Dorchester shareholders to vote on early conversion of notes, fee hike
Shareholders of Dorchester Pacific will be asked at this month's annual meeting to allow an early conversion of notes giving the Business Bakery and Hugh Green Investments control of the financial services firm, sign off on a 20 percent hike in the pool for directors' fees, and grant the chief executive a loan to buy shares.
The Auckland-based firm, which avoided failure in 2010 by convincing investors to accept a debt-for-equity swap, will ask shareholders at its August 23 meeting to approve an early conversion of 110 million optional convertible notes, most of which are held by its two biggest investors, the Business Bakery and Hugh Green Investments, and were set to mature in 2015.
That deal means Dorchester would have $11 million of debt on its books swapped into equity and would let it take on more bank debt to fund future acquisitions.
If it is approved, Hugh Green's stake would rise to about 27.1 percent from its current 24.3 percent and the Business Bakery's investment would increase to 24.4 percent from 20.8 percent, giving the two shareholders control of half the company's voting rights.
Chief executive Paul Byrnes would increase his stake to 7.1 percent from 3.6 percent.
As a result of the conversion, non-associated shareholders will have their stake in Dorchester diluted to 41.4 percent from 51.3 percent.
The notes, paying annual interest rates of about 10 percent, were issued at 10 cents apiece and are worth between $27.6 million and $28.4 million, according to independent adviser Simmons Corporate Finance. Dorchester will pay $1.76 million for the early conversion.
Simmons deemed the positive aspects of an early conversion outweighed the negatives, as it would remove the noteholders' right to stop dividends, something Dorchester is keen on implementing, and would not give the major shareholders any more influence than they already have.
The financial service firm rejigged its capital structure in June, raising $20.5 million through the exercising of options and a placement to institutional investors.
The company got a new lease of life in 2010 when the Business Bakery got involved with a recapitalisation plan in 2010 which saw some 7200 investors owed about $84 million convert their debenture stock for four different types of security to keep the firm afloat.
Dorchester shareholders will also be asked to approve a $75,000 increase in the pool for directors' fees to $375,000, its first rise since 2010. The pool will be divided among directors as they deem appropriate, but is expected to raise the base fee level by $6000 to $50,000 and the chairman's fee by $10,000 to $80,000.
The firm's board is chaired by Grant Baker, of the Business Bakery, who is joined by CEO Mr Byrnes, Matthew Harrison, John Gosney, Kevin Brewer and Greg Peebles.
Investors will also vote on whether to approve a two-year $250,000 loan at 5 percent to Mr Byrnes to help fund the $312,500 conversion of options into 2.5 million shares.
Simmons said the loan was reasonable to shareholders and if not agreed to may result in Mr Byrnes renegotiating his remuneration, which has not changed since 2010.
Dorchester's shares were unchanged at 23 cents today and have shed 30 percent this year. That values the company at $82.6 million.