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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (30214)	7/26/2009 8:56:13 AM
From: Madharry	Read Replies (1) \| Respond to of 74464

Settlement of Preferred Shares of Mass Financial and its Former Subsidiary Our investment in the preferred shares of Mass Financial and one of its former subsidiaries is a legacy asset and was recorded at its estimated fair value of Cdn$23.4 million as at both March 31, 2009 and December 31, 2008. In our annual report on Form 20-F, we announced that as part of the continued realignment of our business to focus on the expansion of our industrial plant engineering and equipment supply business, we had entered into negotiations with Mass Financial in an effort to come to an agreement regarding the immediate realization of the economic value of the preferred shares of Mass Financial and one of its former subsidiaries by way of redemption of these shares. For more information, please see “Item 5 — Operating Results — Fair Value Loss on Preferred Shares of Mass Financial and its Former Subsidiary” in our annual report on Form 20-F. On May 12, 2009, we entered into and completed an agreement with Mass Financial for the redemption of the non-transferable preferred shares of Mass Financial and its former subsidiary for net consideration of Cdn$12.284 million, which represented the gross redemption amount of the preferred shares of Cdn$49.284 million offset by the indebtedness of Cdn$37.0 million owed to Mass Financial. The payment of the Cdn$12.284 million was payable as follows: (a) Cdn$8.28 million being satisfied by Mass Financial agreeing to transfer 788,201 of our common shares to our company; (b) Cdn$1.71 million being satisfied by way of cash payment by Mass Financial to our company; (c) Cdn$1.75 million being satisfied by way of issuance to our company of an assignable promissory note having a principal amount of Cdn$1.75 million, a term of 24 months and an interest rate of 4% per annum payable annually in cash. The note is repayable at the option of the issuer by the issuance of common shares of Mass Financial based on the number of common shares of Mass Financial equalling the amount being repaid divided by the 30-day volume weighted average trading price for the Mass Financial common shares. The promissory note can be repaid or be redeemed at any time in cash at the option of the issuer; and (d) Cdn$539,697 being satisfied by setting-off of accrued and unpaid interest on our indebtedness to Mass Financial pursuant to a loan agreement with Mass Financial dated January 31, 2006. 15 Table of Contents Mass Financial also agreed to settle Cdn$11.346 million owing to us in respect of the accrued dividends on the preferred shares, which will be payable by way of the issuance of a promissory note having a principal amount of Cdn$11.346 million, a term of 24 months and an interest rate of 4% per annum payable annually in cash. The note is repayable at the option of the issuer by the issuance of common shares of Mass Financial based on the number of common shares of Mass Financial equalling the amount being repaid divided by the 30-day volume weighted average trading price for the Mass Financial common shares. The promissory note can be repaid or be redeemed at any time in cash at the option of the issuer. The settlement of the preferred shares was approved by our independent directors, as recommended by our audit committee, which took into account a variety of factors prior to granting such approval, including material tax consequences, the importance of maximizing cash holdings given the current economic situation, the ability to reduce the number of our outstanding common shares, the impact of the transaction on creditors, lenders, customers, shareholders and other interested parties, the fact that the preferred shares were not core assets and the current economic value of the preferred shares. The directors and the audit committee also engaged and considered the advice of an independent financial advisor and outside independent legal counsel. The directors and the audit committee also considered the advantages, disadvantages and risks of proceeding with the transaction and concluded that proceeding with the transaction was in the best interests of our company and its shareholders. This transaction substantially completes the disposition of our financial services operations which commenced in 2005 and enables KHD and Mass Financial to focus on their respective core businesses. As a result of the settlement of the preferred shares of Mass Financial and one of its former subsidiaries, we will recognize a loss of approximately Cdn$11.1 million in the second quarter of 2009.