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Directors’ letter to Shareholders 20 Sept 07

There will be no benefit in accepting the offer early – you are advised to wait until you receive our recommendation and the Independent Adviser’s Report.

Dear Shareholder

PROPOSED PARTIAL TAKEOVER OFFER BY MASTHEAD PORTFOLIOS LIMITED

THE OFFER CANNOT BE MADE BEFORE 24 SEPTEMBER 2007 AND WILL BE IN WRITTEN FORM.

THERE WILL BE NO BENEFIT IN ACCEPTING THE OFFER EARLY – YOU ARE ADVISED TO WAIT UNITL YOU RECEIVE OUR RECOMMENDATION AND THE INDEPENDENT ADVISER’S REPORT

As previously advised, Abano Healthcare Group Limited has received notice that Masthead Portfolios Limited, a company that currently holds 19.865% of Abano’s shares, proposes to make a “partial” takeover offer. The essence of the “partial” offer is that it will be a written offer, made under the Takeovers Code, for only a portion of your shares. Given Masthead’s current shareholding, it is unable to buy any more Abano shares through the share market and must use the written takeover offer process. This process is not “first in first served “ and allows all shareholders an equal opportunity to participate.

Masthead is seeking to take its shareholding from 19.865% to 51% – sufficient to give it majority control. To achieve this, Masthead must receive acceptances under its takeover offer for just over 30% of the company, or 38.85% of each shareholder’s shares. The partial takeover process allows shareholders to accept the offer for some or all of their shares, but there is no guarantee that any more than 38.85% of your shareholding will be able to be taken up by Masthead. The actual number taken up will depend on how many shareholders decide to accept the offer and for how many of their shares.

To ensure that shareholders are fully informed, the Abano Board has appointed Ferrier Hodgson & Co. as independent adviser to provide a report on the merits of the proposed offer and the Board will provide its own written statement to shareholders. These documents will be incorporated in the Target Company Statement that will be sent to shareholders as soon as practicable, but in all likelihood, after the Masthead offer is sent.

For the Masthead offer to be successful it must receive acceptances that take its shareholding to above 50% of Abano. If Masthead receives acceptances that take its shareholding to less than 51%, the offer will fail and all acceptances must be returned. If acceptances take Masthead’s holding to more than 51%, acceptances will be scaled down to the 51% level.

Any scaling would be pro rata and not based on the date on which a shareholder accepts the offer.

There is no benefit to Abano shareholders in accepting the offer early as the Masthead offer, once made, cannot be closed early or withdrawn (except in the unlikely event the Takeovers Panel so agrees), and the offer price cannot be reduced. Once given, your acceptance cannot be withdrawn (unless Masthead defaults under the offer).
Shareholders who accept the offer will not be paid until the offer is unconditional and the extent of any required scaling becomes clear – and that cannot occur until after the offer closes.

The proposed Masthead offer includes some conditions which we consider would unduly restrict the company’s ability to continue to implement elements of its growth strategy. We have written to Masthead and requested certain modifications to those conditions to ensure that the company can continue to implement proposals intended to create shareholder value during the offer period.

The Board advises shareholders to TAKE NO ACTION and wait until they receive a copy of the Target Company Statement before deciding whether to accept or reject the offer.

Shareholders with any questions should feel free to contact our Chief Financial Officer, Richard Keys on (09) 300 1410.

Yours sincerely
ABANO HEALTHCARE GROUP LIMITED

AM Paterson
Chair

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