.7)
	5.2 10.3 19.0 10.4 3.3 (1.7) (2.1) 1.2 (9.5) (7.6) 2.0 (9.3)
	(0.9) 1.0 18.8 2.4 - (2.4) (5.5) (3.0)
	(1.0) (1.4) 13.3 (0.6) (0.5) 1.0 - -
	(1.5) (0.4) 13.3 (0.6)
	(1.1) - - - (8.4) (8.1) - (9.3) - 4.0 2.0 - - (3.5) - -
	(9.5) (7.6) 2.0 (9.3)

Note:

Rounding differences may exist.

Financial position

39 The financial position of CMI as at 31 December 2010, 30 June 2011 and 31 December 2011 is set out below:

CMI – financial position
	31 Dec 10 $m 30 Jun 11 $m 31 Dec 11 $m 9.0 16.1 17.1 18.6 18.3 20.6 22.2 25.0 27.6

Cash and cash equivalents Trade and other receivables Inventories Total current assets Other financial assets Property, plant and equipment Goodwill Other intangible assets Deferred tax assets Total non-current assets Total assets Trade and other payables Borrowings Current tax payables Provisions Total current liabilities
	49.8 59.4 65.3
	8.5 8.5 - 4.8 4.8 5.1 6.9 6.9 6.9 2.1 2.3 2.5 0.4 0.5 0.1
	22.6 22.9 14.6
	72.4 82.3 79.8
	9.2 9.9 10.8 0.6 0.3 0.2 1.9 4.5 1.9 1.5 1.3 1.3
	13.2 16.0 14.2

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CMI – financial position
	31 Dec 10 $m 30 Jun 11 $m 31 Dec 11 $m 0.2 0.1 - 0.2 0.1 0.1

Borrowings Provisions Total non-current liabilities Total liabilities Net assets
	0.4 0.2 0.1
	13.6 16.2 14.3

	58.9 66.0 65.5

Share capital and performance

40 As at 21 March 2012 CMI had 33.75 million fully paid ordinary shares and 28.0 million Class A shares on issue. In addition the company had 0.6 million options on issue over the ordinary shares at an exercise price of $1.20 per share.

Significant shareholders

41 As at 21 March 2012 there were a number of substantial shareholders of both CMI’s ordinary and Class A shares, as shown below:

CMI – substantial shareholders
Shareholder / Class	Number	%
Ordinary shares
Le Rae Pty Ltd	12,420,484	36.8
Tinkerbell Enterprises Pty Ltd	3,112,422	9.2
LJ Catelan Superannuation Pty Ltd	730,217	2.2
Class A shares
Trojan Equity Limited	3,028,000	10.8
Mr Gabriel Berger	1,517,886	5.4

Share price performance

42 The following table illustrates the movement in the ordinary share prices of CMI from 1 March 2009 to 2 March 2012 (being the last trading day prior to the announcement of the Proposed Transaction):

CMI – share price performance
				Monthly
	High	Low	Close	volume(1)
	A$	A$	A$	000
Quarter ended
March 2009	0.52	0.31	0.35	75
June 2009	0.49	0.28	0.33	590
September 2009	0.63	0.33	0.61	610
December 2009	0.67	0.46	0.66	130
March 2010	0.72	0.68	0.70	172
June 2010	0.72	0.62	0.62	125
September 2010	0.68	0.60	0.66	244
December 2010	0.78	0.66	0.78	119
March 2011	1.30	0.78	0.86	166
June2011	1.12	0.84	0.85	101

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CMI – share price performance

				Monthly
	High	Low	Close	volume(1)
	A$	A$	A$	000
Month ended
July 2011	1.10	0.86	1.07	155
August 2011	0.98	0.86	0.90	54
September 2011	1.30	1.05	1.30	612
October 2011	1.35	1.30	1.33	1,002
November 2011	1.45	1.33	1.37	237
December 2011	1.45	1.33	1.38	90
January 2012	1.51	1.37	1.51	62
February 2012 March 2012(2)	1.86 2.11	1.55 1.85	1.85 1.91	619 199

Note:

1 Monthly volumes for the quarter ended represent average monthly volumes.

2 Up to and including 2 March 2012. Source: Bloomberg.

43 The following table illustrates the movement in the Class A share prices of CMI from 1 March 2009 to 2 March 2012:

CMI – Class A share	price performance
				Monthly
	High	Low	Close	volume(1)
	A$	A$	A$	000
Quarter ended
March 2009	0.47	0.36	0.36	311
June 2009	0.38	0.28	0.32	351
September 2009	0.55	0.26	0.51	314
December 2009	0.59	0.40	0.45	1,265
March 2010	0.49	0.43	0.44	243
June 2010	0.47	0.36	0.38	261
September 2010	0.45	0.33	0.41	422
December 2010	0.52	0.36	0.52	639
March 2011	0.73	0.39	0.42	472
June 2011	0.46	0.38	0.41	241
Month ended
July 2011	0.56	0.40	0.51	294
August 2011	0.54	0.44	0.54	211
September 2011	0.62	0.52	0.58	212
October 2011	0.60	0.57	0.58	213
November 2011	0.59	0.55	0.55	395
December 2011	0.64	0.55	0.61	325
January 2012	0.65	0.61	0.65	313
February 2012 March 2012 (2)	0.70 0.72	0.64 0.70	0.68 0.72	175 33

Note:

Monthly volumes for the quarter ended represent average monthly volumes. 2. Up to and including 2 March 2012. Source: Bloomberg.

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44 The prices of CMI ordinary and Class A shares from 1 January 2008 to 2 March 2012 are summarised in the graph below:

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----- Start of picture text -----

CMI – ordinary and Class A share price history
1 January 2008 to 2 March 2012
$2.00
$1.60
$1.20
CMI - ordinary shares
$0.80
$0.40
CMI - Class A shares
$0.00
Jan 08 Jul 08 Jan 09 Jul 09 Jan 10 Jul 10 Jan 11 Jul 11 Jan 12
Source: Bloomberg.
----- End of picture text -----

Liquidity in CMI shares

45 The liquidity in CMI’s ordinary and Class A shares based on trading on the ASX over the 12 month period prior to 2 March 2012 is set out below:

CMI – shares liquidity
				Implied level
	Value	Volume	WANOS(1)	of liquidity(2)
	A$000	000	000	%
CMI ordinary shares
1 month to 2 March 2012	1,443	792	33,753	2.35
3 months to 2 March 2012	1,680	956	33,753	2.83
6 months to 2 March 2012	3,977	2,749	33,753	8.15
1 year to 2 March 2012	4,616	3,442	33,753	10.20
Class A shares
1 month to 2 March 2012	104	154	28,005	0.55
3 months to 2 March 2012	530	844	28,005	3.01
6 months to 2 March 2012	950	1,576	28,005	5.63
1 year to 2 March 2012	1,635	3,096	28,005	11.05

Note:

Weighted average number of shares outstanding.
Number of shares traded during the period (volume) divided by WANOS. Source: Bloomberg.

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46 In the 12 month period prior to the announcement of the Proposed Transaction total share turnover for both the ordinary and Class A shares equalled around 10% of the issued shares in each share class, indicating a low level of market liquidity for both share classes.

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IV Class A shareholders

Valuation of the Class A shares

47 The key terms attaching to the Class A shares are:
(a) holders have a preferential right to dividends in priority to holders of ordinary shares
(b) holders have a preference over ordinary shareholders if there is a return of capital
(c) subject to (d) below, holders are entitled to a quarterly dividend at a rate determined by the directors, but not less than 14 cents per share per year fully franked[1]
(d) the payment of dividends to Class A shareholders is non-cumulative, at the discretion of the directors and subject to there being funds legally available for the payment of dividends
(e) holders have restricted voting rights (except during a period in which a dividend or a part of a dividend is in arrears or on a proposal relating to a reduction of capital).
48 The value of any asset or security is generally regarded as being the net present value of the future cash flows arising pursuant to ownership of the asset. In the case of the Class A shares such cash flows are represented by the future dividend stream[2] .

Timing of dividend payments

49 CMI last paid a dividend in respect of the Class A shares in December 2007. On 28 February 2011 CMI announced to the ASX:

“its strategic intention of expanding the company’s current business operations by actively seeking acquisitions and growth opportunities that are compatible with the core businesses of the company while continuing its focus on the organic growth of those core businesses both domestically and internationally.

To carry out this intent, the Company has decided to continue to strengthen its balance sheet and to maximise its cash position at least until after its review of the 2013 financial year results. Therefore the Board has adopted a Dividend Policy that will consolidate that cash position. The Board is not expected to declare dividends to the Class A or the Ordinary shareholders until after 30 June 2013. After then, the Board will review this Policy to determine whether the Policy should continue for a further period.”

50 We understand the primary objective of the Board in relation to the dividend policy adopted was to enable the CMI businesses to grow in size and profitability to a level that would allow the resumption of appropriate dividend distributions to all CMI shareholders (both Class A and ordinary shareholders) whilst maintaining a prudent dividend payout ratio.
1 If dividends are not fully franked they must be “grossed up” by a cash payment to give the effect of 100% franking.

2 We note in the event of a return of capital by CMI holders of Class A shares would receive a cash “lump sum” payment. For the purpose of our report we have assumed the continued operation of CMI and its businesses in a going-concern scenario.

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51 We have therefore considered the current and projected earnings performance of the company to assess the level of prospective future dividend payment capacity. For the purpose of our report we have assumed CMI will generate after tax earnings (on a sustainable basis) in FY13 of $14.0 million.
52 We consider an appropriate dividend payout ratio for a company such as CMI to be around 40% to 50% of after tax profits. Based on after tax earnings of $14.0 million, this equates to a total dividend payment capacity of $5.6 to $7.0 million.
53 The annual cost of dividend payments in respect of the Class A shares is $3.9 million (being 28.0 million shares at 14 cents per share). A proposed total dividend payment in the range of $5.6 to $7.0 million would therefore allow for a total dividend payment to ordinary shareholders in the range of $1.7 to $3.1 million. This equates to 5.0 cents to 9.2 cents per ordinary share, calculated as follows:

	Assumed dividend payout ratio 40% $m 50% $m 5.6 7.0



Total dividend payment Class A dividend Ordinary dividend Ordinary dividend per share (cents)(1)
	3.9 3.9 1.7 3.1
	5.6 7.0
	5.0 9.2

Note: 1 Calculated based on 33.75 million ordinary shares on issue.

54 Based on the above, for the purpose of our report, we have assumed the recommencement of dividend payments to Class A shareholders at a rate of 14 cents per year with effect from (no earlier than) 30 September 2013 (being the first Class A share dividend payment date in respect of FY14). We have further assumed continuation (in perpetuity[3] ) of dividend payments to Class A shareholders from that date on a quarterly basis[4] .

Discount rate

55 The discount rate represents the rate of return required by investors in CMI Class A shares. The return reflects the risks associated with investing in securities generally, together with the relative risks attached to an investment in CMI Class A shares. Given the nature of the Class A shares an equity rate of return has been adopted[5] .

3 Although we note that if profits decline significantly at some future date dividends may not always be paid.
4 We note that based on the dividend payment history of the company, it is likely that holders of Class A shares would receive (a minimum of) four quarterly dividend distributions prior to the restoration of dividends in respect of the ordinary shares. Based on our assumption, dividend payments on the ordinary shares would therefore not recommence until FY15.
5 We have considered whether it is appropriate to value the Class A shares as if they were an, in substance, debt instrument. In our view this is not appropriate due to the discretionary nature of the dividend payments to Class A shareholders.

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56 In determining an appropriate discount rate (rate of return) we have had regard to:
(a) the prevailing yield to maturity on 10 year Australian Government bonds of around 4.5% per annum (which is generally referred to as a risk-free rate[6] )
(b) a market risk premium (MRP) of 6% per annum, reflecting our view on the additional return above the risk-free rate sought by equity investors in the current market conditions
(c) a beta in the range of 1.3 to 1.4 reflecting our view on an appropriate beta for companies operating in the mining services sector[7][8]
(d) the preferred nature of the Class A shares as regards dividend distributions (although we note this benefit has been negatively impacted by the dividend policy adopted by the directors which is, in essence, not to ignore ordinary shareholders relative to Class A shareholders in terms of dividend payments)
(e) the lack of future growth in dividends paid in respect of the Class A shares (as compared to ordinary shares in CMI)[9]
(f) the inherent risk associated with dividends attaching to the Class A shares, given that all dividends remain at the discretion of the directors (who may be of a view that funding otherwise available for dividend distribution would be better employed elsewhere in the company).
57 Given the above we have adopted a discount rate in the range of 13.0% to 14.0% per annum.

Value of a Class A share

58 We have therefore assessed the value of a Class A share in the range of $0.89 to $0.96.
59 Pursuant to ASIC Regulatory Guideline 111 – Content of expert reports (RG 111), an offer is “fair” if:

“The value of the offer price or consideration is equal to or greater than the value of the securities the subject of the offer.”

60 This comparison, in the circumstances of the Proposed Transaction, is shown below:
6 Some market commentators have questioned the continued use of this terminology given (in particular) the funding issues being encountered by a number of European countries.
7 CMI derives the substantial majority of its earnings from the Electrical division and this division’s services provided to the mining sector.
8 The prevailing betas of mining service companies generally are above this range, reflecting the volatility in earnings and market conditions experienced over the previous three to four years. The prospective (i.e. forward looking) beta is lower than recent historic performance.
9 Whilst the terms attaching to the Class A shares allow for dividends in excess of 14 cents per share per annum, given the (relatively) expensive nature of this funding we consider the prospects of an annual future dividend higher than 14 cents per share to be remote.

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	Low	High	Mid-point
	$	$	$
Value of consideration (buy-back price) Value of a Class A share Extent to which the consideration exceeds (or is less than) the value of a Class A share
	0.06 (0.01) 0.025

61 As the consideration (the buy-back price) is within our assessed value range of a Class A share, in our opinion, the Proposed Transaction is fair.
62 As noted above, in assessing the value of a Class A share, we have assumed for the purpose of our report the recommencement of the payment of dividends in respect of the Class A shares in September 2013. We set out in the chart below the (mid-point) value of a Class A share depending on which quarter subsequent to September 2013 CMI recommences paying dividends in respect of the Class A shares:

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----- Start of picture text -----

CMI– value of Class A shares depending on recommencement of dividends
----- End of picture text -----

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----- Start of picture text -----

$1.00
Offer price $0.95
$0.90
$0.80
Weighted average
share price $0.63
$0.70
$0.60
$0.50
Month Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16
ending
----- End of picture text -----

Comparison to share market trading

63 We have calculated the premium implied by the buy-back price of $0.95 per share by reference to the market prices of CMI Class A shares (as traded on the ASX) for periods up to and including 2 March 2012 (being the last trading day prior to the trading halt requested by CMI which preceded the announcement of the Proposed Transaction).
64 The implied premium relative to CMI Class A share prices up to 2 March 2012 is shown below:

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	CMI Class A	Implied
	share price	premium
	$	%
Buy-back price VWAP(1)	0.95
1 month to 2 March 2012	0.67	41.8
3 months to 2 March 2012	0.63	50.8

Note: 1 Volume weighted average price (VWAP).
65 The buy-back price of $0.95 per share is therefore at a significant premium to the prices at which Class A shares have generally traded prior to the Proposed Transaction being announced.
66 In addition, we note that the volume of Class A shares traded in the three month period to 2 March 2012 represented only 3.0% of the respective shares on issue. The Proposed Transaction therefore provides all Class A shareholders with an opportunity to realise their investment at a significant premium to prices generally available in the market (with the additional benefit of not incurring transaction costs).

Return of capital

67 As noted above the terms of issue of the Class A shares provide for a preference over ordinary shareholders in relation to a return of capital. Specifically, in such circumstances, Class A shareholders would be entitled to a return of (up to) $1.20 per share (equivalent to face value), together with a proportionate dividend payment for the period subsequent to the previous quarterly dividend payment.
68 The maximum payment that could potentially be paid to Class A shareholders is therefore $34.6 million, calculated as follows:

	$m
Return of capital Quarterly dividend Note: 1 Calculated based on 28.0 million Class A shares on issue.	33.6 1.0
	34.6~~(1)~~

69 Based on a market capitalisation of CMI of in excess of $100 million, under an orderly realisation of assets and related distribution of the proceeds to all CMI shareholders, it is reasonable to conclude that Class A shareholders would receive a full return of capital (together with any accrued dividend entitlement).
70 We have been advised however that the directors have no current (and at this stage) future intention of proceeding on such a course of action. Rather, their intention is to seek growth opportunities for (in particular) the successful Electrical business division.

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71 In the overall circumstances of CMI therefore we consider the short to medium term prospects of an orderly realisation of assets and related distribution of the proceeds (by way of a return of capital or otherwise) to be remote.

Other considerations

72 The other factors we have had regard to in considering the position of Class A shareholders pursuant to the Proposed Transaction are:
(a) we note that the Proposed Transaction has been negotiated on an arm’s length basis with Trojan Equity Limited, a professional sophisticated investor (and also the largest holder of Class A shares)
(b) we have assumed that the Proposed Transaction can be effected without any adverse tax consequences for Class A shareholders, other than those that might arise pursuant to a sale of the securities generally.

Summary

73 Based on the above we consider the likely advantages of the Proposed Transaction from the perspective of Class A shareholders to outweigh the likely disadvantages. Accordingly we have concluded that the Proposed Transaction is fair and reasonable (taken overall) to CMI Class A shareholders.

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V Ordinary shareholders

Funding of buy-back

74 The cost of the proposed buy-back of the Class A shares is $26.6 million (being 28.0 million shares at $0.95 per share).
75 As at 31 December 2011 CMI had net cash of $16.9 million. Based on management expectations as regards to operational cash flow in the subsequent period to the proposed buyback date, total internal funding of around $20.0 million is expected to be available.
76 At this stage therefore proposed borrowings to assist in funding the buy-back are $6.6 million. We have been advised that CMI has available bank facilities (more than) sufficient to cover this level of proposed borrowings and will be extending these facilities to ensure their availability at the time of the buy back.
77 The impact of the proposed borrowings on CMI (and hence CMI ordinary shareholders) is that the company will move from an ungeared (net cash) position to a modest level of gearing. Based on an indicative market capitalisation of CMI of in excess of $100 million (as represented by market trading in CMI ordinary and Class A shares), CMI will have a gearing level of below 10% subsequent to the proposed buy-back of Class A shares. We consider this level of gearing to be conservative.
78 Furthermore, the likely level of annual interest expense on the borrowings of around $0.5 million[10] would be very conservatively covered by underlying earnings before interest and tax (EBIT) by over 30 times.

Dividend payments

79 As noted in Section IV, for the purpose of our report, we have assumed that CMI recommences dividend payments in FY14. Given the dividend payment history of the company, it is likely that Class A shareholders would receive (a minimum of) four quarterly dividend payments prior to payment of dividends in respect of the ordinary shares. In the absence of the proposed share buy-back therefore, it will be FY15 (in our assumed scenario) before CMI ordinary shareholders receive a dividend payment.
80 We have calculated the total dividend payment capacity prior to the proposed share buy-back at $5.6 million to $7.0 million. Subsequent to the proposed buy-back the profit after tax of CMI will reduce in respect of (the after tax effect of) interest income no longer received and interest expense on the proposed borrowings. Based on the lower level of assumed after tax profits the total dividend payment capacity will reduce to $4.9 million to $6.2 million.
81 However, given that the Class A shares will have been bought back (and cancelled), all of the assumed dividend payment will be available for CMI ordinary shareholders. Other things being equal, the dividend payment to ordinary shareholders will therefore increase appreciably, as shown below:

10 This assumes a cost of debt of 8% per annum on the proposed level of borrowings of $6.6 million.

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	Assumed	dividend payout
		ratio
	40%	50%
Total dividend payment ($m) (post the proposed share buy-back)	4.9	6.2
Ordinary shares on issue (million)	33.75	33.75
Ordinary dividend per share (cents):
Subsequent to the proposed buy-back	14.6	18.3
Prior to the proposed buy-back (paragraph 53)	5.0	9.2

82 Furthermore, in the scenario assumed for the purpose of our report, dividend payments to ordinary shareholders would commence around 12 months earlier in FY14.

Litigation

83 The proposed buy-back of the Class A shares has arisen pursuant to a settlement deed between CMI and Trojan Equity Limited (Trojan), in relation to various legal proceedings initiated by Trojan against CMI and certain of its directors.
84 Under the settlement deed the parties have applied to adjourn the legal proceedings to 1 July 2012. Upon completion of a successful buy back, Trojan has agreed to release and discharge CMI from all and any claims, actions, suits or demands and the proceedings will be dismissed[11] .
85 In the event that the buy-back is successful, costs and related CMI management time in respect of the litigation proceedings will no longer be incurred. In the circumstances it is reasonable to assume that CMI ordinary shareholders will benefit from the ability of CMI management to focus on the business operations without unnecessary distraction, as well as significant legal and related professional costs which will not be incurred.

Other considerations

86 The other factors we have had regard to in considering the position of ordinary shareholders pursuant to the Proposed Transaction are:
(a) we have been advised that the Proposed Transaction can be effected without any adverse tax consequences for CMI[12]
(b) CMI has available franking credits of around $14.6 million, the benefit of which will accrue wholly to ordinary shareholders subsequent to completion of the Proposed Transaction
(c) the buy-back and subsequent cancellation of Class A shares pursuant to the Proposed Transaction will simplify the share structure of CMI.
11 Upon a successful completion of the proposed buy-back CMI will pay $130,000 towards Trojan’s costs in the proceedings.

12 There are various integrity measures (in particular section 45B) which can operate to deem a capital payment (such as a return of capital paid by a company) to be an unfranked dividend for tax purposes. The Independent Directors have considered the risks of section 45B applying and are of the opinion that section 45B of the 1936 Act is unlikely to apply given all of the circumstances of the selective capital reduction.

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Summary

87 Based on the above we have concluded that the Proposed Transaction is fair and reasonable to CMI ordinary shareholders.

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Appendix A

Financial Services Guide

Lonergan Edwards & Associates Limited

1 Lonergan Edwards & Associates Limited (ABN 53 095 445 560) (LEA) is a specialist valuation firm which provides valuation advice, valuation reports and independent expert’s reports (IER) in relation to takeovers and mergers, commercial litigation, tax and stamp duty matters, assessments of economic loss, commercial and regulatory disputes.
2 LEA holds Australian Financial Services Licence No. 246532.

Financial Services Guide

3 The Corporations Act 2001 authorises LEA to provide this Financial Services Guide (FSG) in connection with its preparation of an IER to accompany the Notice of Meeting to be sent to all CMI shareholders in connection with the Proposed Transaction.
4 This FSG is designed to assist retail clients in their use of any general financial product advice contained in the IER. This FSG contains information about LEA generally, the financial services we are licensed to provide, the remuneration we may receive in connection with the preparation of the IER, and if complaints against us ever arise how they will be dealt with.

Financial services we are licensed to provide

5 Our Australian financial services licence allows us to provide a broad range of services to retail and wholesale clients, including providing financial product advice in relation to various financial products such as securities, derivatives, interests in managed investment schemes, superannuation products, debentures, stocks and bonds.

General financial product advice

6 The IER contains only general financial product advice. It was prepared without taking into account your personal objectives, financial situation or needs.
7 You should consider your own objectives, financial situation and needs when assessing the suitability of the IER to your situation. You may wish to obtain personal financial product advice from the holder of an Australian Financial Services Licence to assist you in this assessment.

Fees, commissions and other benefits we may receive

8 LEA charges fees to produce reports, including this IER. These fees are negotiated and agreed with the entity who engages LEA to provide a report. Fees are charged on an hourly basis or as a fixed amount depending on the terms of the agreement with the entity who engages us. In the preparation of this IER, LEA is entitled to receive a fixed fee of $50,000 plus GST.
9 Neither LEA nor its directors and officers receive any commissions or other benefits, except for the fees for services referred to above.

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CMI LIMITED NoTICEs of MEETINgs 2012

Independent Expert's Report

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Appendix A

10 All of our employees receive a salary. Our employees are eligible for bonuses based on overall performance and the firm’s profitability, and do not receive any commissions or other benefits arising directly from services provided to our clients. The remuneration paid to our directors reflects their individual contribution to the company and covers all aspects of performance. Our directors do not receive any commissions or other benefits arising directly from services provided to our clients.
11 We do not pay commissions or provide other benefits to other parties for referring prospective clients to us.

Complaints

12 If you have a complaint, please raise it with us first, using the contact details listed below. We will endeavour to satisfactorily resolve your complaint in a timely manner.
13 If we are not able to resolve your complaint to your satisfaction within 45 days of your written notification, you are entitled to have your matter referred to the Financial Ombudsman Services Limited (FOS), an external complaints resolution service. You will not be charged for using the FOS service.

Contact details

14 LEA can be contacted by sending a letter to the following address:

Level 27 363 George Street Sydney NSW 2000 (or GPO Box 1640, Sydney NSW 2001)

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CMI LIMITED NoTICEs of MEETINgs 2012

Independent Expert's Report

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Appendix B

Qualifications, declarations and consents

Qualifications

1 LEA is a licensed investment adviser under the Corporations Act. LEA’s authorised representatives have extensive experience in the field of corporate finance, particularly in relation to the valuation of shares and businesses and have prepared more than 100 independent expert’s reports to shareholders.
2 This report was prepared by Mr Wayne Lonergan and Mr Martin Holt, who are each authorised representatives of LEA. Mr Lonergan and Mr Holt have over 35 years and 25 years experience respectively in the provision of valuation advice.

Declarations

3 This report has been prepared at the request of the Independent Directors of CMI to accompany the Notice of Meeting to be sent to all CMI shareholders. It is not intended that this report should serve any purpose other than as an expression of our opinion as to whether or not the Proposed Transaction is fair and reasonable to CMI shareholders as a whole.

Interests

4 At the date of this report, neither LEA, Mr Lonergan nor Mr Holt have any interest in the outcome of the Proposed Transaction. With the exception of the fee shown in Appendix A, LEA will not receive any other benefits, either directly or indirectly, for or in connection with the preparation of this report.
5 LEA has had no prior business or professional relationship with CMI other than in connection with this report.

Indemnification

6 As a condition of LEA’s agreement to prepare this report, CMI agrees to indemnify LEA in relation to any claim arising from or in connection with its reliance on information or documentation provided by or on behalf of CMI which is false or misleading or omits material particulars or arising from any failure to supply relevant documents or information.

Consents

7 LEA consents to the inclusion of this report in the form and context in which it is included in the Notice of Meeting.

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CMI LIMITED NoTICEs of MEETINgs 2012

Independent Expert's Report

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Appendix C

Glossary

Abbreviation Definition 4WD Four wheel drive ASIC Australian Securities & Investments Commission CMI CMI Limited EBIT Earnings before interest and tax FOS Financial Ombudsman Services Limited FSG Financial Services Guide FY Financial year IER Independent expert’s report LEA Lonergan Edwards & Associates Limited MRP Market risk premium Proposed Transaction Proposal to make a selective capital reduction with regard to its Class A shares RG 111 Regulatory Guide 111 – Content of expert reports Trojan Trojan Equity Limited VWAP Volume weighted average price

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CMI LIMITED NoTICEs of MEETINgs 2012

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ACN 050 542 553

LODGE YOUR VOTE

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
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www.linkmarketservices.com.au

ONLINE

By mail:  CMI Limited  [By fax:][ +61 2 9287 0309] C/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia



All enquiries to: Telephone: 1300 859 277 Overseas: +61 2 8280 7752

SHAREHOLDER VOTING FORM

I/We being a member(s) of CMI Limited and entitled to attend and vote hereby appoint:

STEP 1

APPOINT A PROXY

the Chairman OR if you are NOT appointing the Chairman of the Meeting as your of the Meeting proxy, please write the name of the person or body corporate (excluding (mark box) the registered shareholder) you are appointing as your proxy

or failing the person/body corporate named, or if no person/body corporate is named, the Chairman of the Meeting, as my/our proxy and to vote for me/us on my/our behalf at the General Meeting of the Company to be held at 10:00am on Monday, 14 May 2012, at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, QLD and at any adjournment or postponement of the meeting.

The Chairman of the Meeting intends to vote undirected proxies in favour of all items of business.

Proxies will only be valid and accepted by the Company if they are signed and received no later than 48 hours before the meeting. Please read the voting instructions overleaf before marking any boxes with an X

STEP 2

VOTING DIRECTIONS

Resolution 1

THAT, subject to the approval by the Class A Shareholders of the Company of the special resolution contained in the Notice of Special Meeting of Class A Shareholders of the Company dated 11 April 2012, the share capital of the Company be reduced by the cancellation of all Class A Shares on issue as at the Record Date in consideration for the payment of $0.95 for each Class A Share cancelled, to be effected in accordance with the Corporations Act , the Company’s Constitution and the ASX Listing Rules

For Against Abstain *

 * If you mark the Abstain box for a particular Item, you are directing your proxy not to vote on your behalf on a show of hands or on a poll and your votes will not be counted in computing the required majority on a poll.

SIGNATURE OF SHAREHOLDERS – THIS MUST BE COMPLETED

STEP 3

Shareholder 1 (Individual) Sole Director and Sole Company Secretary

Joint Shareholder 2 (Individual) Joint Shareholder 3 (Individual) Director/Company Secretary (Delete one) Director

This form should be signed by the shareholder. If a joint holding, either shareholder may sign. If signed by the shareholder’s attorney, the power of attorney must have been previously noted by the registry or a certified copy attached to this form. If executed by a company, the form must be executed in accordance with the company’s constitution and the Corporations Act 2001 (Cth).

CMI PRX201

HOW TO COMPLETE THIS PROXY FORM

Your Name and Address

This is your name and address as it appears on the Company’s share register. If this information is incorrect, please make the correction on the form. Shareholders sponsored by a broker should advise their broker of any changes. Please note: you cannot change ownership of your shares using this form.

Appointment of a Proxy

If you wish to appoint the Chairman of the Meeting as your proxy, mark the box in Step 1. If the person you wish to appoint as your proxy is someone other than the Chairman of the Meeting please write the name of that person in Step 1. If you leave this section blank, or your named proxy does not attend the meeting, the Chairman of the Meeting will be your proxy. A proxy need not be a shareholder of the Company. A proxy may be an individual or a body corporate.

Votes on Items of Business – Proxy Appointment

You may direct your proxy how to vote by placing a mark in one of the boxes opposite each item of business. All your shares will be voted in accordance with such a direction unless you indicate only a portion of voting rights are to be voted on any item by inserting the percentage or number of shares you wish to vote in the appropriate box or boxes. If you do not mark any of the boxes on the items of business, your proxy may vote as he or she chooses. If you mark more than one box on an item your vote on that item will be invalid.

Appointment of a Second Proxy

You are entitled to appoint up to two persons as proxies to attend the meeting and vote on a poll. If you wish to appoint a second proxy, an additional Proxy Form may be obtained by telephoning the company’s share registry or you may copy this form and return them both together.

To appoint a second proxy you must:

(a) on each of the first Proxy Form and the second Proxy Form state the percentage of your voting rights or number of shares applicable to that form. If the appointments do not specify the percentage or number of votes that each proxy may exercise, each proxy may exercise half your votes. Fractions of votes will be disregarded; and
(b) return both forms together.

Signing Instructions

You must sign this form as follows in the spaces provided:

Individual: where the holding is in one name, the holder must sign.

Joint Holding: where the holding is in more than one name, either shareholder may sign.

Power of Attorney: to sign under Power of Attorney, you must lodge the Power of Attorney with the registry. If you have not previously lodged this document for notation, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: where the Company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the Company (pursuant to section 204A of the Corporations Act 2001 ) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please indicate the office held by signing in the appropriate place.

Corporate Representatives

If a representative of the corporation is to attend the meeting the appropriate “Certificate of Appointment of Corporate Representative” should be produced prior to admission in accordance with the Notice of Meeting. A form of the certificate may be obtained from the Company’s share registry.

Lodgement of a Proxy Form

This Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below by 10:00am on Saturday, 12 May 2012, being not later than 48 hours before the commencement of the meeting. Any Proxy Form received after that time will not be valid for the scheduled meeting.

Proxy Forms may be lodged using the reply paid envelope or:

 ONLINE

www.linkmarketservices.com.au

Login to the Link website using the holding details as shown on the proxy form. Select ‘Voting’ and follow the prompts to lodge your vote. To use the online lodgement facility, shareholders will need their “Holder Identifier” (Securityholder Reference Number (SRN) or Holder Identification Number (HIN) as shown on the front of the proxy form).

 by mail:

CMI Limited C/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia

 by fax:

+61 2 9287 0309

 by hand:

delivering it to Link Market Services Limited, 1A Homebush Bay Drive, Rhodes NSW 2138.

For shareholders wishing to hand deliver proxy forms after 5:00pm on Friday, 11 May 2012 and before 10:00am on Saturday, 12 May 2012, they should be delivered between the hours of 9:00am and 10:00am to the Company at: CMI Limited, 150 Robinson Road, Geebung QLD 4034.

If you would like to attend and vote at the General Meeting, please bring this form with you. This will assist in registering your attendance.

LODGE YOUR VOTE

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
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www.linkmarketservices.com.au

ONLINE

By mail:  CMI Limited  [By fax:][ +61 2 9287 0309] C/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia



All enquiries to: Telephone: 1300 859 277 Overseas: +61 2 8280 7752

SHAREHOLDER VOTING FORM

I/We being a member(s) of CMI Limited and entitled to attend and vote hereby appoint:

STEP 1

APPOINT A PROXY

or failing the person/body corporate named, or if no person/body corporate is named, the Chairman of the Meeting, as my/our proxy and to vote for me/us on my/our behalf at the Special Meeting of Class A Shareholders of the Company to be held at 11:00am on Monday, 14 May 2012, at Brisbane Riverview Hotel, Corner Kingsford Smith Drive and Hunt Street, Hamilton, QLD and at any adjournment or postponement of the meeting.

The Chairman of the Meeting intends to vote undirected proxies in favour of all items of business.

STEP 2

VOTING DIRECTIONS

Resolution 1

THAT, subject to approval of the special resolution contained in the Notice of General Meeting of the Company dated 11 April 2012, the share capital of the Company be reduced by the cancellation of all Class A Shares on issue as at the Record Date in consideration for the payment of $0.95 for each Class A Share cancelled, to be effected in accordance with the Corporations Act, the Company’s Constitution and the ASX Listing Rules.

For Against Abstain *

SIGNATURE OF SHAREHOLDERS – THIS MUST BE COMPLETED

STEP 3

Shareholder 1 (Individual)

Joint Shareholder 2 (Individual) Joint Shareholder 3 (Individual) Director/Company Secretary (Delete one) Director

Sole Director and Sole Company Secretary

CMI PRX202

HOW TO COMPLETE THIS PROXY FORM

Your Name and Address

Appointment of a Proxy

Votes on Items of Business – Proxy Appointment

Appointment of a Second Proxy

To appoint a second proxy you must:

(a) on each of the first Proxy Form and the second Proxy Form state the percentage of your voting rights or number of shares applicable to that form. If the appointments do not specify the percentage or number of votes that each proxy may exercise, each proxy may exercise half your votes. Fractions of votes will be disregarded; and
(b) return both forms together.

Signing Instructions

You must sign this form as follows in the spaces provided:

Individual: where the holding is in one name, the holder must sign.

Joint Holding: where the holding is in more than one name, either shareholder may sign.

Corporate Representatives

Lodgement of a Proxy Form

This Proxy Form (and any Power of Attorney under which it is signed) must be received at an address given below by 11:00am on Saturday, 12 May 2012, being not later than 48 hours before the commencement of the meeting. Any Proxy Form received after that time will not be valid for the scheduled meeting.

Proxy Forms may be lodged using the reply paid envelope or:

 ONLINE

www.linkmarketservices.com.au

 by mail:

CMI Limited

C/- Link Market Services Limited Locked Bag A14 Sydney South NSW 1235 Australia



by fax:

+61 2 9287 0309

 by hand:

delivering it to Link Market Services Limited, 1A Homebush Bay Drive, Rhodes NSW 2138.

For shareholders wishing to hand deliver proxy forms after 5:00pm on Friday, 11 May 2012 and before 11:00am on Saturday, 12 May 2012, they should be delivered between the hours of 9:00am and 11:00am to the Company at: CMI Limited, 150 Robinson Road, Geebung QLD 4034.

If you would like to attend and vote at the Special Meeting of Class A Shareholders, please bring this form with you. This will assist in registering your attendance.

AI assistant

EXCELSIOR CAPITAL LTD — Proxy Solicitation & Information Statement 2012

64816_rns_2012-04-11_37fc7ca7-3e49-48d5-afcf-a6668b956acb.pdf

CMI LIMITED

Notice of General Meeting and Notice of Special Meeting of Class A Shareholders

Key Dates

Important notIces

read this document

responsibility statement

role of asIc and the asX

DefIneD terms

Table of Contents

Letter from the Independent Directors

11 April 2012

Dear Shareholder

Definitions

How to Vote

Venue

taKe actIon

VotIng

Voting in person

Voting by proxy

Notice of General Meeting

DATED 11 April 2012

Notes to Notice of General Meeting

VotIng entItLement

VotIng eXcLusIon statement

proXIes, attorneys anD corporate representatIVes

Notes to Notice of General Meeting

Notice of Special Meeting of Class A Shareholders

DATED 11 April 2012

Notes to Notice of Special Meeting of Class A Shareholders

VotIng entItLement

proXIes, attorneys anD corporate representatIVes

Explanatory Statement

1. purpose of thIs Document

2. BacKgrounD

3. proposeD capItaL reDuctIon

4. proceDure

4.1 Corporations Act requirements

Explanatory Statement

4.2 Special Resolution – General Meeting

4.3 Special Resolution – Special Meeting

4.4 Explanatory Statement

4.5 Lodge Notice of Meeting with ASIC

5. BenefIts of proposeD capItaL reDuctIon

Explanatory Statement

6. DIsaDVantages of proposeD capItaL reDuctIon

Explanatory Statement

7. tImetaBLe

8. trojan LItIgatIon

8.1 Background to litigation

8.2 Release of Danny Herceg

8.3 Settlement Deeds

Explanatory Statement

9. DetaILs of our sharehoLDers

Explanatory Statement

Explanatory Statement

10. source of funDs

11. fInancIaL Impact on cLass a sharehoLDers, creDItors anD the company

11.1 Class A Shareholders

11.2 Creditors

11.3 The Company

12. taXatIon consequences

Explanatory Statement

13. aDDItIonaL InformatIon

13.1 Directors

13.2 Director holdings

Explanatory Statement

13.3 Changes in financial position

13.4 Options

13.5 Payments or other benefits

13.6 No agreement or arrangement

13.7 Capital structure of the Company

Explanatory Statement

13.8 ASX announcements

13.9 Other material information

14. InDepenDent eXpert’s report

15. recommenDatIon

Independent Expert's Report

EXCELSIOR CAPITAL LTD Proxy Solicitation & Information Statement 2012