Share Issue/Capital Change • May 17, 2022
Share Issue/Capital Change
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Société anonyme Route de Grandmetz (MO) 11 box a 7911 Frasnes-lez-Anvaing 0401.256.237 (RLE Tournai)
(the Company)
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This special report (the Special Report) has been prepared in accordance with articles 7:179 §1 juncto 7:197 §1 of the Belgian Code of Companies and Associations (the BCCA).
According to articles 7:179 §1 juncto 7:197 §1 of the BCCA, when a company envisages a capital increase by way of a contribution in kind against the issuance of new shares, the board of directors must draft a special report in which it (i) justifies the issue price of the newly issued shares, (ii) describes the consequences of the transaction on the economic and voting rights of the shareholders, (iii) sets out the interest which the contribution in kind represents for the Company, (iv) describes the contribution in kind, (v) provides a reasoned valuation thereof and (vi) indicates the consideration granted in exchange for the contribution in kind. If applicable, the board of directors must also justify in its special report the reasons for departing from the conclusions of the Statutory Auditor Report (as defined below).
On 8 February 2022, the board of directors of the Company (the Board) resolved a.o., (i) to convene an extraordinary general shareholders' meeting, which was held on 14 March 2022 and (ii) to propose to this extraordinary general shareholders' meeting to approve the conduct of a recapitalization of the Company.
This recapitalization would have consisted of a capital increase by contribution in kind (the Contribution in Kind) by Borealis AG (Borealis), the Company's controlling shareholder, of (i) its receivables under the following shareholder loans that Borealis (as lender) entered into with the Company (as borrower): (A) the EUR 25 million intercompany loan agreement dated 16 July 2020 (effective as from 22 July 2020), and (B) the EUR 25 million intercompany loan agreement dated 16 July 2020 (effective as from 28 August 2020), (together, the Borealis' Loans) and (ii) a portion of the receivables under the current account (the Current Account) between Borealis Financial Services NV and the Company (receivables assigned by Borealis Financial Services NV to Borealis). The receivables under the Borealis' Loans and the Current Account would each have been contributed at nominal value in the Company's capital, for an aggregate amount of EUR 55 million and against the issuance of 2,750,000 new ordinary shares (the Capital Increase). Following the proposed Capital Increase, a debt would have been outstanding under the Current Account. This debt, together with any accrued interests on the Borealis' Loans up to the termination of the Borealis' Loans (see below) and any accrued interests on the Current Account, would have been repaid by the Company by means of a new intra-group financing facility granted by Borealis.
At the same Board meeting, it was also decided to terminate the Borealis' Loans and the Current Account immediately after the Capital Increase and the entry into a new committed unsecured intra-group financing facility of up to EUR 15 million (the New Committed Facility; together with the Capital Increase, the Transaction).
In the context of the proposed Capital Increase, the Board drew up a special report dated 8 February 2022 in accordance with articles 7:179 §1 juncto 7:197 §1 of the BCCA (the Initial Report), which was submitted to the extraordinary general shareholders' meeting of 14 March 2022.
On 12 March 2022, following the outbreak of war in Ukraine and its negative impact on the Company's activities, the Company issued a press release to inform its shareholders and the market of the on-going assessments being made at that time to determine whether measures should be taken in addition to the Capital Increase and the New Committed Facility in order to ensure the short-term financing of the Company. In view thereof, the Board proposed to the shareholders to postpone at the extraordinary general shareholders' meeting of 14 March 2022 the deliberation and decisions relating to the Capital Increase to a future extraordinary general shareholders' meeting. The Board postponed the conclusion of the New Committed Facility for the same reasons.
On 14 March 2022, the extraordinary general shareholders' meeting resolved to follow the Board's proposal and, hence, to postpone the deliberation and decision-making relating to the Capital Increase to a future extraordinary general shareholders' meeting.
As the assessments referred to above have been completed in the meantime, there is now a better view on the impact of the war in Ukraine on the Company's operations. Based on the Company's current financial situation and its more stable financial outlook, the Board proposes to proceed with the Transaction on substantially the same terms and conditions as those presented in February 2022 and, accordingly, to propose to the shareholders of the Company to complete the Capital Increase and to conclude the New Committed Facility. For this purpose, the Board intends to convene a new extraordinary general shareholders' meeting, which will be held before notary Robberechts Emmanuelle, at the registered office of the Company, together with the annual general shareholders' meeting on 16 June 2022 (the Extraordinary General Meeting) to resolve a.o., on the Capital Increase and on the entering into the New Committed Facility to be implemented at a later date.
The statutory auditor of the Company, PwC – Réviseurs d'entreprises SCRL, represented by Peter Van den Eynde (the Statutory Auditor), was requested to draw up an update to its initial report it had established in February 2022 in accordance with articles 7:179 §1 juncto 7:197 §1 of the BCCA in relation to the Capital Increase (such updated report, the Updated Auditor Report). In the Updated Auditor Report, the Statutory Auditor (i) (re-)assesses whether the financial and accounting data contained in the Special Report are true and sufficient in all material respects to inform the general shareholders' meeting called upon to vote on the capital increase by way of contribution in kind and (ii) (re-)examines the description made by the Board of the contribution in kind, the valuation adopted and the methods of valuation applied. This Special Report shall be read together with the Updated Auditor Report, which is attached to this Report as Annex 1.
This Special Report, that serves an update to the Initial Report, has been prepared in the context of the proposed Capital Increase and will be submitted to the Extraordinary General Meeting that will vote on the Capital Increase.
Pursuant to article 7:197 of the BCCA, this Special Report must include a description of the Contribution in Kind, give a reasoned valuation of this Contribution in Kind, specify the remuneration granted in exchange for this Contribution in Kind and indicate the interest of the Company in it.
(a) Description of the Contribution in Kind
As described above, the Board is considering a recapitalization of the Company that will consist of the Capital Increase through the Contribution in Kind. The Contribution in Kind consists of the contribution by Borealis of (part of) its receivables under the Borealis' Loans and the Current Account.
The portion of the receivables under the Current Account that will be contributed shall be assigned by Borealis Financial Services NV to Borealis pursuant to an assignment agreement prior to the Capital Increase. The remaining outstanding debt balance towards Borealis Financial Services NV under the Current Account, i.e. currently approximately at EUR 7 million, shall be repaid through a new committed (unsecured) intra-group financing facility of up to EUR 15 million which will be entered into between Borealis and the Company.
It is being proposed for the Transaction to be implemented by 31 July 2022.
(b) Valuation of the Contribution in Kind
The Board considers that the receivables of Borealis under the Borealis' Loans and the Current Account must be contributed in kind to the capital of the Company at their nominal value, i.e. respectively, (i) EUR 25 million, (ii) EUR 25 million and (iii) EUR 5 million, i.e. EUR 55 million in aggregate, taking into account the overall financial terms of the Capital Increase.
In exchange for the Contribution in Kind, 2,750,000 new ordinary shares without nominal value would be issued (the New Shares), at an issue price of EUR 20 per New Share (the Issue Price), to Borealis.
The New Shares will be of the same kind and with the same rights and benefits as the existing shares of the Company at the time of their issuance (including dividend rights). The New Shares shall be fully subscribed to by Borealis. The New Shares shall be fully paid up. At the time of the issuance, the New Shares will take the form of registered shares.
As also set out in the Initial Report, the Capital Increase by Contribution in Kind is being proposed in the context of the intended recapitalization of the Company. The Capital Increase would improve the equity and solvency position of the Company.
On the basis of the (audited) annual results for the financial year ending 31 December 2021, the Board established that the net assets of the Company (i.e. amounting to EUR -32,909,449.95) fell below one quarter of its share capital (amounting to EUR 2,550,000), which triggered the application of the "alarm bell procedure" in accordance with article 7:228 of the BCCA.
In this context, the Board had prepared a special report dated 8 February 2022 pursuant to article 7:228 of the BCCA in which the Board proposed the continuation of the Company and measures to ensure the continuity of the Company's activities, which included the Capital Increase and entry into the New Committed Facility. This special report was submitted to the extraordinary general shareholders' meeting of 14 March 2022 that acknowledged the Board special report. In light of the recent developments and pending the Board's assessment of potential additional measures (see section 2 above), the shareholders present or represented at this extraordinary general meeting resolved to postpone (i) the decision on the continuity of the Company's activities and proposed measures pursuant to article 7:228 of the BCCA and, accordingly, (ii) the deliberations and resolutions on the agenda items relating to the Capital Increase.
Given the financial difficulties the Company is still facing and in view of improving the Company's current debt level situation (see below), proceeding with the Capital Increase, together with the New Committed Facility, as presented in February 2022 is being (re)proposed as a major recovery measure to ensure the continuity of the Company's activities.
The Capital Increase would restore the net assets of the Company to above EUR 61,500. As a result of the Capital Increase, the Company's share capital would amount to EUR 30,050,000 and, hence, the amount of the net assets would be higher than half of the Company's share capital.
Therefore, and in accordance with article 7:197 of the BCCA, the Board believes that the proposed Capital Increase by Contribution in Kind is in the interest of both the Company and its shareholders.
In accordance with article 7:179 of the BCCA, this Special Report must justify the Issue Price of the New Shares issued in the context of the Capital Increase and describe the consequences of this Capital Increase for the shareholders' economic and voting rights.
The New Shares shall be issued at the Issue Price.
In the context of the updated valuation report of 13 May 2022 provided to the committee of independent directors by KBC Securities in the framework of article 7:97 §3 of the BCCA and replacing the valuation report prepared in February 2022 (the Updated Valuation Report), KBC Securities has commented that it has assessed the equity value of the Company to be negative. Reference is made to (the redacted version of) the Updated Valuation Report for more information on the adopted valuation methodologies, the principal hypotheses on which the (updated) valuation of the Company was based in the framework of the Capital Increase, as well as any parameters that affect such principal valuation hypotheses.
Given the financial difficulties the Company is currently still facing, the limited liquidity of the Company's share and the recent suspension of the Company's trading, the Company's market price is not representative of the actual value, which is lower (negative), of the Company.
The Issue Price offered by Borealis in the framework of the Capital Increase is significantly higher than the (negative) equity value of the Company set out in the Updated Valuation Report.
On the date of this Special Report (as was also the case at the time of the Initial Report), the Company's capital amounts to EUR 2,550,000 and is represented by 255,000 existing shares, without nominal value, each representing a par value of EUR 10 per share. Each share in the Company represents an equal portion of the share capital of the Company and carries economic- and voting rights in proportion to the share capital it represents.
As a consequence of the contemplated Contribution in Kind and the subsequent issuance of New Shares, the Company will have 3,005,000 shares outstanding. The ownership of Borealis in the Company will increase from approximately 77.47% (197,550 shares) to approximately 98.09% (2,947,550 shares).
As a result of the issuance of New Shares in the context of the Capital Increase, the economic and voting rights of the existing shareholders would be diluted with 91.51% (i.e. as determined on the basis of the following formula: 1 – (255,000 shares prior to the Capital Increase divided by 3,005,000 shares after the Capital Increase).
On 12 May 2022, the Statutory Auditor prepared its Updated Auditor Report concerning the Contribution in Kind. A copy of the Updated Auditor Report is attached as Annex 1.
The conclusion of the Updated Auditor Report is as follows:
Pursuant to Article 7:179 of the Companies and Associations Code, we hereby present our conclusion to the extraordinary general meeting of shareholders of Rosier SA under our audit assignment, for which we were appointed by engagement letter dated 10 May 2022.
This mission follows on from the mission entrusted to the statutory auditor on November 22, 2021, for which we issued a report on the capital increase by contribution in kind on February 8, 2022 ("the Initial Report") but whose extraordinary general meeting of March 14, 2022 decided to postpone the deliberations and resolutions relating thereto for the reasons mentioned in the Special Report of the Board of Directors of May 12, 2022 (the "Special Report", Annex 2).
We have performed our assignment in accordance with the Standard on the auditor's assignment concerning a contribution in kind and a quasi-contribution of the Institut des Réviseurs d'Entreprises [Institute of Company Auditors]. Our responsibilities under this standard are described below in the section "Responsibilities of the statutory auditor regarding the contribution in kind and the share issue."
Pursuant to Article 7:179 of the Companies and Associations Code, we have examined the matters described below as set forth in the draft special report of the board of directors of 12 May 2022 and we have no significant findings to report concerning:
● the valuation methods used for this purpose.
We note that the capital increase is subject to the assignment of the current account for an amount of EUR 5 millions from Borealis Financial Services to Borealis AG before the General assembly on the present transaction.
We have also concluded that the valuation methods applied for the contribution in kind result in the value of the contribution being at least equal to the number and nominal value or, in the absence thereof, to the accounting par value of the shares and the increase in the share premium account to be issued in consideration.
The actual consideration shall consist of the issue of 2.750.000 shares at a subscription price of EUR 20 per Share.
Based on our assessment of the accounting and financial data in the special report of the board of directors, we have not identified any facts that would lead us to believe that said data, which include the justification of the issue price and the consequences for the property and corporate rights of the shareholders, are not fair and sufficient in all material respects to inform the general meeting of shareholders convened to vote in favour of this proposal.
Pursuant to Article 7:179 of the Companies and Associations Code, our engagement does not include expressing an opinion on the appropriate and opportune nature of the transaction, nor on the valuation of the remuneration granted in consideration of the contribution, nor on the legitimacy and fairness of this transaction ("no fairness opinion"). So we do not either express a fairness opinion.
the accounting and financial data contained in the special report of the board of directors, which includes the justification of the issue price and the consequences on the property and corporate rights of the shareholders, are true and sufficient in all material respects to inform the general meeting of shareholders convened to vote for this proposal. "
The Board takes note of the decision of the Statutory Auditor that reaffirms that (i) the valuation method applied for the valuation of the Contribution in Kind, on the basis of which the Contribution in Kind is considered economically justified, is correct and that the Contribution in Kind has therefore not been overvalued and (ii) the financial and accounting data contained in this Special Report are fair and sufficient in all material respects to inform the general shareholders' meeting called upon to vote on the Capital Increase proposal. Accordingly, the Board does not depart from the conclusions of the Statutory Auditor.
The Special Report and the Updated Auditor Report will be deposited with the clerk's office of the business court of the registered office of the Company in accordance with articles 2:8 and 2:14, 4° of the BCCA.
For the purpose of articles 7:179 juncto 7:197 of the BCCA, the Board is of the opinion that the proposed Contribution in Kind is in the interest of the Company for the reasons stated in this Special Report.
The Board invites the shareholders of the Company to approve the proposed Capital Increase by Contribution in Kind.
[Signature page follows]
Signed in Moustier on 17 May 2022.
On behalf of the Board,
Name: Willy Raymaekers
Title: Director
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