NZF Group (NZF and NZF010)

[minimoke]

Capital Noteholders that do not elect to accept the "Renewal Option" and are allocated ordinary shares, should note that NZF last paid a dividend on its
shares in December 2008. NZF will not be paying a dividend in this financial year and given the fragility of the economic recovery and the major impact of events that have occurred in the last three years, NZF are unable to ascertain at this stage when dividend payments will recommence.

Malcolm Lindeque
For and on behalf of the board of directors
Company Secretary

ENDS
End CA:00205782 For:NZF Type:GENERAL Time:2011-02-18 10:31:59

Clearly NZF want note holders to convert. Clearly the company is deep in the poo - no dividends in sight and no money to pay note holders.

There are a number of scenarios that can be developed in this situation. Heres one.

The majority shareholders have seen their value hammered over the past few years. They want to retrieve as much value as they can. They cannot maximize value if their shares are diluted by Noteholders taking up shares. Note holders can expect to sell their notes on the market (yea right) but at a likely significant discount. This isn't a problem for as long as they can be suckered into thinking NZF has a future and their notes will be paid out. In the meantime shareholders sell on market. Last sale was $0.10. If they can sell at $0.11 they have made 10%, shrinking their loss exposure. If they can sell in a merger / takeover they will get something back - but not as much if the noteholders have diluted share pool.

Paying interest to noteholders will give the illusion the company is fine. It also buys shareholders time to stich up a deal to sell their shares for the best return. How that sale impacts on Note holders is not of concern once they have exited the business.

In the meantime there is probably enough cash in the business to pay Director Fees which are in lieu of dividends. If there are large noteholders they may have a large enough stake to seek a position on the Board -again diluting the pool of fees available to existing directors.

Edit: in 2010 they paid $697,000 in Director fees (Callahan got $225,000). For a company worth $7.6m thats just under 10% "Special Dividend"

No mater how it is dressed up the best outcome is for Noteholders to roll their investment over for another 5 years.