Open letter to the shareholders and board of T1

 

TIDMGEM 
 
 
Gemfields PLC 
14 April 2009 
 
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Gemfields plc 
Open letter to the shareholders and board of Tanzanite One Ltd 
14 April 2009 
 
 
Gemfields plc ("Gemfields" or "the Company", Ticker "GEM") presents an open 
letter to the shareholders and board of Tanzanite One Limited ("T1"). The letter 
calls on the T1 board to postpone the Special General Meeting ("SGM") scheduled 
for 16 April 2009 in order to remedy and respond to a number of matters 
including, inter alia: 
  *  the inability of A Class shareholders (who constitute more than 20% of the 
  paid-up voting capital) to vote because they have not been sent the correct 
  proxy forms by T1; 
  *  clarification of whether the T1 board intends to vote the B Shares (which 
  unilaterally handed voting control of T1 to the T1 board) in relation to any of 
  the proposed resolutions; 
  *  the absence of standard UK pre-emptive rights from T1's bye-laws (allowing the 
  T1 board to bypass existing shareholders when issuing any of the increased share 
  capital proposed by the T1 board); 
  *  the proposal by the T1 board that the T1 board itself (rather than an 
  independent regulator) should play the role of the UK Takeover Panel in 
  presiding over takeover offers, thereby increasing the T1 board's power to 
  promote or frustrate a third party bid; 
  *  in relation to the proposed changes to the bye-laws allowing the T1 board to 
  purchase T1 shares into treasury, the apparent lack of appropriate restrictions 
  where the T1 board seeks to use T1 funds to purchase shares belonging to T1 
  directors (or former directors) into treasury; 
  *  the undisclosed departure of the four most senior members of the operational 
  management team shown on T1's website; and 
  *  the lack of availability of the proposed bye-laws at the offices of T1's share 
  registry in England and Bermuda. 
 
Until the matters raised herein are adequately addressed by the T1 board, 
Gemfields calls upon all T1 shareholders to vote against the resolutions 
proposed at the SGM scheduled for 16 April 2009 and to submit proxies 
accordingly. 
 
 
ENQUIRIES: 
 
 
For media and analysts please contact: 
College Hill Associates 
United Kingdom:                                            Paddy Blewer +44 
(0)20 7457 2020 
South Africa:  Johannes Van Niekerk (SA) [phone] 
 
Gemfields Richard James, CFO [phone] 
 
[e-mail] 
 
 
Canaccord Adams Limited                  Mike Jones/Tarica Mpinga+44 (0)20 7050 
6500 
 
OPEN LETTER TO ALL SHAREHOLDERS OF TANZANITE ONE LTD 
 
 
CC:     The Directors 
TanzaniteOne Limited 
Clarendon House 
2 Church Street 
Hamilton, HM 11 
Bermuda 
 
 
14th April 2009 
 
 
Dear T1 Shareholders, 
 
 
The Special General Meeting ("SGM") re-scheduled for 16th April 2009 
 
 
Gemfields plc is the second largest holder of ordinary shares in Tanzanite One 
Limited ("T1"). We write to you to urge you to take action to oppose the 
resolutions proposed recently by T1's board of directors (the "T1 Board"). This 
letter is copied to the T1 Board with the request that they respond openly to 
the matters raised herein and also to call upon them to postpone the SGM they 
first called for 27th March 2009 (and then re-scheduled for 16th April 2009 due 
to "mailing irregularities") until such time as: 
 
 
i. the T1 Board has rectified the errors made in providing proxy forms to A 
Class shareholders which prevents these shareholders (who account for some 17.3 
million shares or more than 20% of the paid up voting capital of T1) from voting 
at the SGM; and 
 
 
ii.   the T1 Board has responded to the questions raised in this letter. 
 
 
Given the limited time remaining before the proposed SGM, and until the matters 
raised herein are adequately addressed by the T1 Board, Gemfields calls upon all 
T1 shareholders to vote against the resolutions proposed by the T1 Board and to 
submit proxies accordingly. 
 
 
Amarivest Limited ("Amarivest") and Rox Conduit Limited ("Rox", a portfolio 
company of Pallinghurst Resources) have confirmed that they will join Gemfields 
in voting against the proposed resolutions and in calling for the T1 Board to 
respond to this letter. Amarivest is the single largest holder of paid voting 
shares and, due to inappropriate procedures on the part of T1, is presently 
precluded from voting at the SGM. Amarivest has written directly to the T1 Board 
to object and ask that the error be remedied forthwith. 
 
 
Together, Amarivest, Gemfields and Rox represent 27.6 million T1 shares 
representing 33.2 per cent. of the paid up common share capital of T1 (but only 
16.5 per cent. of the enlarged issued share capital of T1 when aggregated with 
the B shares issued by the T1 Board and controlled by the T1 Board pursuant to 
the B Share Scheme of 25 October 2008). Because the B Share Scheme unilaterally 
handed voting control of T1 to the T1 Board (and diluted the voting power of all 
T1 shareholders by 50%), it is imperative that as many T1 shareholders as 
possible oppose these resolutions. 
 
 
In order to negate any suggestion that the opposition to the proposed 
resolutions is driven by self-interest, Gemfields, Amarivest and Rox hereby 
confirm that they are in favour of T1 adopting the UK Takeover Code in order to 
provide additional shareholder protections and would vote accordingly if an 
appropriate set of amendments were put forward by T1 (see below). 
 
 
PROCEDURAL ERRORS IN RELATION TO THE SGM 
 
 
We note the following procedural errors in relation to the SGM: 
 
1. The Explanatory Memorandum issued by T1 and relating to the SGM states that a 
copy of T1's new bye-laws (incorporating the proposed amendments) would be 
available at the offices of the Company's share registry in England and Bermuda. 
Gemfields have sought to obtain a copy of the new bye-laws from both registrars 
without success. 
 
2. Furthermore, and contrary to the AIM Rules, neither the Schedule referred to 
in the Explanatory Memorandum nor the new bye-laws have been made available on 
the T1 website. 
 
3. T1 first called the SGM for 27th March 2009. It then postponed the SGM to 
16th April blaming "mailing irregularities". Gemfields understands that T1 
omitted to send due notice to the holders of A Class shares in T1's South 
African subsidiary (who are entitled to vote in any T1 AGM or SGM) and was 
therefore forced to reschedule the SGM to provide A Class shareholders with the 
minimum required notice for a SGM. 
 
 
While the postponing of the SGM has now ensured that A Class shareholders have 
been given due notice, it transpires that a further material error has occurred 
which prevents A Class shareholders (including Amarivest) from voting at the SGM 
scheduled for 16 April 2009. 
 
 
A Class shareholders hold shares in T1's South African subsidiary (TanzaniteOne 
SA Limited), and are entitled to vote at an AGM or SGM of T1 by virtue of the A 
Class shareholders scheme (more fully described on pages 59 through 61 of T1's 
2007 annual report. The scheme requires that Rembrandt Nominees Limited (which 
holds one T1 ordinary share in trust for every A Class share in issue) receives 
irrevocable proxies from the A Class shareholders in order to vote on their 
behalf. T1 have failed to send the correct proxy forms to A Class shareholders 
which means that A Class shareholders cannot duly advise Rembrandt Nominees of 
how they wish to vote. Accordingly T1 needs to remedy this error by sending the 
correct forms to A Class shareholders, failing which these shareholders will not 
be able to validly cast their votes. 
 
 
These errors mean that the SGM notice is materially incomplete and that a 
significant proportion of shareholders will not be able to validly cast their 
votes. In addition, it would be wholly inappropriate to expect T1 shareholders 
to make decisions about the resolutions when T1 has not made the necessary 
documents available as stated in the SGM notice. 
 
 
CONCERNS: 
 
 
Gemfields, together with Amari and Rox, believe that the T1 Board should clarify 
the following to all T1 shareholders: 
 
4. The Explanatory Memorandum states that the "Proposed Shareholder Protection 
Amendment is being placed before Shareholders for consideration to mitigate the 
lack of shareholder protection provisions." 
 
 
Yet, the T1 Board fails to point out in the Explanatory Memorandum that the most 
basic of shareholder protections is absent from T1's bye-laws: T1 shareholders 
do not enjoy pre-emptive rights (meaning that the T1 board can bypass existing 
T1 shareholders and elect to issue new shares in T1 to any party they choose 
without first offering such shares to existing shareholders). 
 
 
Accordingly we seek the T1 Board's confirmation that, when an adjourned SGM is 
called, standard United Kingdom pre-emptive rights will be included in the 
revised bye-laws. 
 
 
5. By way of the "Proposed Treasury Share Amendment", the T1 Board intends that 
T1 be allowed to purchase its own shares and to hold them in treasury. 
 
 
Gemfields is concerned that these amendments would allow the T1 Board to 
determine, in its sole discretion, which shares may be so purchased and at what 
price (for example, allowing T1 to preferentially elect to purchase shares held 
or beneficially owned by T1 directors without any obligation to extend the same 
offer to other T1 shareholders). 
 
 
Accordingly, Gemfields seeks confirmation that the T1 Board would not have the 
power to purchase T1 Shares into treasury on a preferential basis but that 
specific parameters would be decided by T1 shareholders in general meeting 
including but not limited to the price, number of shares and the basis upon 
which any share buy back into treasury would be made (where such buyback is not 
extended pro rata to all T1 shareholders). 
 
 
6. The T1 Board has stated that the B Share Scheme was implemented "in order to 
protect the position of all Tanzanite One Shareholders". The T1 Board also 
stated that "The B Share issue is designed to ensure that Gemfields is not able 
to take control of your Company unless it makes an appropriate offer to all 
Shareholders. The Board has taken legal advice, on behalf of the Company, in 
connection with the B Share issue and, as a result, is satisfied that the issue 
was valid and was carried out for a proper purpose, being to preserve equality 
of treatment for Shareholders as a whole." 
 
 
Given these principles, it is clear that the T1 Board intended the B Share 
Scheme to be used to block a partial offer by Gemfields in the greater interests 
of all shareholders "as a whole". 
 
 
Accordingly, Gemfields seeks confirmation from the T1 Board that it will in fact 
"preserve equality of treatment for shareholders as a whole" by not voting the B 
Shares in relation to either of the proposed resolutions (namely the "Proposed 
Amendments to the Bye-laws" and the proposal to increase T1's share capital). 
Clearly any SGM voting would not be representative of T1's shareholder base if 
the T1 Board opted to vote the B Shares in relation to any of these matters. 
 
 
Moreover, any attempt by the T1 Board to vote the B Shares in relation to 
increasing T1's Share capital or allowing T1 Shares to be preferentially 
purchased into treasury, would be a gross breach of T1 Shareholders' rights. 
Gemfields requests that the T1 Board confirm whether it intends voting the B 
Shares in relation to these matters. 
 
 
Gemfields notes that the T1 Board has bundled the amendments to the bye-laws 
(regarding take-over protections) and the ability to preferentially purchase T1 
shares into treasury into a single resolution (meaning they cannot be voted on 
separately). If the T1 Board does in fact intend voting the B Shares in favour 
of the amendments to the bye-laws relating to takeover protections, it is 
imperative that separate resolutions regarding the two issues are put to T1 
shareholders at a newly convened or adjourned SGM to ensure that the T1 Board 
does not vote the B Shares in relation to preferentially purchasing T1 shares 
into treasury. 
 
 
7. Gemfields is concerned that the T1 Board's proposed amendments to T1's 
Bye-laws in relation to the adoption of the UK Takeover Code call on the T1 
Board rather than an independent regulator to play the role of the UK Takeover 
Panel. 
 
 
By failing to import the concept of an independent regulator to play the role of 
the UK Takeover Panel, the T1 Board has increased its power to promote or 
frustrate a third party bid to take over T1. Furthermore, the T1 Board has 
proposed specific rules which would allow the T1 Board to permit acquisitions of 
T1 Shares without triggering the requirement to make a mandatory bid for the 
remainder of T1 Shares. 
 
 
Accordingly, we seek the T1 Board's confirmation that it will remedy this 
situation at a newly convened or adjourned SGM. Gemfields, Amarivest and Rox 
reiterate that, should T1 put forward a standalone resolution proposing the 
adoption of the UK Takeover Code including the appointment of an independent 
regulator to play the role of the UK Takeover Panel, they will vote in favour of 
that resolution. 
 
8. Gemfields is concerned that the mass departure of top-level management has 
not been announced to the market or to T1 shareholders. These include Mr Greg 
Moss (General Manager), Mr Jacques Fouche (New Projects and Development 
Manager), Mr Robert Grafen-Greaney (Chief Geologist) and Mr Adrian Banks 
(Managing Director, TanzaniteOne Trading Ltd). With the exception of Mr Banks, 
all departed some time ago. Yet, these individuals are still shown as acting in 
their respective positions on T1's website. Gemfields notes that Mr Jacques 
Fouche was in charge of T1's tsavorite project (which T1 announced recently has 
now been acquired by T1, in return for new T1 Shares being issued to T1 
directors). 
 
 
9. We note that, at this time last year, T1 had already published its annual 
results (to 31 December 2007). Gemfields feels it would be appropriate for the 
T1 Board to disclose T1's annual results before proceeding with a SGM of the 
nature proposed (especially given the upbeat remarks the T1 Board made during Q4 
2008 about T1's future). Accordingly, Gemfields requests that the T1 Board 
explain the delay. 
 
 
10.The Explanatory Memorandum states that "The terms of the B Shares provide 
that, once the Bye-laws of the Company have been amended to include terms and 
conditions offering protection to Shareholders in the event of a takeover offer 
or analogous transaction, the B Shares shall automatically convert into a new 
class of deferred, worthless shares with no rights whatsoever. Therefore, if 
Shareholders approve the Proposed Shareholder Protection Amendment, the B Shares 
will convert into worthless shares and may be acquired and/or cancelled by the 
Company." 
 
 
 
This language suggests that acceptance of the amendments to the bye-laws is a 
condition to the B Shares converting to worthless shares. The T1 Board fails to 
remind T1 shareholders that there are in fact other conditions relating to the B 
Shares, including that they "will convert into deferred non-voting shares within 
6 months from the date of issue". This means that the B Shares will expire on 25 
April 2009. The fact that the T1 Board has scheduled (and then re-scheduled) the 
SGM to fall in advance of 25th April 2009 suggests that the T1 Board intend 
voting the B Shares to push through the proposed resolutions (see point 6 
above). If the T1 Board are successful in doing this, they will have used the B 
Shares they allotted themselves to increase the share capital of T1 (shares 
which they can then issue to any party they choose because of the absence of 
pre-emptive rights) and will be entitled to use T1's funds to purchase into 
treasury T1 shares from parties they preferentially select (including from 
themselves). 
 
 
11.In the Explanatory Memorandum, the T1 Board claim that the proposed 
amendments to the byelaws mean that "Shareholders ultimately decide whether a 
change of control in Tanzanite One is desirable". Gemfields notes that, as 
demonstrated by the acceptances received, a majority of T1 shareholders were in 
favour of Gemfields' proposal to acquire control of T1 in 2008. Yet the T1 Board 
unilaterally derailed the bid by implementing the B Share Scheme in late October 
2008. The T1 Board's action prevented the holders of more than 30 million shares 
from realising 42.75p per share for their T1 Shares. The T1 Share price has 
since fallen to below 16p per share. Gemfields notes that the proposed 
amendments to the byelaws would perpetuate the T1 board's ability to act in this 
manner in future, even where a bid is made for all T1 Shares. 
 
 
12.Gemfields, Amarivest and Rox represent some 33.2 per cent. of the paid up 
common share capital of T1 and presently have no representation on the T1 Board. 
Accordingly, the T1 Board is asked to confirm that they will allow a 
representative selected by these shareholders to be appointed to the T1 Board 
(after adoption of the UK Takeover Code as per point 7 above). 
 
 
We look forward to the T1 Board's responses to these matters and trust that all 
T1 shareholders will vote against the resolutions for the reasons outlined in 
this letter. 
 
 
Please note that the deadline for the submission of the forms of proxy at the 
offices of the UK and Bermudan registrars is 9 a.m. Bermudan time on 14 April 
2009. 
 
 
Yours sincerely, 
 
 
Sean Gilbertson 
Executive Director 
Gemfields plc 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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