Correspondence

[typed copy of letter received from Nuplex Industries Limited]

Nuplex Industries Limited

12 Industry Road

Penrose,  Auckland

8 April 2009

Mr Bruce Sheppard

Chairman

New Zealand Shareholders Association

PO Box 6310

Auckland City

New Zealand

Dear Bruce

Thank you for your letter of 1st April 2009. We welcome the opportunity to explain the rights offer and the fact that you have approached us in the first instance and not the media. Thank you for your compliment on the rights issue. Naturally we would rather not be in a position of doing an issue at all, but a combination of a swift downturn in volumes, a sharp fall in the value of the NZ Dollar and a credit-constrained banking market lead to the need to raise capital, and raise it quickly. 

We respond to your two specific questions below but first I would like to explain the context of the raising and the origins of the call option/top up placement.

The raising of $132.8m represented just over 150% of our pre-announcement market value. This is a very significant raising and no one I have asked can recall a raising of this magnitude in the NZ market. Another way of looking at this is that an overnight placement of the allowable 15% would have raised us $13m - "barely touching the sides" in the words of one of our banks.

The other feature of this raising is the makeup of our share register. We are approximately 75% owned by retail shareholders and the balance by institutional investors. So immediately prior to the raising we had institutional ownership totalling some $22m. We also lacked broad following from the major investors in the NZ and Australian market. 

Raising capital in this situation is a negotiation between the company and the providers of capital. For our capital raising this was primarily the NZ institutions but a wide range of local and international investors were approached as well.

Now, to the call option. First NZ Capital was willing to underwrite the issue for 2%, but naturally required sub underwriters. First NZ capital is paying 1.5% to sub-underwriters.

In seeking sub-underwriters for the rights issue two large institutions indicated that given the whole deal was being done via a rights issue there was no pool of shares that was available to them with certainty. If the level of subscriptions was high then the shortfall would be low, and these two sub underwriters wanted the ability to own a target number of shares at the end of the offer.

So, in the short time available, we granted FNZC a call option for it to elect to exercise or not, at the end of the offer, to allocate to sub-underwriters as it sees fit, further shares. First NZ Capital were very clear that they would not and could not benefit from this option and that is stated very clearly in the call option agreement. First NZ Capital do not earn an underwriter's fee on shares placed under the call option agreement.

Could this option be considered another form of underwrite fee? I emphasise that without the call option we would not have been able to underwrite the transaction and our position today would be materially different. Given the two choices, I am comfortable we made the best decision for our shareholders. I accept that if the option is exercised, there is a cost to remaining shareholders. This is disclosed in our offer document.

The exercise of the option is by no means a certainty. Its exercise is in the hands of First NZ Capital, our trusted partner in this capital raising process. It is not in the hands of those who may stand to benefit from it financially. 

So, with that prelude, the specific answers to your questions:

1.  The request for the top-up issue was made to us by First NZ Capital on Wednesday 18 March. This was in response to the requests by certain of the potential sub underwriters that they required some arrangement whereby they could be more certain of owning a target number of shares under the offer. Some of the potential sub-underwriters had internal precentage holding restrictions which stopped them from sub-underwriting a larger percentage of the rights on offer in the expectation of a significant take-up by shareholders. The request from First NZ Capital was received before the head underwriting agreement was signed on the morning of Friday 20 March. These events are explained in some detail in our NZX waiver application published on 20 March 2009.

2.  There is no lock-up on these shares. It was briefly considered but it was felt that it was unusual for a sub-underwriter to agree to lock up any part of their shareholding. The company understands that the transaction would not have proceeded on the basis of a lock up.

First NZ Capital is engaging with the broker network to encourage their shareholder clients to take up their rights, or to sell them. Any steps you could take amongst your members to communicate this message would be appreciated.

We welcome the publication of your letter and our response on your website.

Please contact me if you have any more questions. I will be back in Auckland on Wednesday 22nd April and would be delighted to meet with you at that time to address any further questions you might have.

Yours sincerely

ROB AITKEN

Chairman