Prospectus - Cadence Capital Limited

Cadence Capital Limited
ABN 17 112 870 096
Prospectus
1 for 1 bonus issue of approximately 159,505,830 Options
to acquire Shares exercisable at $1.43 per Option
on or before 31 August 2015
Important Information
This Prospectus contains important information for you as a shareholder or prospective investor and requires your immediate
attention.
It should be read in its entirety. If you have any questions as to its contents or the course you should follow, please consult your
stockbroker, accountant, solicitor or other professional adviser immediately.
No application monies are payable for the issue of Options
Important Notices
This Prospectus is dated 6 January 2014 and was lodged with ASIC on that date. None of ASIC, the ASX or their
respective officers take responsibility for the contents of this Prospectus.
This document is important and requires your immediate attention. It should be read in its entirety. You may wish
to consult your professional adviser about its contents.
No securities will be issued on the basis of this Prospectus later than the expiry date of this Prospectus, being the
date 13 months after the date of this Prospectus.
Cadence Capital Limited (Company) is a disclosing entity for the purposes of the Corporations Act. The content
of this Prospectus has been determined on the basis that certain matters may reasonably be expected to be
known to investors and professional advisers whom potential investors may consult.
This Prospectus is issued pursuant to section 713(1)(b) of the Corporations Act. This enables listed disclosing
entities to issue a prospectus with more limited disclosure than would be required of a full-form prospectus where
the Company has been a listed disclosing entity for a period of at least 12 months.
Quotation
The Company will apply within 7 days after the date of this Prospectus for the Options to be issued pursuant to
this Prospectus to be quoted on the ASX.
The fact that the Options may be quoted on the ASX is not to be taken as an indication of the merits of the
Company, the Options or the Shares.
Intermediary Authorisation
The Company does not hold an Australian Financial Services Licence (AFSL) under the Corporations Act.
Accordingly, the Bonus Issue is being made pursuant to an intermediary authorisation in accordance with section
911A (2)(b) of the Corporations Act. Cadence Asset Management Pty Ltd (AFSL 252745) (Manager and Issue
Manager) will manage the Bonus Issue on behalf of the Company at no cost to the Company.
Forward Looking Statements
This Prospectus contains forward looking statements. Forward looking statements are not based on historical
facts, but are based on current expectations of future results or events. These forward looking statements are
subject to risks, uncertainties and assumptions which could cause actual results or events to differ materially from
the expectations described in such forward looking statements. While the Company believes that the
expectations reflected in the forward looking statements in this Prospectus are reasonable, no assurance can be
given that such expectations will prove to be correct. The risk factors set out in Section 3 of this Prospectus, as
well as other matters as yet not known to the Company or not currently considered material by the Company, may
cause actual results or events to be materially different from those expressed, implied or projected in any forward
looking statements. Any forward looking statement contained in this Prospectus is qualified by this cautionary
statement.
Electronic Prospectus
An electronic version of this Prospectus (Electronic Prospectus) can be downloaded from the following website
www.cadencecapital.com.au.
Glossary of Terms
Defined terms and abbreviations included in the text of this Prospectus are set out in the Glossary in Section 9 of
this Prospectus.
Highlights of the Bonus Issue
Important Dates
Lodgement of Prospectus with ASIC
6 January 2014
Shares trade ex-bonus Option entitlements
9 January 2014
Record date to determine entitlements under the Bonus Issue
15 January 2014
Prospectus despatched to Shareholders
20 January 2014
Intended date for issue and entry of Options on the register and
despatch of Option holding statements
20 January 2014
Normal trading in Options commences on ASX
21 January 2014
Options expire
31 August 2015
The above dates are subject to change and are indicative only. The Company reserves the right to
amend this indicative timetable subject to the Corporations Act and the Listing Rules.
Key Statistics
Maximum proceeds from the issue of the Options
Maximum proceeds from the exercise of the Options
Maximum number of Shares to be issued on exercise of the Options
Exercise price per Option
Expiry date of Options
$0
$228,093,336.90
159,505,830
$1.43
31 August 2015
Enquiries
For any enquiries concerning the Bonus Issue, please contact Wayne Davies or Karl Siegling on
(02) 8298 2444.
Table of Contents
1.
Investment Overview ...................................................................................................................4
2.
Terms of the Bonus Issue ...........................................................................................................9
3.
Risk Factors ...............................................................................................................................11
4.
Financial Position of the Company ............................................................................................13
5.
Use of Proceeds and Effect of the Bonus Issue ........................................................................16
6.
Overview of the Company .........................................................................................................19
7.
The Company and its Directors .................................................................................................22
8.
Additional Information ................................................................................................................24
9.
Glossary ....................................................................................................................................30
CADENCE CAPITAL LIMITED (CDM)
ABN 17 112 870 096
6 January 2014
Dear Investor,
The Bonus Issue
As announced to the market on 14 November 2013, the Board of Cadence Capital Limited
(Company) is undertaking a 1 for 1 bonus issue of Options to Shareholders on the Company’s
register on 15 January 2014. The Options are being issued to Shareholders at no cost. Each Option
gives Shareholders the opportunity, but not the obligation, to subscribe for one Share at any time on or
before 31 August 2015 at an exercise price of $1.43 per Share.
Principal Investment Objectives
The Company’s principal objective is to achieve a high real rate of return (comprising both income
and capital growth) over and above the S&P/ASX All Ordinaries Accumulation Index in the medium
term.
Strong and consistent returns over time
Performance* to 31st December 2013
1 Month
1 Year
2 Years
3 Years
4 Years
5 Years
8 Years
Since Inception (8.25 years)
Since Inception Annualised (8.25 years)
CDM*
All Ords
Outperformance**
1.30%
20.55%
43.54%
88.08%
148.47%
265.84%
324.71%
351.14%
20.04%
0.92%
19.66%
42.20%
25.95%
30.11%
81.60%
59.61%
65.12%
6.27%
+0.38%
+0.89%
+1.34%
+62.13%
+118.36%
+184.24%
+265.10%
+286.02%
+13.77%
* May 2011 performance was adjusted to reflect the Post-tax increase in NTA as this figure more accurately included the
material fully franked dividends received from RHG Limited during that month.
** Outperformance is the difference between the performance* of the Portfolio and the S&P/ASX All Ordinaries Accumulation
Index over the same period.
The Company was established over 8 years ago in 2005. Over that time, the Manager has
consistently applied its investment process and has delivered an average gross investment return on
the portfolio of 20.04% per annum to 31 December 2013. This is 13.77% greater than the S&P/ASX
All Ordinaries Accumulation Index which has returned 6.27% per annum over the same period.
Please see Section 4.2 of this Prospectus for details on how this was calculated.
2
Consistent stream of fully franked dividends
Calendar Year
Interim
Final
Special
Total
2.0c
2.0c
2.0c
6.0c
Gross (Inc.
Franking)
8.6c
2007
2008
2.5c
2.2*c
-
4.7c
5.8c
2009
-
2.0c
-
2.0c
2.9c
2010
2.0c
2.0c
-
4.0c
5.7c
2011
3.0c
3.0c
3.0c
9.0c
12.9c
2012
4.0c
4.0c
4.5c
12.5c
17.8c
2013
5.0c
5.0c
1.0c
11.0c
15.7c
TOTAL
18.5c
20.2c
10.5c
49.2c
69.4c
* Off market equal access buy back
The Board is committed to paying a continuous and growing stream of fully franked dividends to
Shareholders provided the Company is able, has sufficient franking credits and it is within prudent
business practices. Dividends are paid on a six-monthly basis.
For the financial year ended 30 June 2013, the Company paid out 11.0 cents of fully franked
dividends. Based on the exercise price of $1.43, this represents a 7.69% fully franked yield (10.99%
grossed up for franking).
Management team of the Manager is the largest investor in the Company
A substantial portion of the management team’s personal wealth is invested alongside Shareholders,
and their remuneration is driven by investment performance. The Manager believes this alignment of
interests plays a key role in delivering above market performance.
Listed Investment Companies (LIC) - superior investment vehicles
The Manager believes the LIC structure is a superior investment vehicle for a number of reasons:

A LIC is a closed ended pool of capital, unlike a managed fund. Invariably most investors depart a
fund when stocks have fallen significantly and enter into the market when stock prices are soaring
in a bull market. Open ended funds are forced to replicate this flow of funds, closed end
structures are not.

The manager of an open ended fund may be forced to buy securities at inflated prices and
conversely forced to sell securities, when they don’t satisfy a restricted mandate.

As a LIC is a closed end fund, the Manager can take a medium to long term view with its
investment decisions. This means the Manager’s investment decisions are based on the
fundamentals of the entities it invests in, rather than external pressure such as funding
redemptions or buying due to capital inflows into an open ended structure.
Communication with our Shareholders
The Company and the Manager take an active and transparent approach in keeping Shareholders
informed about the Company's activities and performance. The Manager continues to develop and
improve its communication program and continually looks at ways to improve its website and
newsletters.
The Manager encourages Shareholders to use the subscription feature on the website to receive our
Monthly Newsletter and Quarterly Webcasts. See www.cadencecapital.com.au for details.
3
Update on investment in RHG
RHG has been a large investment in the Company’s Portfolio for several years and, as at the date of
the Prospectus, the Company still has a substantial investment in RHG.
On 18 December 2013, RHG shareholders approved a proposal from Australian Mortgage Acquisition
Company Pty Limited, backed by a guarantee from Resimac Limited, (AMAC/RESIMAC) to acquire all
of the RHG Shares for 50.1 cents cash per RHG Share. On 20 December 2013, the scheme was
approved by the Federal Court of Australia, and became effective on that date.
The Company is expected to receive scheme consideration of $17,920,326 on the implementation
date of 8 January 2014.
What are the benefits of the Bonus Issue?

The Options will trade on the ASX and may have both extrinsic value (time value) and intrinsic
value;

Shareholders can sell their Options on-market or buy additional Options;

By exercising their Options, Shareholders can increase their holding in the Company without
paying brokerage;

By increasing the number of Shares on issue (following exercise of the Options), it is expected
that the liquidity in the Company’s Shares will increase, making it easier for Shareholders to buy
and sell the Company’s Shares;

Improve the research coverage available to the Company;

Attract new long term investors, particularly investors who value fully franked dividend yield and
capital growth; and

By increasing the size of the Company, the management expense ratio will reduce as the
Company's fixed administrative expenses are spread across a larger pool of assets.
If the Options are fully exercised, the Company will raise approximately $228.1 million. It is intended
that the money raised on exercise of the Options will be used by the Company for further investments
consistent with the Company’s investment objectives and investment process.
The Board recommends that you read this Prospectus in its entirety. The Prospectus provides details
of the Bonus Issue, an overview of the business, risks of the investment (Section 3) and activities of
the Company.
On behalf of the Board, I would like to thank all Shareholders for their ongoing support.
Yours sincerely,
Karl Siegling
Chairman
4
1.
Investment Overview
The information in the table below is a summary only. This Prospectus should be read in full before
making any decision to deal in Options and/or Shares.
About the Bonus Issue
Question
Answer
More
Information
Overview of
the
Company?
The Company is a listed investment company. The Portfolio is managed
by Cadence Asset Management Pty Limited (Manager), a licensed
securities dealer owned by entities associated with Karl Siegling and
Wayne Davies.
Section 6
The Company provides investors with the opportunity to invest in an
actively managed portfolio of Australian Securities. The Company
primarily invests in Securities listed on the ASX, but may invest in other
global listed equities as well.
The principal investment objectives of the Company are:
What are
the key risks
associated
with the
Company
and the
Bonus
Issue?
What is the
key financial
information
about the
financial
position,
performance
and
prospects?

to achieve a high real rate of return, comprising both income (fully
franked dividends) and capital growth, within risk parameters
acceptable to the Manager and the Directors; and

to provide investors with a co-investment opportunity alongside the
Manager and the Board.
The key risks of any investment in the Company are highlighted below.
Shareholders should bear these in mind when considering whether to
deal in Options and/or Shares:

The success and profitability of the Company depends upon the
ability and competence of the Manager to invest in well-managed
companies and other entities which have the ability to increase in
value over time. There is no guarantee that this can be achieved.
The value of the assets purchased for the Portfolio may decline,
which would likely have an adverse impact on the value of the
Options and/or Shares.

The Company employs short selling within, and borrowings to gear,
the Portfolio. Whilst the use of short selling and borrowings can
substantially improve the return on invested capital, their use may
also significantly increase the risk of significant falls in the value of the
assets of the Portfolio and, accordingly, the possibility of an adverse
impact on the value of the Options and/or Shares.
The Company listed on the ASX in December 2006 at $1.16 per Share
and the closing price of its Shares on the last trading day before the date
of this Prospectus was $1.53.
The Company has an estimated Pre-Tax NTA backing as at 31 December
2013 of $1.461 and an estimated Post-Tax NTA backing as at 31
December 2013 of $1.437. These figures are set out in the December
2013 Newsletter (which was announced to the ASX on the 6 January
2013).
Section 3
Section 4
5
Question
Answer
More
Information
Since listing, the Company has declared 47 cents of fully franked
dividends in respect of each Share.
Since inception, the Portfolio has delivered an average gross investment
return of 20.04% per annum. This is 13.77% greater than the S&P/ASX
All Ordinaries Accumulation Index which had a return of 6.27% per
annum.
Who will be
in control
and do they
have the
appropriate
expertise?
As at the date of this Prospectus, the Directors are:

Karl Siegling

Wayne Davies

James Chirnside

Ronald Hancock
Karl Siegling has over 17 years investment experience in the financial
sector both in Australia and overseas. He holds a Bachelor of Commerce
and a Law degree from the University of Melbourne and an MBA
specialising in Finance and Entrepreneurial Endeavours from INSEAD in
France. Karl has also completed the Post Graduate Diploma in Finance
with the Securities Institute of Australia.
He commenced work in the Financial Services sector in Australia with
Deutsche Morgan Grenfell, trading overnight currencies, bonds and bond
options on the Sydney Futures Exchange. Then he worked within the
Equities Research Division of Deutsche Morgan Grenfell before moving to
the Equities Division of Goldman Sachs in London. Upon returning to
Australia, Karl was the Managing Director of eFinancial Capital Limited (a
subsidiary of Challenger International Limited), which was a private equity
fund with Pooled Development Fund status, focused on investing early
stage and expansion capital. The fund invested in financial services and
Australian internet based technology companies. For two and a half
years Karl worked as a consultant for Wilson Asset Management
(International) Pty Limited researching stocks for the Wilson group of
funds. He is also the managing director of the manager, Cadence Asset
Management Pty Limited.
James Chirnside has been focussed in Emerging Market equities,
Commodities, and Bio Pharma investment management for twenty-seven
years in Sydney, Hong Kong, London, and Melbourne. Mr Chirnside is
CEO of Mann Distribution Australia. MDA is a subsidiary of Mann Bio
Invest a specialist Healthcare investment manager based in the Isle of
Mann. Mr Chirnside previously worked for Challenger Financial Group in
Sydney developing alternative investment strategies for distribution to
Australian wholesale and retail clients. Prior to this he managed
emerging market hedge funds in Hong Kong and London, for Regent
Fund Management (now Charlemagne Capital UK). Between 1988 and
1992 Mr Chirnside ran a proprietary-trading book for County NatWest
Investment Bank based in London. He was primarily focussed on
country-funds and derivative instrument arbitrage investment strategies.
James Chirnside is also a director of WAM Capital Limited, India Equities
Fund Limited and Mothercare Australia Limited.
Section 7
6
Question
Answer
More
Information
Ronald Hancock is a fellow of the Institute of Chartered Accountants
Australia with extensive experience in the financial services industry.
He was the Managing Director of Wide Bay Australia Limited and retired
in February 2013. He was a foundation Director and Manager of the
Burnett Permanent Building Society formed in 1966, which subsequently
merged with other Queensland societies to form Wide Bay Capricorn
Building Society Ltd, subsequently Wide Bay Australia Ltd.
Ronald Hancock was a practising Chartered Accountant and continued to
practise during the establishment period of the Society. He retired from
accountancy in 1994 after 32 years. Ronald Hancock is also a director of
Mortgage Risk Management Pty Ltd and several private companies.
Wayne Davies has over 11 years funds management experience in
Equity Long/ Short Funds both in Australia and overseas. He is both a
member of the South African Institute of Chartered Accountants and the
Chartered Institute of Management Accountants. Wayne Davies is a
founding member of the Cadence Asset Management team and has been
the Chief Operating Officer of Cadence Asset Management for the past
5 years. Wayne Davies worked with Theorema Asset Management in
London and still remains a director of Theorema Europe Fund and
Theorema Europe Fund Plus.
Who has an
interest?
All of the Directors own Shares either directly or indirectly in the
Company.
Section 7
One current non-executive Director (James Chirnside) was remunerated
in the 2013 financial year for his services as a Director, and three nonexecutive Directors (James Chirnside, Wayne Davies and Ronald
Hancock) are expected to be remunerated for their services as Directors
for the financial year ended 30 June 2014.
Karl Siegling is the director, and both he and Wayne Davies are the
indirect owners, of the Manager - the entity appointed to manage the
Portfolio. In its capacity as the Manager, Cadence Asset Management
Pty Limited is paid a management fee and a performance fee. The
Manager also receives monthly accounting services fees from the
Company for the preparation of the Company’s accounts.
What is the
Bonus
Issue?
Shareholders in the Company will receive a free Option for each Share in
the Company that they hold at 5:00pm (AEDT) on the Record Date.
Section 2.1
The Options are exercisable at any time from their date of issue until 31
August 2015.
Each Option allows the holder acquire one Share at an issue price of
$1.43 on or before 31 August 2015.
There will be approximately 159,505,830 Options issued under this
Prospectus.
How will the
proceeds be
used?
The Bonus Issue is a bonus issue of Options. Therefore, no funds will be
raised unless and until the Options are exercised.
Options can be exercised at any time after issue until expiry. The money
raised on exercise of the Options will be used by the Company for further
investments consistent with the Company’s investment objectives and
investment process.
Section 5
7
Question
Answer
More
Information
What will be
the capital
structure?
The capital structure of the Company as at the date of this Prospectus,
and assuming completion of the Bonus Issue, is set out below:
Sections 5.1
and 8.1
Shares
159,505,830
Options
159,505,830
Fully diluted capital
319,011,660
Investing in the Company
Question
Answer
Who is the issuer of the
Options and this
Prospectus?
Cadence Capital Limited (ACN 112 870 096).
Who is the issue manager?
The issue is being managed by Cadence Asset
Management Pty Limited (ACN 106 551 062).
The Manager is not being paid a fee to manage the
issue.
What is the purpose of the
Bonus Issue?
The Company is seeking to raise funds to:

expand the market capitalization of the Company
and improve the liquidity in the Shares;

improve the research coverage available to the
Company;

reduce the fixed administration expense ratio by
spreading costs across a larger pool of assets;
and

attract new long term investors, particularly
investors who value fully franked dividend yield
and capital growth.
More
information
Shareholders will benefit from the Bonus Issue by
receiving one free Option for each Share held, that
they can then choose to either exercise or sell at their
discretion. The Options will be listed on the ASX
providing the opportunity for Shareholders to sell or
purchase additional Options.
No funds will be raised from the issue of the Options.
Only on exercise of the Options will additional funds
be available to the Company.
What do Shareholders need
to do to receive their
Options?
Shareholders do not need to do anything to receive
Options under the Bonus Issue.
The Bonus Issue is a bonus issue of Options and
Shareholders will receive 1 Option for each Share
held by them at 5:00pm (AEDT) on the Record Date.
You will receive an Option holding statement from
Boardroom Pty Limited with this Prospectus. The
Section 2.1
8
Question
Answer
More
information
holding statement will set out the Options issued to
you by the Company.
How do Shareholders
exercise their Options?
If you would like to exercise your Options, you can do
so by completing the notice of exercise enclosed with
your Option holding statement, paying $1.43 per
Option to the Company by cheque and sending the
relevant documents to Boardroom Pty Limited or the
Company.
Section 2.1
Can Shareholders exercise
part of their Option holding?
Yes, Option holders should indicate on the notice of
exercise enclosed with their Option holding
statements the number of Options they wish to
exercise and remit the appropriate amount of money
for that number of Options.
Section 2.1
Is there a cooling-off
period?
No.
How can further information
be obtained?
Contact Wayne Davies or Karl Siegling on
02 8298 2444
or
email
enquiries
to
[email protected] if you have questions
relating to the Bonus Issue.
If you are uncertain as to whether an investment in
the Company is suitable for you, please contact your
stockbroker, financial adviser, accountant, lawyer or
other professional adviser.
The information in the table above is a summary only. This Prospectus should be read in full before
making any decision to deal in Options and/or Shares.
9
2.
Terms of the Bonus Issue
2.1.
The Bonus Issue
The Bonus Issue is a bonus 1 for 1 issue of Options exercisable at $1.43 per Option. No funds will be
raised by the grant of the Options. If all of the Options issued under this Prospectus are subsequently
exercised, the Shares issued on exercise of the Options would raise approximately $228,093,336.90.
The Bonus Issue is being made to all Shareholders registered at 5:00pm (AEDT) on 15 January 2014
(Record Date). The total number of Options which may be issued under this Prospectus is
approximately 159,505,830.
The number of Options which you have been issued with is shown on the Option holding statement
enclosed with this Prospectus. You do not need to take any action to receive the Options.
Option holders can exercise some or all of their Options at any time on or before 31 August 2015. If
you would like to exercise some or all of your Options, you can do so by completing the notice of
exercise enclosed with your Option holding statement, paying $1.43 per Option to the Company, by
cheque or by BPay, and sending the documents to Boardroom Pty Limited or the Company at the
following address:
POSTAL
HAND DELIVERED
Cadence Capital Limited
c/- Boardroom Pty Limited
GPO Box 3993
Sydney NSW 2001
Cadence Capital Limited
c/- Boardroom Pty Limited
Level 7, 207 Kent Street
Sydney NSW 2000
Payments must be made in Australian currency.
Cheques should be made payable to “Cadence Capital Limited” and crossed “Not Negotiable”.
2.2.
Rights attaching to Options
On exercise, the Options will be converted to fully paid ordinary shares in the Company. Detailed
provisions relating to the rights attaching to Options and Shares are set out in the Company’s
constitution and the Corporations Act. A copy of the constitution can be inspected during office hours
at the registered office of the Company.
See Section 8.3 for a summary of the rights attaching to the Options and Section 8.4 for the rights
attaching to the Shares.
2.3.
ASX quotation of Options
Within 7 days after the date of this Prospectus, application will be made to the ASX for the Options to
be quoted on the ASX.
If the ASX does not give permission for quotation of the Options within 3 months after the date of this
Prospectus (or a later date permitted by ASIC), none of the Options will be issued, and, if any have
been issued, the issue will be void, unless ASIC grants an exemption permitting the issue.
It is expected that quotation of the Options will initially be on a deferred settlement basis.
2.4.
Issue and allotment of Options
No Options or other securities will be issued on the basis of this Prospectus later than the expiry date
of this Prospectus, being the date 13 months after the date of this Prospectus.
It is expected that the issue of all of the Options will occur on the same day. It is currently anticipated
that this issue will occur on or before 20 January 2014. Holding statements in relation to the Options
will be despatched as soon as practicable after the issue of the Options.
10
It is the responsibility of Shareholders to determine their allocation prior to trading in Options.
Shareholders who sell any Options before they receive their holding statements will do so at their own
risk.
2.5.
Overseas Shareholders
The Bonus Issue is not being extended into any jurisdiction in which, or to any person to whom, it
would be unlawful to extend the Bonus Issue.
In particular, the Bonus Issue is not being extended, and does not qualify for distribution or sale, and
the Options may not be issued to a Shareholder with a registered address outside Australia, other
than Shareholders with a registered address in New Zealand or any other jurisdiction in which it would
be lawful to extend the Bonus Issue in accordance with this Prospectus.
2.6.
Taxation
The Directors do not consider that it is appropriate to give Shareholders advice regarding the taxation
consequences of being granted Options under this Prospectus as it is not possible to provide a
comprehensive summary of the possible taxation positions of all Shareholders. The Company, its
officers, employees, advisers and representatives do not accept any responsibility or liability for any
taxation consequences to Shareholders in respect of the Bonus Issue. Shareholders should consult
their own professional tax adviser in connection with the taxation implications of the Bonus Issue.
11
3.
Risk Factors
Potential investors should be aware that dealing in Options and/or Shares involves various risks. You
should carefully consider the risks described below, and all of the other information set out in this
Prospectus, before deciding whether to invest in the Company.
If any of the risks described below were to occur, then this could negatively impact the Company’s
operating results and profitability. In that case, the market price of the Options and/or Shares could
decline, and you could lose all or part of your investment.
3.1.
Key risks
(a)
The success and profitability of the Company depends upon the ability and competence of the
Manager to invest in well-managed companies and other entities which have the ability to
increase in value over time. There is no guarantee that this can be achieved. The value of
the assets purchased for the Portfolio may decline, which would likely have an adverse impact
on the value of the Options and/or Shares.
(b)
The Company employs short selling within, and borrowings to gear, the Portfolio. Whilst the
use of short selling and borrowings can substantially improve the return on invested capital,
their use may also significantly increase the risk of significant falls in the value of the assets of
the Portfolio and, accordingly, the possibility of an adverse impact on the value of the Options
and/or Shares.
3.2.
Risks specific to the Company (including its business model)
(a)
The strategies of the Company rely, in part, on the successful performance of contracts with
external counterparties, including securities brokers and issuers of securities and derivatives
to which the Company may have investment exposure. There is a risk that these
counterparties may not meet their responsibilities, including as a result of the insolvency,
financial distress or liquidation of the counterparty. This may adversely impact the
performance of the Company.
(b)
The Company operates a prime brokerage lending facility and custody account. Its prime
broker and primary custodian arrangements are currently with Citigroup Global Markets
Limited and Citigroup Global Markets Australia Pty Ltd. A summary of these arrangements
are set out in Section 6.6 of this Prospectus. There is no guarantee that the Company’s prime
broker/custodian will not become insolvent or fail to comply with its obligations under the prime
brokerage or custody arrangements.
In an insolvency or liquidation of a prime
broker/custodian that has custody of Company assets, or a breach of contract by them, there
is no certainty that the Company would not incur losses due to its assets being unavailable for
a period of time or ultimately less than full recovery of its assets, or both. Because
substantially all of the Company's assets are custodied with a single prime broker and, in
some cases, some assets may also be custodied with a major Australian bank, such losses
could be significant and materially impair the ability of the Company to achieve its investment
objectives.
(c)
The Manager’s performance fee may create an incentive for the Manager to make
investments on behalf of the Company that are riskier and more speculative than would be the
case in the absence of a fee based on the performance of the Company. This may add to the
risk and volatility of the Portfolio’s underlying investments, which could negatively impact the
performance of the Portfolio and the value of the Options and/or Shares.
(d)
The Portfolio may be less diversified than other listed investment companies. A lack of
diversity within the Portfolio may make the Portfolio more exposed to certain risks than if the
Portfolio were more diversified. If those risks were to occur, then this could magnify the
adverse impact on the Company relative to other (more diversified) listed investment
companies.
12
(e)
The Company’s investment strategy for the Portfolio is focused on long-term gains. Therefore,
an investment in the Company may not be suitable for investors who are looking for quick,
short-term gains. Potential investors are therefore strongly advised to regard any investment
in the Company as a long term proposition, and to be aware that, as with any equity
investment, substantial fluctuations in the value of their investment may occur from time to
time.
(f)
The ability of the Manager to continue to manage the Portfolio in accordance with this
Prospectus and the Corporations Act is dependent on the maintenance of the Manager's
AFSL and its continued solvency. Maintenance of its AFSL depends, among other things, on
the Manager continuing to comply with the ASIC imposed licence conditions and the
Corporations Act.
3.3.
Risks specific to the industry
(a)
The future earnings of the Company and the value of the investments of the Company may be
affected by the general economic climate, investor sentiment, commodity prices, currency
movements, changing government policy and other factors beyond the control of the Company
and the Manager. Current investment markets continue to experience unusually high levels of
volatility. As a result, no guarantee can be given in respect of the future earnings of the
Company or the earnings and capital appreciation of the Company's investments.
(b)
For investments in international assets that have currency exposure, there is a risk that
adverse movements in exchange rates could negatively impact the performance of the
Portfolio and the value of the Options and/or Shares. For example, if the Australian dollar
rises, then the value of international assets expressed in Australian dollars may fall.
(c)
Changes in short and long-term interest rates could negatively impact the performance of the
Portfolio and the value of the Options and/or Shares. For example, the value of a long bond
position may fall when interest rates increase. Similarly, the value of a short bond position
may fall when interest rates decrease.
(d)
For investments in companies that have exposure to commodity prices, there is a risk that
changes in commodity prices could negatively impact the performance of the Portfolio and the
value of the Options and/or Shares.
(e)
Changes in the regulatory environment (including legislation, government policies and taxation
laws) could negatively impact the performance of the Portfolio, the value of the Options and/or
Shares or the returns to Shareholders.
(f)
The selling or purchasing of an unhedged option or warrant runs the risk of losing the entire
investment or of causing significant losses to the Company in a relatively short period of time.
3.4.
General risks
There are general risks associated with owning securities in a publicly listed company. The price of
Options and/or Shares can go down, as well as up, due to factors outside the control of the Company
and the Manager. These factors include Australian and worldwide economic conditions, political
stability, investor sentiment, the performance of the Australian stock market as a whole, interest rates,
foreign exchange rates, the regulatory environment, natural disasters and acts of terrorism. Potential
investors should be aware that, as with any equity investment, substantial fluctuations in the value of
their investment may occur.
This list of risks described above is not exhaustive. Potential investors should read this Prospectus in
full and, if they require further information on material risks, seek professional advice.
13
4.
Financial Position of the Company
4.1.
Net Tangible Asset Backing per Share
The NTA as reported by the Company to the ASX for the 2 months ending before the date of this
Prospectus is set out below:
30 November 2013
31 December 2013
Pre-Tax NTA
145.7 cents
146.1 cents
Post-Tax NTA
143.2 cents
143.7 cents
The figures (above) for 31 December 2013 are estimates only, as set out in the December 2013
Newsletter (which was announced to the ASX on the 6 January 2013). Post-Tax NTA includes the
effect of tax assets and liabilities on the NTA amount while Pre-Tax NTA does not.
4.2.
Overview of Operations and Results
The Portfolio has outperformed the S&P/ASX All Ordinaries Accumulation Index on a 1 year, 2 year, 3
year, 4 year, 5 year, 8 year and since inception basis. The Table below details the Company’s
performance.
Returns to 31 December 2013
Performance* to 31st December 2013
1 Month
1 Year
2 Years
3 Years
4 Years
5 Years
8 Years
Since Inception (8.25 years)
Since Inception Annualised (8.25 years)
CDM*
All Ords
Outperformance**
1.30%
20.55%
43.54%
88.08%
148.47%
265.84%
324.71%
351.14%
20.04%
0.92%
19.66%
42.20%
25.95%
30.11%
81.60%
59.61%
65.12%
6.27%
+0.38%
+0.89%
+1.34%
+62.13%
+118.36%
+184.24%
+265.10%
+286.02%
+13.77%
* May 2011 performance was adjusted to reflect the Post-tax increase in NTA as this figure more accurately included the
material fully franked dividends received from RHG Limited during that month.
** Outperformance is the difference between the performance* of the Portfolio and the S&P/ASX All Ordinaries Accumulation
Index over the same period.
The performance table for the relevant periods has been calculated on the basis of the following
assumptions:
(a)
The performance table sets out the performance of the Portfolio only.
(b)
The Company's performance set out above reflects percentage changes in the value of the
Portfolio, calculated by reference to the last sale price on the ASX for each investment on the
last trading day of each month and the amount of cash maintained by the Portfolio as at that
date less any borrowings associated with acquiring securities or short selling.
(c)
Dividends, interest and other distributions are included on an accruals basis.
(d)
The performance of the Portfolio has been calculated before the payment of all management
and performance fees but after all other fund expenses.
(e)
The performance of the Portfolio has been calculated before income tax expense. The
Directors believe that the inclusion of performance of the Portfolio before income tax allows
the performance to be compared to similar funds and the S&P/ASX All Ordinaries
Accumulation Index.
14
(f)
The Company's performance has been presented as a percentage in order to compare it with
the S&P/ASX All Ordinaries Accumulation Index.
(g)
Except in respect of May 2011 (as outlined in the table above), the Company's performance
does not take into account any value derived through imputation credits.
PLEASE NOTE THAT PAST PERFORMANCE OF THE COMPANY IS NOT INDICATIVE OF THE
FUTURE PERFORMANCE OF THE COMPANY
Dividends and Equal Access Share Buy-Back
The table below sets out the Company’s dividends declared in respect of each financial year since
listing on the ASX through to 31 December 2013, and also details of the equal access Share buy-back
conducted in 2008.
Calendar Year
Interim
Final
Special
Total
2007
2.0c
2.0c
2.0c
6.0c
Gross (Inc.
Franking)
8.6c
2008
2.5c
2.2*c
-
4.7c
5.8c
2009
-
2.0c
-
2.0c
2.9c
2010
2.0c
2.0c
-
4.0c
5.7c
2011
3.0c
3.0c
3.0c
9.0c
12.9c
2012
4.0c
4.0c
4.5c
12.5c
17.8c
2013
5.0c
5.0c
1.0c
11.0c
15.7c
TOTAL
18.5c
20.2c
10.5c
49.2c
69.4c
* Off market equal access share buy back
4.3.
Investments at Market Value as at 31 December 2013
Below is a summary of the Portfolio showing the Portfolio by sector and the top positions held as at 31
December 2013.
Sector Exposure of the Portfolio as at 31 December 2013
Sector
Diversified Financials
Long
18.54%
Banks
17.92%
Materials
11.57%
Software & Services
5.59%
5.59%
Real Estate
4.44%
4.44%
Consumer Services
4.18%
4.18%
Commercial & Professional Services
3.84%
3.84%
Telecommunication Services
2.80%
2.80%
Insurance
2.26%
2.26%
Transportation
2.06%
2.06%
0.91%
0.83%
0.61%
0.39%
0.13%
0.07%
76.12%
0.91%
0.83%
0.61%
0.39%
0.13%
0.07%
75.00%
Utilities
Retailing
Energy
Pharmaceuticals, Biotechnology & Life Sciences
Capital Goods
Health Care Equipment & Services
Exposure
Cash on Hand
Short
Net
18.54%
17.92%
1.12%
1.12%
10.45%
25.00%
15
Positions in the Portfolio as at 31 December 2013 greater than 1% of Portfolio value
ASX Code
Position
RHG
RHG Ltd
MQG
Macquarie Group Limited
HGG
Henderson Group Plc
NAB
National Australia Bank Ltd
ARI
Arrium Limited
MLB
Melbourne IT Ltd
ANZ
Australia & New Zealand Banking Group
RFG
Retail Food Group
AMC
Amcor Limited
IIN
IInet Limited
BSL
Bluescope Steel Ltd
MMS
McMillan Shakespeare Ltd
FXL
Flexigroup Ltd
ABP
Abacus Property Group
RIO
Rio Tinto Ltd
TOL
Toll Holdings
BOQ
Bank of Queensland Ltd
SDG
Sunland Group Ltd
QBE
QBE Insurance Group Ltd
SUN
Suncorp Group Limited
OZL
Oz Minerals Ltd
FLN
Freelancer Ltd
INA
Ingenia Communities Group ltd
BXB
Brambles Limited
Top Portfolio Holdings Gross Exposure
Direction
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Long
Short
Long
Long
Long
Holding
7.7%
7.2%
7.1%
4.5%
3.7%
3.6%
3.6%
3.1%
3.0%
2.8%
2.7%
2.6%
2.6%
2.0%
1.6%
1.5%
1.5%
1.4%
1.1%
1.1%
1.1%
1.1%
1.0%
1.0%
68.61%
The above tables do not necessarily reflect the current Portfolio as the Company has continued to
actively trade in securities since 31 December 2013.
16
5.
Use of Proceeds and Effect of the Bonus Issue
5.1.
Use of funds and effect of the Bonus Issue
No funds will be raised by the issue of the Options.
The Directors intend to apply the funds raised on the exercise of the Options for further investment
consistent with the investment objectives and investment process set out in Section 6 of this
Prospectus.
If all of the Options are exercised by the expiry date, the effect on the Company would be as follows
(based on the number of Shares on issue as at the date of this Prospectus):

The number of Shares on issue would increase from 159,505,830 Shares to approximately
319,011,660 Shares.

The cash reserves of the Company would increase by up to $228,093,336.90. These cash
reserves would be utilised in pursuing the investment objectives of the Company.
The Directors and the Manager do not guarantee that any Options will be exercised or that those
funds will be raised.
If the Options are exercised and the funds are raised, then the Company will have further capital to
invest.
The capital structure of the Company as at the date of this Prospectus, and assuming completion of
the Bonus Issue, is set out below:
Shares
159,505,830
Options
159,505,830
Fully diluted capital
319,011,660
5.2.
Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet set out below represents the balance sheet of the Company
as at 30 June 2013 (which was subject to audit by the Company’s auditors, Moore Stephens Sydney)
disclosed in the Annual Report, adjusted for completion of the Bonus Issue and exercise of all
Options. It is intended to be illustrative only and it neither reflects the actual position of the Company
as at the date of this Prospectus nor at the conclusion of the Bonus Issue. Please see Section 5.4 of
this Prospectus for a summary of the Company’s activities (including financial information) since 30
June 2013.
References to ‘pro-forma’ information are to non-IFRS financial information prepared in accordance
with ASIC Regulatory Guide 230 (Disclosing non-IFRS financial information) issued in June 2013.
Non-IFRS financial information has not been subject to audit or review.
17
Cadence Capital Limited
Unaudited Pro Forma Balance Sheet
Actual 30 June
2013
Pro forma 30 June
2013 (adjusted for
Bonus Issue and
exercise of Options)
$
ASSETS
Cash and cash equivalents
Trade and other receivables
Financial assets
Deferred tax asset
$
66,337,963
1,525,149
97,967,357
3,719,668
294,370,275
1,525,149
97,967,357
3,719,668
169,550,137
397,582,449
LIABILITIES
Trade and other payables
Financial liabilities
Deferred tax liabilities
726,677
2,610,060
1,830,794
726,677
2,610,060
1,830,794
TOTAL LIABILITIES
5,167,531
5,167,531
NET ASSETS
164,382,606
392,414,918
EQUITY
Issued capital
Profits reserve
Accumulated losses
155,566,625
12,568,818
(3,752,837)
383,598,937
12,568,818
(3,752,837)
TOTAL EQUITY
164,382,606
392,414,918
TOTAL ASSETS
The above table headed “Unaudited Pro Forma Balance Sheet” assumes the following:
1.
All Options granted under this Prospectus were issued.
2.
Bonus Issue expenses of $61,025 (excluding GST) were paid on 30 June 2013.
3.
All Options issued under this Prospectus were exercised at 30 June 2013.
5.3.
Profit and Loss Statement
There will be no immediate effect on the Company’s Statement of Comprehensive Income as a result
of the issue of Options pursuant to this Prospectus. The investment of any funds raised from the
exercise of those Options will ultimately affect the Company’s Statement of Comprehensive Income as
a result of the performance of the investment.
5.4.
Activity post 30 June 2013
Subsequent to 30 June 2013, the Company invested a substantial portion of its cash balances. In
December 2013, the Company raised $54.1 million (37,767,430 Shares issued at $1.43 per Share) in
its placement pursuant to a prospectus dated 14 November 2013. The Company has returned a
18
positive gross performance of 14.1% for the first six months of FY2014 and paid a final dividend
payment of $6.0 million on 30 September 2013. The net tangible assets of the Company as at 31
December 2013 was approximately $229 million.
5.5
Update on investment in RHG
RHG has been a large investment in the Company’s Portfolio for several years and, as at the date of
the Prospectus, the Company still has a substantial investment in RHG.
On 18 December 2013, RHG shareholders approved a proposal from Australian Mortgage Acquisition
Company Pty Limited, backed by a guarantee from Resimac Limited, (AMAC/RESIMAC) to acquire all
of the RHG Shares for 50.1 cents per RHG Share (in cash).
On 20 December 2013, the scheme was approved by the Federal Court of Australia, and became
effective on that date.
The Company is expected to receive scheme consideration of $17,920,326 on 8 January 2014 (being
the implementation date of the scheme).
19
6.
Overview of the Company
6.1.
Investment Objectives
The principal investment objectives of the Company are:

to achieve a high real rate of return, comprising both income (fully franked dividends) and capital
growth, within risk parameters acceptable to the Manager and the Directors; and

to provide investors with a co-investment opportunity alongside the Manager and the Board.
6.2.
Investment Philosophy
The Manager’s investment philosophy is underpinned by a number of long held investment beliefs:

The Manager believes a combination of fundamental and technical analysis has a greater
probability of producing higher returns than either fundamental or technical analysis alone.

The Manager sees the ‘Entry and Exit’ strategy (technical) to be as important as the investment
decision (fundamental). The Manager’s process of scaling into and out of positions is highly
disciplined.

The Manager considers its ‘open mandate’ to be invested or not invested as a key tenet to their
approach to managing money, that is, the allocation between equities and cash based on bottom
up fundamental analysis and technical analysis is critical.

The Manager believes that it can generate alpha from both long positions and short positions.
Fundamental Analysis

On a daily basis the Manager visits and analyses companies to determine whether they are cheap
or expensive.

The Manager uses a combination of Price Earnings Ratio versus Growth (PEG), Operating Cash
Flow and Free Cash Flow analysis, as well as balance sheet strength.
Technical Analysis

Ideally the Manager wants to be long individual stocks that are trending up.

The Manager wants to be in cash or short selected stocks when they are trending down.
As a consequence the Portfolio can move between greater or lesser exposures to cash and equities
depending on how individual stocks in our portfolio are performing. The Manager also likes to have
some spare capacity to borrow when opportunities exist. The Manager likes to participate in the
market when opportunities present themselves and likes to stop participating completely when they
don’t.
6.3.
Composition of the Portfolio
The Manager targets 20 to 40 fundamental core investments and anything from 0 to 40 trading
opportunities in the Portfolio at any point in time. The Manager monitors fund concentration through
continual monitoring of exposures at both an individual stock level and at a sector level. Gross
exposure of the fund is generally between 70% and 140%. Net exposure is generally between 50%
and 100%. The maximum leverage the Manager will employ in the Portfolio is $0.40 of debt for every
$1 of equity, or 40% debt to equity ratio.
20
6.4.
Dividend Policy
The Board is committed to paying a continuous and growing stream of fully franked dividends to
Shareholders provided the Company is able, has sufficient franking credits and it is within prudent
business practices. Dividends are paid on a six-monthly basis.
6.5.
Management Agreement
The Company has appointed the Manager to manage the Portfolio. Details of the fees payable to the
Manager are set out in Section 7.3 of this Prospectus.
6.6.
Prime Brokerage Agreement
The Company has appointed Citigroup Global Markets Limited (CGML) as a prime broker under the
terms of a Customer Agreement for Australian Prime Brokerage Services dated 13 October 2009 (the
PB Agreement) and Citigroup Global Markets Australia Pty Ltd (CGMA) as a cash lender under the
terms of a Customer Agreement for Australian Cash Loans dated 13 October 2009 (the Cash Loan
Agreement), each of CGML and CGMA are wholly owned indirect subsidiaries of Citigroup Inc. The
services which CGML will provide under the PB Agreement include various custodial services,
securities lending and the clearance and settlement of securities transactions. The services which
CGMA will provide under the Cash Loan agreement include cash financing in connection with
transactions under the PB Agreement. CGML and CGMA, in their capacities as prime broker and cash
lender, as applicable, will have no decision-making discretion relating to the investment of the assets
of the Company and will not provide any investment advice in relation to the assets of the Company.
Under the terms of the PB Agreement, subject to CGML’s right to utilise the same described below,
CGML will identify, record on its books and hold on a segregated basis all investments (and collect
any dividends and other payments in respect thereto) and other assets of the Company excluding
cash (collectively, the Assets) in such manner that the identity and location of the Assets can be
readily identified at any time as the property of a customer of CGML and separate from CGML's own
property. Accordingly, such Assets which have not been utilised as described below should be
unavailable to the creditors of CGML. Certain Assets may be co-mingled with similar assets of other
customers of CGML. Accordingly, the Company may not have the right to the return of specific assets
but to their equivalent.
CGML may hold Assets with a sub-custodian, depository or clearing agent (each, a sub-custodian) in
one or more accounts identified as belonging to customers of CGML. CGML will identify on its books
and records all Assets held by a sub-custodian as being held for the Company. CGML has
undertaken to exercise reasonable care, skill and diligence in the selection of any sub-custodian.
CGML will make appropriate inquiries periodically to satisfy itself as to the ongoing suitability of such
sub-custodian to provide custodial services to the Company.
The Company acknowledges that cash received by CGML for credit to the prime brokerage Cash
Account either from the Company or on the Company’s behalf will be collateral for the purpose of
securing or otherwise covering the secured liabilities under the Cash Loan Agreement and full
ownership in such cash will be absolutely transferred to CGML, and all right, title and interest in and to
such cash will pass to CGML outright and absolutely for the purposes of covering those secured
liabilities. Upon such transfer CGML will become obliged, subject to and in accordance with the
provisions of the PB Agreement to re-transfer to the Company an equivalent amount of cash. CGML’s
obligation will be reduced to the extent that such cash is applied in accordance with the security and/or
close-out arrangements provided in the PB Agreement and Cash Loan Agreement.
The Company's obligations to CGMA under and in connection with the Cash Loan Agreement will be
secured by a first fixed charge over the Customer’s right, title and interest in connection with the Cash
Account and the Custody Account and over certain other assets (together the Secured Property).
CGML will be entitled to sell, loan or otherwise use any and all Secured Property in the form of
securities (securities so used being referred to herein as Utilised Securities) for its own purposes or
the purposes of any third party, and the Company will have a contractual right against CGML for the
return of assets equivalent to the Utilised Securities. Utilised Securities may not, therefore, be
recoverable in full in the event of CGML’s insolvency.
21
The PB Agreement and Cash Loan Agreement provide that CGML and CGMA will not be liable for any
loss, liability or cost incurred by the Company as a result of any act or omission of CGML or CGMA
unless such loss, liability or cost is caused by CGML’s or CGMA’s, as applicable, own fraud, gross
negligence, or wilful default. Neither CGML nor CGMA shall be responsible for the loss, liability or cost
which the Company may suffer or incur arising from the negligence, wilful default or fraud of any third
party (including any executing broker, bank, agent, custodian, investment exchange, depositary or
clearing house, but subject to the obligations concerning the selection of such sub-custodian
described above). Neither CGML, CGMA nor any third party which acts on their behalf, whether an
affiliate of CGML or CGMA or not, nor its directors, officers, servants, agents or representatives, will
be liable to the Company, except in the case of fraud, for any consequential loss, liability or cost which
the Company may suffer or incur arising out of their acts or omissions, howsoever the loss, liability or
cost is caused and regardless of whether it was foreseeable or not.
The Company has agreed to indemnify CGML, CGMA and any sub-custodian, nominee or agent
appointed by it against any loss, liability and expenses (including without limitation the costs of any
investigation or legal proceedings) arising out of or in connection with the PB Agreement or Cash Loan
Agreement except where arising primarily out of its or, as the case may be, such sub-custodians',
nominees' or agents' own gross negligence or wilful default, all as more fully detailed in the PB
Agreement and Cash Loan Agreement.
The PB Agreement and Cash Loan Agreement will remain in full force and effect until terminated at
any time by either of the parties upon 3 business days’ written notice to the other.
CGML and CGMA are paid service providers to the Company and are not responsible for the
preparation of this document or the activities of the Company and therefore accept no responsibility for
any information in this document.
The Company reserves the right to change the prime brokerage, cash loan and custodian
arrangements described above by agreement with CGML and CGMA and/or, in its discretion, to
appoint additional or alternative prime broker(s), cash lender(s) and custodian(s).
22
7.
The Company and its Directors
7.1.
Directors
As at the date of this Prospectus, the Directors are:




7.2.
Karl Siegling
Wayne Davies
James Chirnside
Ronald Hancock
Interests of the Directors
The number of Shares in which Directors and their Associates have a Relevant Interest are as follows:
Director
Shares
Karl Siegling
8,519,166
James Chirnside
7.3.
25,932
Wayne Davies
344,442
Ronald Hancock
279,860
Directors’ Remuneration
Non-executive Director fees are presently limited to a maximum of $80,000 per annum.
The following table sets out the Directors’ remuneration paid for the financial year ended 30 June
2013:
Director
Director’s fees
Karl Siegling
nil
Wayne Davies
nil
James Chirnside
$15,000
Ronald Hancock
nil
Three non-executive Directors (being James Chirnside, Wayne Davies and Ronald Hancock) are
expected to be remunerated for their services as Directors for the financial year ended 30 June 2014.
Companies owned by Karl Siegling and Wayne Davies are the only shareholders of the Manager
which provides the Company with investment management services.
The Manager is paid a monthly management fee equal to 0.0833% plus GST of the gross value of the
Portfolio calculated on the last business day of each month (comparable to a fee of 1% plus GST per
annum of the gross value of the Portfolio).
The management fee (inclusive of GST) paid to the Manager for the half year ending 31 December
2013 was $993,408.
In addition, where the Portfolio has increased in value over the performance calculation period, the
Manager will also be entitled to a performance fee of:
23

where the level of the S&P/ASX All Ordinaries Accumulation Index has increased over that period,
20% of the amount by which the value of the Portfolio exceeds this increase; or

where the S&P/ASX All Ordinaries Accumulation Index has decreased over that period, 20% of
the amount of the increase in the value of the Portfolio.
No performance fee will be payable to the Manager in respect of any performance calculation period
where the Portfolio has decreased in value over that period.
7.4.
Other Interests
Except as set out in this Prospectus, there are no interests that exist at the date of this Prospectus and
there were no interests that existed within 2 years before the date of this Prospectus that are, or were
respectively, interests of a Director, a proposed Director, the Manager or the Issue Manager in the
formation or promotion of the Company or in any property acquired or proposed to be acquired by the
Company in connection with its formation or promotion or the Bonus Issue.
Further, there have been no amounts paid or agreed to be paid to Directors, proposed Directors, the
Manager or the Issue Manager in cash or securities or otherwise to induce them to become or to
qualify as Directors or for services rendered by them in connection with the promotion or formation of
the Company or the Bonus Issue.
The Manager receives monthly accounting services fees from the Company for the preparation of the
Company’s accounts.
7.5.
Deed of Indemnity
The Company has agreed to indemnify, to the extent permitted by the Corporations Act, each officer in
respect of certain liabilities which the officer may incur as a result of, or by reason of (whether solely of
in part), being or acting as an officer of the Company. The Company has also agreed to maintain in
favour of each officer a directors' and officers' policy of insurance for the period that they are officers.
24
8.
Additional Information
8.1.
Capital Structure
As at the date of this Prospectus, the Company had 159,505,830 Shares on issue. On completion of
the Bonus Issue, the number of Options on issue will be approximately 159,505,830 Options. If all of
the Options issued under this Prospectus are exercised, the number of Shares on issue would
increase up to approximately 319,011,660 Shares.
8.2.
Legal Proceedings
The Company is not and has not been, during the 12 months preceding the date of this Prospectus,
involved in any legal or arbitration proceedings which have had or may have a significant effect on the
financial position on the Company. As far as the Directors are aware, no such proceedings are
threatened against the Company.
8.3.
Rights Attaching to the Options
The terms and conditions of the Options are as follows:
Register
The Company will maintain a register of holders of Options in accordance with section 168(1)(b) of the
Corporations Act.
Transfer/Transmission
An Option may be transferred or transmitted in any manner approved by the ASX.
Exercise
An Option may be exercised by delivery to the Company of a duly completed notice of exercise,
signed by the registered holder of the Option, together with payment to the Company of $1.43 per
Option being exercised and any relevant Option certificate. A blank notice of exercise will be provided
to Option holders at the same time as Option holding statements are despatched.
An Option may be exercised on any business day from the date of grant to 31 August 2015 (inclusive),
but not thereafter.
A notice of exercise is only effective when the Company has received the full amount of the exercise
price in cash or cleared funds.
Dividend Entitlement
Options do not carry any dividend entitlement until they are exercised. Shares issued on exercise of
Options rank equally with other issued Shares of the Company on and from their date of issue.
Participating rights
An Option holder may only participate in new issues of securities to holders of Shares in the Company
if the Option has been exercised and Shares allotted in respect of the Option before the record date
for determining entitlements to the issue. The Company must give at least 7 business days’ notice to
Option holders of any new issue before the record date for determining entitlements to the issue in
accordance with the Listing Rules.
If, between the date of issue and the date of exercise of an Option, the Company makes one or more
rights issues (being a pro rata issue of Shares in the capital of the Company that is not a bonus issue),
the exercise price of Options on issue will be reduced in respect of each rights issue according to the
following formula:
NE = OE – E [P – (S + D)]
(N + 1)
25
where:
NE is the new exercise price of the Option;
OE is the old exercise price of the Option;
E is the number of underlying Shares into which one Option is exercisable;
P is the average closing sale price per Share (weighted by reference to volume) recorded on
the stock market of the ASX during the 5 trading days ending on the day before the ex rights
date or ex entitlements date (excluding special crossings and overnight sales);
S is the subscription price for a Share under the rights issue;
D is the dividend due but not yet paid on each Share at the relevant time; and
N is the number of Shares that must be held to entitle holders to receive a new Share in the
rights issue.
If there is a bonus issue to the holders of Shares in the capital of the Company, the number of Shares
over which the Option is exercisable will be increased by the number of Shares which the holder of the
Option would have received if the Option had been exercised before the record date for the bonus
issue.
Reconstructions and Alteration of Capital
Any adjustment to the number of outstanding Options and the exercise price under a re-organisation
of the Company’s share capital must be made in accordance with the Listing Rules.
ASX Listing
The Company must make an application for quotation of Shares issued on exercise of the Options on
the ASX in accordance with the Listing Rules. Shares so issued will rank equally with other issued
Shares of the Company.
8.4.
Rights Attaching to the Shares
The following information is a summary of the Constitution. Shareholders have the right to acquire a
copy of the Constitution, free of charge.
Each Share confers on its holder:
(a)
the right to vote at a general meeting of Shareholders (whether present in person or by any
representative, proxy or attorney) on a show of hands (one vote per Shareholder) and on a
poll (one vote per Share on which there is no money due and payable) subject to the rights
and restrictions on voting which may attach to or be imposed on Shares;
(b)
the right to receive dividends, according to the amount paid up on the Share;
(c)
the right to receive, in kind, the whole or any part of the Company's property in a winding up,
subject to the rights of the holders of Shares issued on preferential terms and the rights of a
liquidator to distribute surplus assets of the Company with the consent of members by special
resolution; and
(d)
subject to the Corporations Act and the Listing Rules, Shares are fully transferable.
The rights attaching to Shares may be varied with the approval of Shareholders in general meeting by
special resolution.
26
8.6.
Investor Considerations
Before deciding to exercise your Options, you should consider whether the Shares to be issued and
allotted on exercise of the Options are a suitable investment for you. Please refer to the risks set out
in Section 3 of this Prospectus.
If you are in doubt as to the course you should follow, you should seek advice on the matters
contained in this Prospectus from a stockbroker, solicitor, accountant or other professional adviser
immediately.
8.7.
Tax
The potential tax effects relating to the Bonus Issue will vary between Shareholders. Shareholders
are urged to consider the possible tax consequences of participating in the Bonus Issue by consulting
a professional tax adviser.
8.8.
Continuous Disclosure and Documents Available for Inspection
The Company is a disclosing entity for the purposes of section 111AC(1) of the Corporations Act and
as such, is subject to regular reporting and disclosure obligations. Broadly, these obligations require
the Company to:
(a)
prepare and lodge with ASIC both yearly and half-yearly financial statements accompanied by
a directors’ statement and report and an audit or review report;
(b)
within 14 days after the end of each month, tell the ASX the net tangible asset backing of its
quoted securities as at the end of that month; and
(c)
immediately notify the ASX of any information concerning the Company of which it is, or
becomes, aware and which a reasonable person would expect to have a material effect on the
price or value of securities in the Company, subject to certain limited exceptions related mainly
to confidential information.
Copies of documents lodged at ASIC in relation to the Company may be obtained from or inspected at
an office of ASIC. Copies of documents lodged with the ASX in relation to the Company may be
obtained from, or inspected through, the ASX website.
This Prospectus is issued pursuant to section 713 of the Corporations Act. This enables listed
disclosing entities to issue a prospectus with more limited disclosure than would be required of a fullform prospectus where the Company has been a listed disclosing entity for a period of at least 12
months.
8.9.
Other Documents
The Company will provide a copy of any of the following documents free of charge to any person who
requests a copy in relation to this Prospectus:
(a)
The annual financial report of the Company for the year ended 30 June 2013 being the most
recently lodged with ASIC before the lodgement of this Prospectus;
(b)
Any half-year financial report lodged with ASIC by the Company after the lodgement of the
most recently lodged annual financial report and before the lodgement of the copy of the
Prospectus with ASIC; and
(c)
Any other document or financial statement lodged by the Company with ASIC or the ASX
under the continuous disclosure reporting requirements in the period after lodgement of the 30
June 2013 annual financial report referred to above to the date of lodgement of this
Prospectus with ASIC being:
27
Date
Announcement
6/01/2014 Investment Update and NTA December 2013
16/12/2013 Successful Placement $54.1 Million
16/12/2013 Change of Director's Interest Notice
16/12/2013 Change of Director's Interest Notice
16/12/2013 Change of Director's Interest Notice
16/12/2013 Appendix 3B
13/12/2013 Becoming a substantial holder for MLB
6/12/2013 Results of Extraordinary General Meeting
4/12/2013 Investment Update and NTA November 2013
29/11/2013 Results of AGM
29/11/2013 AGM Presentation
22/11/2013 Supplementary Prospectus
18/11/2013 NTA Estimate and Option Value Estimate
15/11/2013 Placement Presentation
15/11/2013 Appendix 3B
14/11/2013 Bonus Option Issue and Prospectus Placement Price
14/11/2013 Placement Prospectus
6/11/2013 Investment Update and NTA October 2013
5/11/2013 General Meeting Proxy Form
5/11/2013 Notice of General Meeting with Covering letter
4/11/2013 RHG: RHG clarification re CDM announcement
4/11/2013 Cadence Capital Ltd Placement- RHG & CDM Priority Allocation
29/10/2013 Annual General Meeting Proxy Form
29/10/2013 Notice of Annual General Meeting with Covering Letter
28/10/2013 RHG: Media release by Pepper dated 25 October 2013
28/10/2013 CDM update on RHG Limited Investment
22/10/2013 Net Tangible Assets per share Estimate
18/10/2013 RHG: agrees to and supports increased offer
11/10/2013 RHG receives an addendum to Competing Proposal
4/10/2013 Investment Update and NTA September 2013
3/10/2013 TOV: RHG Panel Declines to Conduct Proceedings
1/10/2013 Change of Director's Interest Notice
1/10/2013 Change of Director's Interest Notice
1/10/2013 Appendix 3B
26/09/2013 TOV: RHG - Panel Receives Application
25/09/2013 Annual Report June 2013
24/09/2013 RHG: Resimac to submit an Application to the T/o Panel
13/09/2013 Investment Update and NTA August 2013
11/09/2013 RHG: Press Release from Resimac/AMAC
9/09/2013 CDM announces increased Pepper Scheme to acquire RHG Ltd
9/09/2013 RHG: RHG receives further Competing Proposal urges caution
29/08/2013 RHG: RHG Board accepts Resimac increased offer
23/08/2013 RHG: RHG Receives Counter Proposal from Resimac
20/08/2013 Presentation on CDM/ Pepper Scheme to acquire RHG Ltd
16/08/2013 RHG: receives competing proposal - urges caution
16/08/2013 CDM announces Pepper Scheme to acquire 100% of RHG Ltd
13/08/2013 Investment Update and NTA July 2013
30/07/2013 Media Release - Record Full Year Profit
30/07/2013 Appendix 4E/ Preliminary Final Report June 2013
15/07/2013 Investment Update and NTA June 2013
28
8.10.
Expenses of the Bonus Issue
The expenses of the Bonus Issue include:
Payee
Nature of fee
Estimated expense
(excluding GST)
ASIC
Regulatory fee
$2,225
Boardroom Pty Ltd
Registry, printing and administration
$38,800
Watson Mangioni
Legal costs
$20,000
TOTAL
8.11.
$61,025
Minimum Subscription
There is no minimum subscription for the Bonus Issue.
8.12.
ASIC Class Order
The Bonus Issue is made pursuant to ASIC Class Order 00/1092, which exempts the Company from
complying with sections 717 and 723 of the Corporations Act to the extent that those sections require:
(a)
this Prospectus to include or be accompanied by an application form; and
(b)
the Company to only issue Options pursuant to this Prospectus to a person who has submitted
an application form distributed with this Prospectus.
The Bonus Issue is also made pursuant to ASIC Class Order 00/843, which exempts the Company
from complying with section 727(3) of the Corporations Act 2001 to the extent that section prohibits
the Company from issuing Options during the exposure period following lodgement of this Prospectus.
8.13.
Other Information
There is no information relating to the Bonus Issue that, because of its confidential or prejudicial
nature, has not been notified to the ASX which investors or their professional advisers would
reasonably require and reasonably expect to make an informed assessment of the effect of the assets
and liabilities, financial position and performance, profits and losses and prospects of the Company
and the rights and liabilities attaching to the Options.
8.14.
Consents and Responsibility Statements
Moore Stephens Sydney has given, and before lodgement of this Prospectus has not withdrawn, its
consent to be named in this Prospectus as auditor of the Company in the form and context in which it
is named.
Cadence Asset Management Pty Limited has given, and before lodgement of this Prospectus has not
withdrawn, its consent to be named in this Prospectus as Manager of the Company and Issue
Manager in the form and context in which it is named.
Watson Mangioni Lawyers Pty Limited has given, and before lodgement of this Prospectus has not
withdrawn, its consent to be named in this Prospectus as Solicitor to the Bonus Issue in the form and
context in which it is named.
29
Boardroom Pty Limited has given, and before lodgement of this Prospectus has not withdrawn, its
consent to be named in this Prospectus as share registrar of the Company in the form and context in
which it is named.
None of Moore Stephens Sydney, Cadence Asset Management Pty Limited, Boardroom Pty Limited or
Watson Mangioni Lawyers Pty Limited:
(a)
has authorised or caused the issue of the Prospectus;
(b)
has made, or purported to have made, any statement in this Prospectus, except as set out in
this Section 8.14; and
(c)
assumes responsibility for any part of this Prospectus, except for the relevant statement by
that entity in this Section 8.14.
Each of these entities, to the maximum extent permitted by law, disclaims any responsibility or liability
for any part of this Prospectus, other than the relevant statement by that entity included in this Section
8.14.
30
9.
Glossary
9.1.
Defined Terms
In this Prospectus:
AEDT means Australian Eastern Daylight Time.
AFSL means Australian Financial Services Licence.
Annual Report means the Company’s annual report for the financial year ended 30 June 2013 (which
was released to the ASX on 25 September 2013).
ASIC means the Australian Securities & Investments Commission.
Associate has the same meaning as in the Corporations Act.
ASX means the ASX Limited or the securities exchange operated by ASX Limited.
Bonus Issue means the issue of approximately 159,505,830 Options to Shareholders under this
Prospectus.
Company means Cadence Capital Limited (ACN 112 870 096).
Constitution means the constitution of the Company.
Corporations Act means the Corporations Act 2001 (Cth).
Directors or Board means the directors of the Company.
Listing Rules means the listing rules of the ASX.
Manager and Issue Manager means Cadence Asset Management Pty Limited (ACN 106 551 062).
NTA means net tangible asset backing per Share.
Option means an option to acquire a Share with an exercise price of $1.43 to be granted pursuant to
this Prospectus.
Portfolio means the portfolio of investments of the Company from time to time.
Post-Tax NTA means the NTA after applying any tax assets or liabilities.
Pre-Tax NTA means the NTA before applying any tax assets or liabilities.
Prospectus means this prospectus dated 6 January 2014, as modified or varied by any
supplementary or replacement document issued by the Company and lodged with ASIC from time to
time.
Record Date means 15 January 2014.
Relevant Interest has the meaning set out in the Corporations Act.
RHG means RHG Limited (ACN 055 136 564).
RHG Share means a fully paid ordinary share in RHG.
Securities has the meaning given in section 92 of the Corporations Act.
Share means a fully paid ordinary share in the Company.
31
Shareholder means a registered holder of a Share.
Share Registry means Boardroom Pty Limited.
9.2.
Interpretation
In this Prospectus the following rules of interpretation apply unless the context otherwise requires:
(a)
Words and phrases not specifically defined in this Prospectus have the same meaning that is
given to them in the Corporations Act and a reference to a statutory provision is to the
Corporations Act unless otherwise specified;
(b)
The singular includes the plural and vice versa;
(c)
A reference to an individual or person includes a corporation, partnership, joint venture,
association, authority, company, state or government and vice versa;
(d)
A reference to any gender includes both genders;
(e)
A reference to clause, section, annexure or paragraph is to a clause, section, annexure or
paragraph of or to this Prospectus, unless the context otherwise requires;
(f)
A reference to “dollars” or “$” is to Australian currency;
(g)
In this document, headings are for ease of reference only and do not affect its interpretation;
and
(h)
Except where specifically defined in the Prospectus, terms defined in the Corporations Act
have the same meaning in this Prospectus.
9.3.
Governing Law
This Prospectus is governed by the laws of New South Wales.
9.4.
Approval
This Prospectus has been approved by unanimous resolution of the Directors.
Dated: 6 January 2014
Karl Siegling
Chairman
Corporate Directory
Directors of Cadence Capital Limited
Karl Siegling (Chairman)
Wayne Davies
James Chirnside
Ronald Hancock
Company Secretary
Karl Siegling
Manager of Cadence Capital Limited
Cadence Asset Management Pty Limited
Level 11
131 Macquarie Street
Sydney NSW 2000
Ph: (02) 8298 2444
Fax: (02) 8298 2499
Issue Manager
Cadence Asset Management Pty Limited
Level 11
131 Macquarie Street
Sydney NSW 2000
Ph: (02) 8298 2444
Fax: (02) 8298 2499
Registered Office
Level 11
131 Macquarie Street
Sydney NSW 2000
Ph: (02) 8298 2444
Fax: (02) 8298 2499
Solicitor to the Bonus Issue
Watson Mangioni Lawyers Pty Limited
Level 13
50 Carrington Street
Sydney NSW 2000
Ph: (02) 9262 6666
Fax: (02) 9262 2626
Auditors of the Company
Moore Stephens Sydney
Level 15
135 King Street
Sydney NSW 2000
Ph: (02) 8236 7700
Fax: (02) 9233 4636
Share Registry
Boardroom Pty Limited
Level 7, 207 Kent Street
Sydney NSW 2000
Ph: (02) 9290 9600
Fax: (02) 9279 0664
Stock Exchange Listing
Australian Securities Exchange
ASX code: CDM ordinary shares