5.1. Capital structure on completion
The table below illustrates the proposed capital structure on completion of the Rights Issue and Convertible Notes (with attaching Options).
Number of Shares on issue Minimum1 Maximum2
Existing shares on issue before the Rights Issue 51,333,432 51,333,432 New shares proposed to be issued under the
Rights Issue
18,111,640 30,800,059
Proposed total shares on issue after the Rights Issue
69,445,072 82,133,491
Shares issue from Convertible Notes converting 40,000,000 40,000,000
Shares issued from Options exercised 40,000,000 40,000,000
Proposed fully diluted shares on issue after the Rights Issue and the issue of Convertible Notes and Options
149,445,072 162,133,491
Notes:
1. Minimum capital raising comprising gross proceeds of $2.2 million through the Rights Issue (includes PPK’s underwriting commitment of $2 million and Mr Hugh Greig’s commitment of $0.2 million) and $8 million through the issue of Convertible Notes and Options.
2. Maximum capital raising comprising gross proceeds of $3.7 million through the Rights Issue and $8 million through the issue of the Convertible Notes and Options.
The table also illustrates the fully diluted number of shares on issue assuming that all the Convertible Notes issued are converted into ordinary shares and that all Options are exercised.
The table assumes that Frigrite's share price is $0.20 or above. If Frigrite's
weighted average share price is less that $0.20 prior to conversion, the conversion rate will increase to reflect an issue price of a 10% discount to the weighted
average share price. For example, a weighted average share price of $0.11 before conversion of the Convertible Notes would result in an additional 40,000,000 shares being issued.
5.2. Financial impact of the Rights Issue and Convertible Notes (with attaching Options)
The net proceeds of the Rights Issue and the issue of Convertible Notes and Options will be used to reduce Frigrite’s debt and fund working capital requirements.
The issue of Convertible Notes is expected to be classified as debt under Frigrite’s accounting policies. The Convertible Notes have a coupon rate of 12.5% per annum, payable quarterly, which will be treated as interest expense. The interest expense associated with the Convertible Notes for the year ending 30 June 2010 is expected to be approximately $830,000, assuming the notes are issued on 1 September 2009 and are not redeemed or converted during this period. The cost
of issuing the Convertible Notes will be capitalised and amortised over the life of the Convertible Notes.
Cash raised through the Rights Issue will be partially used to repay Frigrite’s borrowings and, as a result, will result in an increase in Frigrite’s net tangible assets. The cost of the Rights Issue will be expensed as a non-recurring item and will reduce Frigrite’s profit after tax in the year ending 30 June 2010.
The impact on Frigrite’s earnings per share will be determined by a number of factors including the amount raised under the rights issue, whether the
convertibles notes will be converted or redeemed and whether the options will be exercised.
5.3. Effect of Rights Issue on control of Frigrite
PPK has agreed to underwrite $2 million of the Rights Issue, which is inclusive of any entitlement PPK takes up under the Rights Issue. As at the date of this Offer Document, PPK holds 7,087,565 or approximately 14% of Frigrite's outstanding Shares and is Frigrite's largest single shareholder.
It is not currently possible to confirm whether or not PPK’s underwriting
commitment will need to be taken up in full. The table below shows PPK’s current shareholding in Frigrite, as at the date of this Offer Document, and PPK’s potential holding following the Rights Issue assuming:
PPK takes up 100% of its entitlement in the Rights Issue and $2.5 million in the Convertible Notes and Options; and
PPK takes up 100% of its underwriting commitment ($2 million) and
$2.5 million in the Convertible Notes and Options.
PPK's shareholding (no. of shares) Entitlement Underwriting Existing Shares held by PPK before the Rights
Issue
7,087,565 7,087,565
New shares proposed to be issued to PPK under the Rights Issue
4,252,539 16,666,667
Total shares held by PPK after the Rights Issue
11,340,104 23,754,232
Shares from conversion of Convertible Notes1 12,500,000 12,500,000
Shares from exercise of Options 12,500,000 12,500,000
Fully diluted shares held by PPK after the Rights Issue and the Issue of Convertible Notes and Options
36,340,104 48,754,232
PPK interest – undiluted 14-16% 29-34%
PPK interest – diluted 22-24% 30-33%
Notes:
1. Assuming all 2,500,000 Convertible Notes that PPK subscribes for are converted into Shares at $0.20 per share and all Options are exercised.
PPK and its related entities will also hold Convertible Notes and Options following completion of the capital raising. The above table also illustrates PPK's interest in Frigrite on an undiluted and diluted basis assuming the Convertible Notes are not redeemed and Frigrite's weighted average share price was at least $0.20 at the time the Convertible Notes convert. For example, if Frigrite's weighted average share price is $0.11 before conversion of the Convertible Notes, PPK would receive an additional 2,500,000 Shares upon conversion of the Convertible Notes (assuming the Convertible Notes are not otherwise redeemed).
Under the Corporations Act, PPK is not able to convert the Convertible Notes or exercise the Options and receive Shares if to do so would result in its voting power increasing:
from 20% or below to more than 20%; or
from a starting point that is above 20% and below 90%.
There are certain exceptions to this prohibition, including if shareholders approve the increase in voting power at a general meeting. The Directors do not currently intend to hold a meeting to approve any increase in PPK’s voting power for the purposes of the Corporations Act, nor has PPK indicated to the Board that it wishes a meeting to be held for this purpose.
Mr David Hoff, Chairman of Frigrite, is the Managing Director of PPK Group Limited. PPK has advised Frigrite that it does not presently intend to change its existing relationship with Frigrite as an investor, including in respect of its Chairman of the Frigrite board (other than the number of Shares, Convertible Notes and Options it holds as a result of the Underwriting Agreement and the Placement Agreement).
5.4. Director Interests
Mr Hugh Greig, a non-executive Director of Frigrite, has agreed with PPK to participate in the Rights Issue and will take up his full entitlement2. Prior to the Rights Issue Mr Greig had 2.4 million shares or 4.7% of issued shares
outstanding. Following the Rights Issue, and before any Convertible Notes or Options are exercised, Mr Greig will hold approximately 3.9 million shares or 4.7%
of the total shares on issue, assuming the Rights Issue is fully subscribed. PPK's underwriting commitment of $2 million is inclusive of PPK's entitlement under the Rights Issue but not Mr Greig’s entitlement.
Mr Ian Veal and Mr Linsey Siede own 92,484 and 54,200 shares in Frigrite respectively. Both Mr Veal and Mr Siede intend on taking up their full entitlement under the Rights Issue. PPK's underwriting commitment of $2 million is inclusive of Mr Veal’s and Mr Siede’s entitlement.
2If Mr Hugh Greig is not a Director of the Company at the Closing Date he and his associates are not to be obliged to take up any of their entitlements under the Rights Issue.
6. RISK FACTORS