Frigrite Limited
OFFER DOCUMENT
Renounceable Rights Issue
A 3 for 5 renounceable rights issue by Frigrite Limited ACN 112 452 436 of up to 30,800,059 New Shares at $0.12 per New Share to raise approximately
$3.7 million before costs associated with the issue
The last date for acceptance and payment is 5.00pm (Melbourne time) on 19 August 2009
THIS DOCUMENT IS NOT A PROSPECTUS. THIS DOCUMENT DOES NOT CONTAIN ALL OF THE INFORMATION THAT AN INVESTOR MAY REQUIRE
IN ORDER TO MAKE AN INFORMED DECISION REGARDING THE NEW SHARES OFFERED BY THIS DOCUMENT. THIS DOCUMENT IS IMPORTANT
AND SHOULD BE READ IN ITS ENTIRETY. IF YOU HAVE ANY QUERIES, PLEASE CONSULT YOUR STOCKBROKER OR OTHER PROFESSIONAL
ADVISER WITHOUT DELAY.
IMPORTANT NOTICE
The offer made pursuant to this Offer Document is for a rights issue of continuously quoted securities (as defined in the Corporations Act) of Frigrite Limited (Frigrite). This Offer Document was lodged with ASX on 13 July 2009. ASX takes no responsibility for the content of this Offer Document.
PPK Group Limited and its related bodies corporate have not been involved in the preparation of this document and take no responsibility for its content.
This Offer Document is not a disclosure statement for the purposes of Chapter 6D of the Corporations Act. Frigrite is offering the securities under this Offer Document pursuant to section 708AA of the Corporations Act, without disclosure to investors under Chapter 6D of the Corporations Act. Accordingly, the level of disclosure contained in this Offer Document is significantly less than that required under a prospectus.
Information about the Company is publicly available and can be obtained from ASIC and ASX (including, its website www.asx.com.au). The contents of any website or ASIC or ASX filing by Frigrite are not incorporated into this Offer Document and do not constitute part of the offer. This Offer Document is intended to be read in conjunction with the publicly available information in relation to Frigrite which has been notified to ASX.
Eligible Shareholders should consider all relevant facts and circumstances, including their knowledge of Frigrite and disclosures made to the ASX and should consult their professional advisers before deciding whether to accept the offer under this Rights Issue.
New shares will only be issued on the basis of this Offer Document in accordance with the terms set forth in this Offer Document.
Important document
It is important that you carefully read this Offer Document in its entirety before deciding to invest in Frigrite, with regard to your professional circumstances (including financial and taxation issues) and you should seek professional advice from your accountant, stockbroker, lawyer or other professional adviser before deciding whether to invest.
Rights may be valuable
Your Rights to New Shares may be valuable. Your Rights are renounceable, which means that if you do not wish to acquire more Shares, you may sell your Rights on the ASX or otherwise deal with them as described in Section 2 of this Offer Document. It is important that you accept all or part of your Entitlement or deal with your Entitlement as described in Section 2. Shareholders who take no action in respect of their New Shares may receive no benefit and their Rights will lapse.
Disclaimer
No person is authorised to give any information or to make any representation in connections with the Rights Issue that is not contained in this Offer Document. Any information or representation not contained in this Offer Document may not be relied on as having been authorised by Frigrite in connections with the Rights Issue. Neither
Frigrite nor any other person warrants the future performance of Frigrite or any return on any investment made under this Offer Document, except as required by law and then, only to the extent so required.
Restrictions on the distribution of this Offer Document
This Offer Document does not, and is not intended to, constitute an offer of New Shares in any place in which, or to any person to whom, it would not be lawful to do so. The distribution of this Offer Document in jurisdictions outside Australia and New Zealand may be restricted by law and any person into whose possession this Offer Document comes (including nominees, trustees or custodians) should seek advice on, and observe, those restrictions. The New Shares have not been, and will not be, registered under the US Securities Act 1993 (as amended) and may not be offered in the United States or to, or for the account of or benefit of, United States persons.
Accordingly this Rights Issue is not being extended to, and no New Shares will be issued to, Shareholders having registered addresses outside Australia and New Zealand. This Offer Document is not being sent to those Shareholders. However, the Directors will offer the Rights that would otherwise have been offered to each of those Shareholders to the Nominee who may sell those Rights for the benefit of those Shareholders.
Defined terms and abbreviations
Terms and abbreviations used in this Offer Document are defined in the Glossary (see Section 9).
Application for New Shares
If you wish to apply for New Shares, you must complete and return the personalised Entitlement & Acceptance Form which accompanies this Offer Document. If you have not received a personalised Entitlement & Acceptance Form, please contact Frigrite on (03) 9586 3274.
Entire Agreement
The terms contained in this Offer Document constitute the entire agreement between Frigrite and you as to the Rights Issue and your participation in it to the exclusion of all prior representations, understandings and agreements between Frigrite and you.
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SUMMARY OF THE OFFER
Key Offer Statistics Details
New Share Issue Price $0.12
Rights Issue Ratio 3:5
Maximum number of New Shares to be issued under the Rights Issue 30,800,059 Maximum amount to be raised under the Rights Issue $3,696,007
Right Issue amount underwritten $2,000,000
Key Dates Date 2009
Lodgement of Appendix 3B, Cleansing Notice and Offer Document with ASX
13 July
Notice of Meeting mailed to Shareholders 16 July
Existing shares quoted ex-rights 17 July
Rights Issue trading starts 17 July
Record date 23 July
Offer Document and Entitlement and Acceptance Forms mailing date 28 July
Rights Issue trading closes 12 August
Shareholder meeting to approve the issue of the Convertible Notes and Options
17 August
Allotment of New Shares 26 August
Issue of Convertible Notes and Options 26 August
Holding statements for New Shares despatched 28 August
New shares begin trading on ASX 31 August
These dates are indicative only and Frigrite reserves the right (subject to the Corporations Act and the Listing Rules) to vary the dates and times outlined above without notifying you.
CONTENTS
1. DETAILS OF THE RIGHTS ISSUE...8
2. ACTION REQUIRED BY ELIGIBLE SHAREHOLDERS...12
3. RECAPITALISATION PROPOSAL, OUTLOOK AND USE OF PROCEEDS...15
4. DETAILS OF CONVERTIBLE NOTES AND OPTIONS...17
5. EFFECT OF THE RIGHTS ISSUE AND CONVERTIBLE NOTES WITH ATTACHING OPTIONS...20
6. RISK FACTORS...24
7. OVERSEAS SHAREHOLDERS...29
8. ADDITIONAL INFORMATION...31
9. GLOSSARY OF TERMS...38
10. CORPORATE DIRECTORY...41
Message from the Chairman Dear Shareholder,
First, I would like to take this opportunity to thank you for your continued support, particularly over the last few months. Since the withdrawal of Frigrite’s original Rights Issue and Convertible Note placement on 26 May 2009, Frigrite has had the opportunity to assess a number of developments regarding its business and on behalf of the Directors of Frigrite I am pleased to invite you to take up your entitlement to subscribe for new fully paid ordinary shares (New Shares) in Frigrite.
Frigrite is offering a renounceable rights issue of 3 ordinary New Shares at $0.12 per share for every 5 ordinary Shares held, to raise approximately $3.7 million before costs associated with the issue (Offer). The Rights Issue will be underwritten by PPK Investment Holdings Pty Limited (PPK), a subsidiary of PPK Group Limited to the value of $2 million. PPK Group Limited is a major shareholder of Frigrite, holding approximately 14% of Frigrite's ordinary shares. Aequs Securities Pty Ltd (Aequs) has been appointed as lead distributor and arranger. The purpose of the capital raising is set out in this document.
In conjunction with the Rights Issue, Frigrite will issue Convertible Notes with five attaching Options to PPK and selected professional and sophisticated investors. The issue of the
Convertible Notes and Options is subject to shareholder approval and a notice of meeting related to the meeting will be sent to shareholders shortly. The issue of Convertible Notes is intended to raise $8 million (before costs associated with the issue).
PPK's underwriting obligations for the Rights Issue is conditional on gross proceeds of $10 million being raised under the Rights Issue and through the issue of the Convertible Notes. PPK has also agreed to subscribe for $2.5 million in Convertible Notes and Options.
As previously announced, Frigrite has entered into a new debt facility with Australia and New Zealand Banking Group Limited (ANZ), comprising $12.5 million of facilities.
Frigrite’s operating performance during the year has been stable. Frigrite’s earnings before interest, tax, depreciation and amortisation (EBITDA) (before non-recurring items) for the full year ending 30 June 2009 is expected to be $4.0 – $4.4 million. This is in line with prior guidance.
Frigrite’s monthly EBITDA (before non-recurring items) for the last six months has been positive and the Frigrite Directors believe Frigrite will continue to improve EBITDA in the financial year ending 30 June 2010.
As announced on 2 July 2009, Frigrite has had the opportunity to assess the impact of the co- operative agreement between Coles and City Refrigeration Holdings (UK) Ltd (City
Refrigeration) on its business. Frigrite expects to incur, in the year ended 30 June 2009, non- recurring, unaudited redundancy costs associated with the Coles arrangement in the range $0.7 -
$0.9 million. This amount does not include other non-recurring costs not associated with the Coles arrangement, which have not yet been finalised by Frigrite. Although the Coles arrangement will result in a loss of revenue to Frigrite, Frigrite has undertaken other developments to improve its position. These include:
significant improvements in its working capital position in the period to 30 June 2009;
the appointment of a new Managing Director and Chief Financial Officer; and
a restructuring initiative for the business (described further in Section 3.2 of this Offer Document).
These developments, when combined with this Offer, are expected to result in the strengthening of Frigrite’s balance sheet and provide Frigrite with enhanced financial flexibility to grow its business.
The Rights Issue is open from 28 July 2009 and is due to close 5.00pm (Melbourne time) on 19 August 2009. Pursuant to the Corporations Act, Frigrite is not required to prepare a prospectus for the Rights Issue. A summary of the key information with respect to the Rights Issue is set out in this Offer Document. Please read this document carefully before deciding whether or not to invest. If there is any matter on which you require information, you should consult your stockbroker or other professional advisor.
The Directors recommend the Rights Issue to you. Mr Hugh Greig, Mr Ian Veal and Mr Linsey Siede intend on taking up their full entitlement.
Yours sincerely
David Hoff1 Chairman Frigrite Limited
1 Mr David Hoff, Chairman of Frigrite, is the Managing Director of PPK Group Limited, a related body corporate of PPK.
1. DETAILS OF THE RIGHTS ISSUE 1.1. The Rights Issue
Frigrite is offering a renounceable rights issue to Eligible Shareholders on the basis of 3 New Shares for every 5 ordinary Shares held on the Record Date at an issue price of $0.12 per New Share.
Frigrite, through the Rights Issue, is seeking to raise gross proceeds of approximately $3.7 million (before costs associated with the issue), of which
$2 million is underwritten by PPK, a subsidiary of PPK Group Limited, Frigrite’s major shareholder. The underwritten amount is inclusive of any entitlements PPK takes up under the Rights Issue. The fees payable to PPK in connection with the underwriting and the issue of the Convertible Notes and Options are set out in Section 8.1.
Aequs has been appointed as lead distributor and arranger in relation to the Rights Issue (see further Section 1.8). The fees payable to Aequs in connection with the Rights Issue are set out in Section 8.4.
1.2. Purpose of the Rights Issue and Convertible Notes and Options
Frigrite is seeking to raise gross proceeds of up to $11.7 million (before costs associated with each issue) through the Rights Issue as well as through the issue of Convertible Notes with five attaching Options in Frigrite. The Convertible Notes and attaching Options will be offered to PPK and professional and sophisticated investors to an aggregate value of $8 million. Each Convertible Note (with
attaching Options) will be issued at an issue price of $1.00. The exercise price of each Option will be $0.20.
PPK has agreed to subscribe for $2.5 million in Convertible Notes and Options.
The money raised by the Rights Issue and the issue of Convertible Notes and Options (after costs associated with each issue) will be used to reduce senior debt facility and fund Frigrite’s working capital requirements.
Shareholder approval is required for the issue of the Convertible Notes and Options and a notice of meeting will be sent to Shareholders shortly.
1.3. Your Entitlement to participate in the Rights Issue and the Record Date The Record Date for the purpose of the Rights Issue is 7.00pm (Melbourne time) on 23 July 2009. Eligible Shareholders will be entitled to participate in the Rights Issue.
Your Entitlement to New Shares is shown in the accompanying Entitlement &
Acceptance Form.
1.4. Shortfall
Any shortfall in the Rights Issue beyond the underwritten amount of $2 million will be managed by Aequs, who on a best endeavours basis, will undertake to procure subscriptions for a number of New Shares equivalent to the Shortfall from
professional and sophisticated investors at the Offer Price.
1.5. Closing Date
Frigrite will accept applications from the Opening Date until 5.00pm (Melbourne time) on 19 August 2009. This date may be subject to change subject to, among other things, the requirements of the ASX Listing Rules.
1.6. Rights Trading
As the rights are renounceable, Eligible Shareholders who do not wish to subscribe for some or all of their Rights have an opportunity to sell or transfer those Rights. Eligible Shareholders are able to renounce (sell) the Rights which they do not wish to accept in order to realise the value which may attach to their Rights.
Trading of rights will commence on ASX on 17 July 2009 and will cease on close of trading on 12 August 2009. Rights to which you are entitled may be sold on ASX between these dates should you choose not to accept your full Entitlement.
1.7. Acceptance of the Offer
Entitlements to New Shares can be accepted in full or in part by completing and returning the Entitlement & Acceptance Form (which accompanies this Offer Document sent to Eligible Shareholders) in accordance with the instructions set out in the Entitlement & Acceptance Form, and forwarding the completed Entitlement & Acceptance Form together with your payment for the full amount payable so as to reach Frigrite no later than 5.00pm (Melbourne time) on the Closing Date.
If the Entitlement & Acceptance Form is not completed correctly Frigrite can, in its discretion, reject it or treat it as valid. Frigrite’s decisions as to whether to reject the Entitlement & Acceptance Form or treat it as valid, and how to construe, amend or complete it are final.
Eligible Shareholders may also apply for New Shares in excess of their
Entitlement. However, there is no guarantee that applications for an amount in excess of an Entitlement will be met. The extent to which excess applications can be satisfied depends on demand for New Shares from other Eligible Shareholders.
If you decide not to accept all or part of your Entitlement or fail to do so by the Closing Date, your rights to participate in the offer will lapse and the New Shares not taken up by you will form part of the Shortfall. In this instance, you will receive no value for your Entitlement.
As a result of this Rights Issue, Shareholders who do not take up all of their Entitlement will have their percentage shareholding in Frigrite diluted.
In determining Entitlements, any fractional entitlements have been rounded up to the nearest whole number of Shares.
It is the responsibility of Applicants to determine their allocation prior to trading in the New Shares. The sale by Applicants of New Shares prior to the receipt of a holding statement is at the Applicant's own risk.
1.8. New Shares not taken up
If the Rights Issue (including the PPK underwriting) does not result in all New Shares offered under the Rights Offer being taken up, Frigrite reserves the right to make an issue at the Offer Price of up to the number of New Shares that were offered for subscription under the Rights Issue (but not taken up). Frigrite has appointed Aequs to conduct any such offer.
1.9. Rights attached to New Shares
New Shares issued under this Rights Issue will be Shares in Frigrite and will rank equally with Frigrite's existing issued Shares from the date of allotment.
Full details of the rights attaching to Shares are set out in Frigrite’s constitution, a copy of which may be inspected at Frigrite’s registered office.
1.10. Issue of the New Shares
Frigrite expects the New Shares to be issued on 26 August 2009. Transaction Confirmation Statements in relation to those New Shares are expected to be despatched by 28 August 2009.
1.11. ASX Quotation
Frigrite has applied for the New Shares to be granted quotation on the official list of ASX within seven days of the date of this Offer Document. If official quotation is not obtained within three months of the date of this Offer Document, all Application Monies will be refunded without interest and the Rights Issue will not proceed.
The fact that ASX may grant official quotation of the New Shares is not to be taken in any way as an indication of the merits of the Rights Issue or the New Shares under this Offer Document.
Subject to approval being granted by ASX, it is expected that the quotation and trading of New Shares issued under the Rights Issue will commence on ASX on 31 August 2009, the day following despatch of holding statements in relation to the New Shares.
Eligible Shareholders who sell New Shares before they receive their Transaction Confirmation Statement will do so at their own risk. Frigrite and PPK disclaim all liability in tort (including negligence), statute or otherwise to persons who trade New Shares before receiving their Transaction Confirmation Statement.
1.12. Risk factors
In addition to the general risks applicable to all investments in listed companies, there are specific risks associated with an investment in Frigrite. A summary of these risks are set out in Section 6.
1.13. Taxation implications
Eligible Shareholders should consult their own professional tax advisers in connection with subscribing for New Shares under this Offer Document.
2. ACTION REQUIRED BY ELIGIBLE SHAREHOLDERS
2.1. Taking up all of your Entitlement or applying for more than your Entitlement Complete the Entitlement & Acceptance Form as instructed on the Form. Send your completed form together with your payment, to reach the Share Registry no later than 5.00pm (Melbourne time) on 19 August 2009.
If you apply for more than your Entitlement, you are not guaranteed to be issued the New Shares in excess of your Entitlement. The number, if any, of New Shares you will be issued will depend on demand for New Shares from other eligible shareholders. If you subscribe for New Shares in excess of your Entitlement and you are not allocated some or all the New Shares in excess of your Entitlement, you will receive a refund for the relevant amount of the Application Monies (without interest) not applied towards the issue of New Shares, as soon as practicable after the Closing Date.
2.2. Selling all of your rights
Complete the relevant section on the back of the Entitlement & Acceptance Form and lodge the form with your stockbroker. If you are a CHESS holder, you may contact your stockbroker and ask them to sell your Rights by advising your entitlement number.
Rights trading on ASX commences on 17 July 2009. You must deal with your Rights by the close of trade on ASX on 12 August 2009 when Rights trading ceases. If you wish to sell your Rights on ASX, do not return your Entitlement &
Acceptance Form to the Share Registry.
2.3. Taking up part of your Entitlement and selling the balance of your Rights Complete the Entitlement & Acceptance Form for those rights that you wish to accept. Also complete the relevant section on the back of the Entitlement &
Acceptance Form for the balance that you wish to sell on ASX. The completed form should be sent to your stockbroker together with your payment for the New Shares you intend to take up.
If you are a CHESS holder, you may contact your stockbroker and ask them to sell the proportion of your Rights you do not want to take up by advising them of your entitlement number and follow their instructions in relation to your payment for the proportion of New Shares you intend to take up.
You must deal with your Rights by the close of trade on ASX on 12 August 2009.
2.4. Transferring your Entitlement to another person other than on ASX
You can only transfer your Entitlement to an Australian or New Zealand resident.
The buyer of your Entitlement needs to complete a standard renunciation form (obtainable from your Stockbroker or from the Share Registry). The renunciation must be signed by both the buyer and seller. The buyer must send or deliver the
completed Entitlement & Acceptance Form, the renunciation form and their
payment for the number of Rights being transferred and the New Shares taken up to the Share Registry no later than 5.00pm (Melbourne time) on 19 August 2009.
2.5. Entitlement not taken up
If you decide not to take up all or part of your Entitlement, you are advised to sell the Rights which you have decided not to accept rather than allow them to lapse.
See Section 2.2, 2.3, 2.4 or 2.6, as appropriate.
2.6. Taking up part of your Entitlement and allowing the balance to lapse
If you wish to take up part of your Entitlement under the Rights Issue and allow the balance to lapse, please complete the Entitlement & Acceptance Form for the number of New Shares you wish to take up in accordance with the instructions set out in the Entitlement & Acceptance Form and arrange for payment of the
applicable amount of Application Money in accordance with Section 2.7.
2.7. Payment
Payment must be by BPAY®, cheque, money order or bank draft.
Payment by BPAY®
Those who elect to pay by BPAY® must follow the instructions for BPAY®
described in the Entitlement & Acceptance Form (which includes the biller code and your unique customer reference number). Please note that should you choose to pay by BPAY® payment:
a)
you do not need to submit the personalised Entitlement & Acceptance Form but are taken to make the statements on that form;b)
if you do not pay for your full Entitlement, you are deemed to have taken up your Entitlement in respect of such whole number of New Shares which is covered in full by your Application Money; andc)
if you pay more than your Entitlement you are deemed to have taken up your Entitlement and the balance will be applied to the purchase of additional New Shares.Applicants should be aware that their own financial institution may implement earlier cut off times with respect to electronic payment, and should therefore take this into consideration when making payment. It is the responsibility of the Applicant to ensure that funds submitted though BPAY® must be received by no later than 5.00pm (Melbourne time) on 19 August 2009.
Payment by cheque, money order or bank draft
Those who elect to pay by cheque, money order or bank draft must follow the instructions described in the Entitlement & Acceptance Form. You must ensure that:
a)
your Entitlement & Acceptance Form is complete;b)
your cheque, money orders or bank drafts for the applicable amount of Application Money must be made in Australian currency, drawn on an Australian branch of a financial institution, be made payable to “Frigrite Limited – Rights Issue” and crossed “Not Negotiable”. Do not forward cash.Receipts for payments will not be issued;
c)
your completed Entitlement & Acceptance Form and cheque, money order or bank draft are received by the Company’s Share Registry by no later than 5.00pm on 19 August 2009 at:Link Market Services Limited Locked Bag A14
Sydney South NSW 1235 2.8. Application Moneys Held On Trust
Application Monies for the New Shares will be held in a trust account until allotment of the New Shares. Any interest earned on application money will be retained by Frigrite. If the Rights Issue does not proceed, all Application Monies will be returned in full as soon as possible, without interest.
2.9. Overseas Shareholders
Shareholders with registered addresses outside Australia and New Zealand should read Section 7.
3. RECAPITALISATION PROPOSAL, OUTLOOK AND USE OF PROCEEDS 3.1. Recapitalisation Proposal
Frigrite is seeking to recapitalise the business by:
offering Eligible Shareholders a 3 for 5 renounceable Rights Issue at $0.12 which will raise approximately $3.7 million (before costs associated with the issue). The Rights Issue will be underwritten by PPK to the value of $2 million, which is inclusive of any entitlement PPK takes up under the Rights Issue;
issuing Convertible Notes with five attaching Options in Frigrite to PPK and its professional and sophisticated investors to an aggregate value of $8 million;
and
the repayment of $8 million in facilities to ANZ so as to reduce the ANZ facilities to the agreed $12.5 million. The repayment is required following the issue of Convertible Notes and Options (refer to Section 8.3 for further details).
3.2. Business Update and Outlook
Frigrite announced on 26 May 2009 that Coles and City Refrigeration had entered into a co-operative agreement for the servicing of refrigeration equipment for Coles stores. Since this time Frigrite has had the opportunity to assess the impact of Coles’ announcement on its business.
Frigrite expects to incur, in the year ended 30 June 2009, non-recurring,
unaudited redundancy costs associated with the Coles arrangement in the range
$0.7 - $0.9 million. This amount does not include other non-recurring costs not associated with the Coles arrangement, which have not yet been finalised by Frigrite. While the Coles arrangement is expected to impact Frigrite’s annual revenue by approximately $30 million, Frigrite has undertaken other developments to improve its position. These include:
significant improvements in its working capital position in the period to 30 June 2009;
the appointment of a new Managing Director and Chief Financial Officer; and
a restructuring initiative for the business (described further below).
These developments, when combined with this Offer, are expected to result in the strengthening of Frigrite’s balance sheet and provide Frigrite with enhanced financial flexibility to grow its business.
Frigrite’s restructuring plan is centred on the provision of regional support hubs to complement the business models of Frigrite’s major customers. The four regional hubs (Northern, Central, Southern and Western) will allow for a focused
distribution network with greater accountability. The manufacturing division will remain separate from the regional hubs and will also undergo restructuring.
Frigrite has employed a new Manufacturing Manager and a Production Scheduler
and Planner has also been appointed. The restructuring of the manufacturing business will include the metrification of all products and standardised product offering which is expected to result in, among other things, a reduction in inventory levels and errors.
Following the appointment of the new Managing Director, Ken Charteris, Frigrite has made significant improvements in its working capital position. In addition, Frigrite has employed a new Chief Financial Officer and Company Secretary, Linda Dillon, who will assist in the improvement of Frigrite’s internal practices.
Sales for the year ended 30 June 2009 are expected to be in the range $170 –
$180 million and EBITDA (before non-recurring items) in the range $4.0 –
$4.4 million, which is in line with prior guidance. Frigrite’s monthly EBITDA (before non-recurring items) for the last six months has been positive and the Frigrite Directors believe Frigrite will continue to improve EBITDA in the financial year ending 30 June 2010. The financial result for the year ended 30 June 2009 represents a significant increase to Frigrite’s earnings performance in the year ended 30 June 2008.
Frigrite continues to work closely with all its customers to ensure its products and services maintain their high standards. The combination of this Offer, the
Convertible Note placement, new management and restructuring initiatives, will place Frigrite in a strong position to grow the business.
3.3. Use of Proceeds
The proceeds of the Rights Issue and the issue of Convertible Notes and Options (after costs associated with each issue) will be used to reduce Frigrite’s existing senior debt facility (details of which are provided in Section 8.3) and fund ongoing working capital requirements.
4. DETAILS OF CONVERTIBLE NOTES AND OPTIONS
In conjunction with the Rights Issue, Frigrite proposes to issue Convertible Notes with five attaching Options to PPK, and other professional and sophisticated investors. The issue of these securities is subject to shareholder approval. PPK's underwriting of the Rights Issue is conditional on Convertible Notes and Options being issued to PPK, and other professional and sophisticated investors, and a new debt facility being accepted by Frigrite. Gross proceeds of $11.7 million (before costs associated with the issue) could be raised through the Rights Issue and the issue of Convertible Notes and Options. The issue of Convertible Notes and Options will raise gross proceeds of $8 million.
The Convertible Notes and Options will be issued under the following terms:
Issue Price: $1.00 per Convertible Note
Coupon: 12.5% per annum
Interest payment dates: Each 31 March, 30 June, 30 September and 31 December, and on redemption.
Record Date for interest payments:
Five business days before each interest payment date
Conversion: The notes are convertible at any time after
18 months from their date of issue and before the redemption date, at the election of the noteholder.
Frigrite can waive (and thereby shorten) the
18 month period (thereby allowing conversion from an earlier date).
Conversion rate: The notes are convertible at the rate of five ordinary Frigrite shares for every Convertible Note (implying an issue price of $0.20 per share).
However, if the five day weighted average Frigrite share price prior to conversion is less than $0.20, the conversion rate will increase to reflect an issue price equal to a 10% discount to the weighted average share price on the day of conversion.
Redemption date: Three years from the date of issue.
Expiry: Upon expiry any unconverted Convertible Note will be redeemed by Frigrite at face value.
Early redemption: During the first 18 months Frigrite may redeem the notes at $1.10 per Convertible Note.
During the second 18 months Frigrite can still redeem the notes at $1.10 per Convertible Note, but if Frigrite seeks to redeem during this period a noteholder can in response elect to convert its Convertible Notes to shares, rather than receive cash. The notes convert at $1.00 per Convertible note and the conversion rate set out above applies.
Security: A second ranking charge over Frigrite and each of its subsidiaries which either trades or holds assets.
A second ranking mortgage over the Grange Road, Cheltenham business premises.
ANZ is entitled to 90 days prior notice before the Noteholders can commence any enforcement action against Frigrite under these securities.
ANZ priority and other terms:
ANZ (as first ranking charge) must enter into a Priority Deed with the Trustee on behalf of the noteholders pursuant to which ANZ and the Trustee agree an order of priority in respect of the amounts owing to each party.
ANZ has the right to require that payments of principal and/or interest to noteholders be deferred at any time Frigrite is in breach of its principal and/or interest payment obligations with the ANZ.
The deferral can continue for as long as Frigrite remains in breach with ANZ.
Options: Each Convertible Note will be issued with five attaching Options.
Each Option is to subscribe for one ordinary Frigrite share upon payment of the Option exercise price of
$0.20. The Options expire on the third anniversary of their date of issue.
Trustee: Beath Investment Services Pty Ltd will be appointed as trustee to act on behalf of and represent the noteholders.
Amount of Placement: The size of the issue of Convertible Notes will be capped at $8 million.
Condition Precedent: The issue of Convertible Notes is subject to Frigrite Shareholder approval as well as other conditions described in Section 8.2.
PPK Commitment: PPK has agreed to subscribe for the Convertible Notes to the value of $2.5 million, and to secure subscriptions by other professional and
sophisticated investors for an aggregate value of
$8 million.
Participation: Convertible Notes are only being offered to
professional and sophisticated investors and other like entities, who are entitled to receive offers of Convertible Notes without a disclosure document being provided to them.
5. EFFECT OF THE RIGHTS ISSUE AND CONVERTIBLE NOTES WITH ATTACHING OPTIONS
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 6.1. General
The future operating and financial performance of Frigrite and the future
investment performance of Frigrite’s Shares may be influenced by a broad range of factors, both specific to Frigrite and of a general nature.
This section describes a range of risks associated with an investment in Frigrite.
Each of the risks set out below, either individually or in combination could, if they eventuate, have a material adverse impact on Frigrite’s business, financial condition and/or results from operations. The market price of Shares could decline due to any of these risks and investors may lose all of part of their investment. Some of these risks can be mitigated by the use of safeguards and appropriate commercial action. However, many are outside the control of the Company and cannot be mitigated. Prior to making an investment decision, Eligible Shareholders should carefully consider the following risk factors, as well as the other information contained in this Offer Document. The following summary should not be regarded as exhaustive.
6.2. Financing and going concern
The Board expects that the proceeds to be raised from the Rights Issue and the issue of Convertible Notes (with attaching Options) will be sufficient to recapitalise Frigrite and to provide it with sufficient working capital to meet the ongoing needs of the business. However, if Frigrite experiences further deterioration in business conditions or its profitability, there is a risk that the ability of Frigrite to continue as a going concern may be impacted.
Frigrite has accepted new financing facilities with ANZ as described in this
document. These facilities impose obligations on Frigrite, including obligations to comply with certain debt and interest coverage rate covenants. To the extent that Frigrite's financial and operating performance is insufficient to meet the
requirements of these covenants, or to the extent that these covenants are varied by ANZ, there is a risk that Frigrite could be breach its obligations under the facilities with ANZ.
6.3. Share Market
Eligible Shareholders should be aware that there are risks associated with any investment in a company listed on a stock market. The Shares may trade on ASX at higher or lower prices than the Issue Price.
The price at which the Shares trade on ASX may be effected by the financial performance of Frigrite and by external factors over which the Directors and Frigrite have no control. These factors include movements in Australian and international stock markets and investor sentiment, domestic and international economic conditions and outlook, inflation rates, interest rates, employment, taxation, changes to government policy, legislation or regulation, and changes in accounting standards, trends in the supermarket and supermarket refrigeration industry and variations in the operating costs and costs of capital replacement
which Frigrite may require in the future. Frigrite’s share price can also be
impacted by the share price movements of other companies listed on ASX or other domestic or international stock markets. Accordingly, assuming that the New Shares are granted official quotation by ASX, they may trade on ASX at higher or lower prices than the Issue Price.
Each Eligible Shareholder should consider whether shares are a suitable investment for them before deciding to invest in New Shares. Any Eligible Shareholder in doubt about investing in New Shares should consult their stockbroker, accountant, lawyer or other professional adviser immediately.
6.4. Competition
The supermarket refrigeration industry within Australia is competitive and expected to remain so. Competitive pressures could result in price reductions, reduced margins or loss of market share, any of which could adversely effect Frigrite’s business. Frigrite competes on a range of factors, including quality of service, product innovation and features, brand, reputation and price.
Some of Frigrite’s competitors are global companies and have significantly larger financial and marketing resources. As a result, it is possible that Frigrite may be impacted by the actions of its competitors or changes to the market place caused by the actions of its competitors.
6.5. Contract risk
Frigrite has entered into contracts and has arrangements which are important to the future of its business. Any failure by any of Frigrite’s counterparties to perform those agreements may have a materially adverse effect on Frigrite and there can be no assurance that Frigrite would be successful in attempting to enforce any of its contractual rights through legal action.
While Frigrite has contracts with its significant customers, the contracts are generally on a non-exclusive basis and do not oblige the customers to purchase products from, or use services supplied by, Frigrite. Additionally, while some of the contracts set out estimated volumes of product to be purchased, there is no obligation for the customer to purchase any volume of product. Accordingly, any significant deterioration in the relationships between Frigrite and its major
customers, resulting in Frigrite not being selected to supply product or services, or the deterioration in the profitability of Frigrite’s major customers, would have a materially adverse effect on Frigrite.
6.6. Employee costs and relations
Employee costs represent a significant component of Frigrite’s total cost base.
Any deterioration in Frigrite’s relationship with its employees or employee unions, organised disruptive action by employees, increase in staffing rates or expenses, or legislative change in relation to employee costs may adversely impact Frigrite’s profitability and cash flow.
The majority of Frigrite's production employees are members of trade unions.
These employees are generally covered by enterprise agreements, which periodically come up for renegotiation. Disputes with trade unions in respect of renegotiations could lead to strikes or other forms of industrial action that could disrupt Frigrite's operations, raise costs and reduce Frigrite's revenues and profits.
6.7. Environmental and occupational health and safety laws and regulations Failure to comply with environmental laws and regulations or the existence of an offending condition on a person’s property, regardless of the cause, may result in orders being made or proceedings being brought to rectify the breach, or to cease operation pending rectification, or to cease operation altogether (if rectification is not possible), and for penalties and costs. There may also be requirements that third parties, which suffer loss or damage by reason of any breach, be
compensated or indemnified. Further, if a breach of environmental laws or regulations is established, then the person in breach may also be exposed to criminal prosecution and penalty.
The production processes used in conducting Frigrite’s business can be
dangerous. Frigrite believes that appropriate safeguards have been put in place by Frigrite, however, such production processes could still result in serious injury to employees or other persons and give rise to liability under occupational health and safety laws and regulations and also under the general law.
6.8. Capital expenditure
The level of capital expenditure required by Frigrite to maintain its operations will impact on future performance. If the level of capital expenditure required is higher than currently expected, if capital expenditure must be undertaken earlier than anticipated, or if there is a significant operational failure requiring capital expenditure, the financial performance of Frigrite may be adversely effected.
6.9. Brands and reputation
Frigrite’s business relies to a large extent on relationships and a reputation for integrity to attract and retain clients. Maintaining the Frigrite brand is important to attracting and expanding its customer base, solidifying its business relationships and successfully implementing its business strategy. A tarnished brand could have a material impact on Frigrite’s operations.
6.10. Dependence on key personnel
Frigrite’s performance is dependent on the talents and efforts of key senior executives. Frigrite’s continued ability to compete effectively depends on the ability to retain and motivate existing employees as well as attracting new employees. The loss of key executives could cause material disruption to Frigrite’s activities in the short to medium term.
6.11. Liability arising from defective products
Whilst Frigrite has insurance for consequential loss and property damage caused by defective products, it does not maintain product warranty insurance. It is possible that product warranty claims against Frigrite could arise from defects in products supplied by Frigrite. Claims could be made including for product liability or damage or loss arising from defective products.
6.12. Disruption of business operations/acquisitions
Frigrite is exposed to a range of operational risks relating to both current and future operations. Such risks include equipment failures, IT system failures, external services failure, industrial action or disputes and natural disasters. While Frigrite endeavours to take appropriate action to mitigate these operational risks or to insure against them, one or more of these risks may have a material adverse impact on the performance of Frigrite.
6.13. Fluctuations in raw material prices
Frigrite purchases steel coil, copper and aluminium for use in its manufacturing processes and is exposed to fluctuations in the price of these raw materials.
Prices are influenced by a range of factors, including global production levels and world economic growth. Frigrite seeks to enter into fixed price arrangements to purchase these commodities. However, to the extent that Frigrite is unable to fix prices, or is unable to pass on material cost increases to its customers as higher prices, any material cost increases could adversely impact the financial
performance of Frigrite.
6.14. Exchange rate fluctuations
Frigrite’s material costs are commodity based and typically priced against the Euro. Frigrite actively monitors currency fluctuations and where appropriate, mitigates the risk of significant purchases through currency hedging.
In addition, Frigrite’s ability to compete against imported products may be adversely effected by a sustained period of a high Australian dollar (in particular the Australian dollar against the Euro) as it would reduce Frigrite’s price
competitiveness. If Frigrite is unable to alter pricing due to movements in exchange rates, it may have a material impact on the financial performance of Frigrite.
6.15. Insurance
Frigrite has insurance, including “errors and omissions” and “directors' and
officers'” insurance, which it believes to be commensurate with industry standards and adequate, having regard to the business activities of Frigrite. However, there are risks that this will be insufficient to meet a very large claim or several large claims, that Frigrite is unable to secure insurance to satisfactorily cover all anticipated risks or that the cost of insurance will increase beyond anticipated levels.
Accordingly, Frigrite could be adversely impacted by increases in the cost of insurance premiums or an inability to access insurance coverage arising from circumstances that might or might not be related to the business of Frigrite.
6.16. Liquidity of shares
There can be no guarantee that there will continue to be an active market for Shares or that the price of Shares will increase. There may be relatively few buyers or sellers of Shares on ASX at any given time, particularly given the relatively small free float of Shares. This may effect the volatility of the market price of Shares. It may also effect the prevailing market price at which
Shareholders are able to sell their Shares. This may result in Shareholders receiving a market price for their Shares that is less or more than the price paid under the Rights Issue.
6.17. Investment risk
An investment in New Shares should be considered speculative. New Shares carry no guarantee with respect to the payment of any dividends, returns of capital or the market value of those New Shares.
6.18. Other risk factors
The above risks should not be taken as exhaustive of the risks faced by the Company. The risks above and other risks not specifically referred to may in the future materially adversely effect Frigrite’s business performance.
7. OVERSEAS SHAREHOLDERS 7.1. General
None of this Offer Document, the Rights nor the New Shares have been registered, and will not be registered, in any jurisdiction, including the United States under the US Securities Act. Neither this Offer Document nor the Entitlement & Acceptance Form constitutes an offer or invitation in any place in which, or to any person to whom, it would not be lawful to make such an offer or invitation.
The distribution of this Offer Document and the accompanying Entitlement &
Acceptance Form (including electronic copies) in jurisdictions outside Australia and New Zealand may be restricted by law and therefore persons who come into possession of this Offer Document and the accompanying form should seek advice on and observe those restrictions. Any failure to comply with those restrictions may constitute a violation of applicable securities laws, for which Frigrite will not be responsible. In particular, this Offer Document and the
accompanying Entitlement & Acceptance Form may not be sent to investors in the United States or to any person acting for the account or benefit of a person in the United States. The Directors reserve the right to treat as invalid any Entitlement &
Acceptance Form that appears to the Directors or Frigrite's agents to have been submitted in violation of any applicable securities laws.
Eligible Shareholders who are residents outside Australia or New Zealand should consult their professional advisers as to whether, in order to enable them to take up their Rights, any governmental or other consents are required or other
formalities need to be observed.
Eligible Shareholders holding Shares on behalf of persons who are resident outside Australia or New Zealand (including nominees, custodians and trustees) are responsible for ensuring that any dealing with their Rights and any New Shares issued do not breach the laws and regulations in the relevant overseas jurisdiction, and should seek independent professional advice and observe any applicable restrictions relating to the taking up of Rights or the distribution of this Offer Document or the Entitlement & Acceptance Form. The making of an application (whether by the return of a duly completed Entitlement & Acceptance Form or by the making of a payment or otherwise) will constitute a representation that there has been no breach of such laws or regulations. Shareholders who are nominees, custodians or trustees are therefore advised to seek independent advice as to how they should proceed.
7.2. Non-Eligible Shareholders
Frigrite will not make an Offer to Shareholders with a registered address outside Australia or New Zealand. Frigrite has decided that it is unreasonable to extend the Offer to Shareholders with registered addresses outside Australia and New Zealand having regard to:
the number of Shareholders outside Australia and New Zealand;
the number and value of the New Shares that would be offered to Shareholders outside Australia and New Zealand; and
the cost of complying with the legal requirements, and requirements of regulatory authorities in overseas jurisdictions.
7.3. Nominee for Non-Eligible Shareholders
In compliance with Listing Rule 7.7.1 and sections 708AA (including section 9A) and 615 of the Corporations Act, Frigrite has appointed an ASIC-approved nominee (Aequs) to arrange for the sale on ASX of the Rights which would have been granted to Non-Eligible Shareholders.
Any interest earned on the proceeds of the sale of these Rights will firstly be applied against expenses of such sale, including brokerage, and any balance will accrue to Frigrite.
The proceeds of sale (if any) will be paid in Australian dollars to the Non-Eligible Shareholders for whose benefit the Rights have been sold in proportion to their shareholdings (after deducting brokerage commission and other expenses). If any such net proceeds of sale are less than the reasonable costs that would be
incurred by Frigrite for distributing those proceeds, such proceeds may be retained by Frigrite.
Notwithstanding that the Nominee may sell Rights, Non-Eligible Shareholders may nevertheless receive no net proceeds if the costs of the sale are greater than the sale proceeds.
Neither Frigrite nor the Nominee will be liable for a failure to sell Rights or to sell Rights at a particular price.
If, in the reasonable opinion of the Nominee, there is no viable market for the Rights of Non-Eligible Shareholders, or a surplus over the expenses of sale cannot be obtained for the Rights that would have been offered to the Non-Eligible Shareholders, then the Entitlement will be allowed to lapse.
8. ADDITIONAL INFORMATION 8.1. Underwriting Agreement
Frigrite and PPK have entered into the Underwriting Agreement pursuant to which PPK has agreed to underwrite $2 million of the Rights Issue on the terms and conditions in that agreement. Subject to the terms and conditions of the
Underwriting Agreement, PPK is required to subscribe for New Shares in respect of which a valid application is not received up to the first $2 million. The
underwritten amount is inclusive of any entitlements PPK takes up under the Rights Issue.
Fees
The amount payable to PPK under the Underwriting Agreement is $660,000 (plus GST), which comprises:
(a) $600,000 payable out of the proceeds from the issue of the Convertible Notes and Options as a fee for arranging commitments in respect of the Convertible Notes and Options; and
(b) $60,000 payable out of the proceeds of the Rights Issue as an underwriting fee for the Rights Issue.
If the issue of the shares under the Rights Issue and the issue of Convertible Notes and Options does not occur in circumstances where the Underwriting Agreement and/or the Placement Agreement are terminated due to any of:
(a) the Company withdrawing the Rights Issue;
(b) any warranty or representation by the Company ceasing to be true; and (c) the Company breaching the Underwriting Agreement or the Placement
Agreement,
then the Company must still pay PPK the full amount of $660,000 as described above. No amount was paid by Frigrite in respect of the withdrawal of the Rights Issue and Convertible Note placement on 26 May 2009.
The Company has agreed to indemnify PPK in certain circumstances connected with the underwriting, other than to the extent that any loss, claim, damage, liability or expense is found in a final judgment by a court to have resulted in whole or in part from PPK's wilful misconduct, breach of contract, negligence or fraud.
Conditions precedent
Completion under the Underwriting Agreement of the issue of at least $2,000,000 of shares under the Rights Issue is subject to certain conditions (which can be waived by PPK), including:
(a) the Company obtaining the shareholder approval under Listing Rule 7.1 for the issue of the Convertible Notes and Options;
(b) the Company not being in material breach of its obligations under the Placement Agreement;
(c) applications are received to raise a minimum by the Company under the Rights Issue and the issue of Convertible Notes (with attaching Options) of
$10,000,000 (before costs associated with the issue); and
(d) the Company providing such evidence in writing as PPK reasonably requires which establishes that:
(i) all requirements and conditions imposed by ANZ for the provision by ANZ of the Ongoing ANZ Facilities have been met and fulfilled by the Company to ANZ's satisfaction; and
(ii) the Ongoing ANZ Facilities will be provided by ANZ's following Completion and there are no facts, matter or circumstances which have arisen which could result in the Ongoing ANZ Facilities being withdrawn by ANZ and the Company is not aware of any such facts, matters or circumstances which are likely to arise following
Completion,
and the ANZ consenting to the Company granting the charges and mortgage to the Trustee in accordance with the terms of the Note Deed and entering into a Priority Agreement with the Trustee on terms
reasonably acceptable to the Trustee and pursuant to which ANZ Bank has first ranking priority for the principal amount owing to ANZ plus interest and costs and the Trustee then having priority for all moneys owing to the Trustee and the holders of Notes under the Note Deed.
Termination
PPK can terminate the Underwriting Agreement if prior to Completion:
(a) the terms of the Shares or any other securities of the Company or the constitution of the Company are modified or repealed or the Company proposes any such modification or repeal;
(b) any:
(i) information in the Offer Documents which is untrue, incorrect or misleading in a material way; or
(ii) material omission from the Offer Documents,
which in the reasonable opinion of PPK has or is likely to have a Material Adverse Effect;
(c) the Company materially breaches this agreement and fails to remedy the breach to the reasonable satisfaction of PPK or any warranty or
representation by the Company under the Underwriting Agreement is or becomes materially untrue;
(d) a change occurs after the date of this document effecting or relating to:
(i) the Company or a subsidiary; or
(ii) the industry in which the Company or a Subsidiary operates;
which in the reasonable opinion of PPK has or is likely to either:
(iii) have a Material Adverse Effect; or
(iv) materially change, or result in a material change to, the operations of the Company;
(e) the Company materially contravenes:
(i) any law, regulation, authorisation, ruling, consent, judgment, order or decree of any Governmental Agency;
(ii) its constitution or another constituent document;
(iii) the Listing Rules; or
(iv) an Encumbrance or document which is binding on:
(A) the Company or a Subsidiary; or
(B) an asset of the Company or a Subsidiary;
which in the reasonable opinion of PPK Investment has or is likely to have a Material Adverse Effect;
(f) ASX Approval has not been given by the second Business Day after the Closing Date or ASX refuses or withdraws ASX Approval;
(g) an insolvency event occurs in relation to the Company or a subsidiary;
(h) a Prescribed Event occurs in relation to the Company or a subsidiary;
(i) at any time after the date of this document but before the Closing Date, the All Ordinaries Index is, for three consecutive Business Days, 10% or more below its level as at the close of trading immediately preceding the date of this document;
(j) an outbreak of new hostilities or a state of war, whether declared or not, arises after the date of this agreement, or an escalation of hostilities already in existence occurs, involving, or a terrorist act is threatened or
carried out after the date of this agreement in or against any diplomatic, military, commercial or political institution, establishment, body or
personnel of Australia, Japan, any member country of the European Union or the United States of America, which in the reasonable opinion of PPK has or is likely to have a Material Adverse Effect;
(k) any Australian government adopts or announces any change in law or policy which in the reasonable opinion of PPK has or is likely to have a Material Adverse Effect;
(l) except as disclosed to PPK before the date of this document, after the date of this document an officer or senior manager of the Company or a
subsidiary resigns or is removed from office, is charged with or convicted of a criminal offence or becomes a bankrupt, or steps are taken to achieve such an outcome;
(m) any event specified in the timetable for the Rights Issue in the Underwriting Agreement does not occur within 14 days after the date specified for that event;
(n) any meeting of the Company required by any Governmental Agency or law or the rules of the ASX to approve this agreement, the Rights Issue or anything related to the Rights Issue is not held or does not produce the required approval;
(o) any securities that have been issued by the Company which at the date of this document are quoted on the ASX:
(i) are suspended from quotation whether temporarily or otherwise; or (ii) are the subject of an ASX statement to the effect that the securities
will be suspended or cease to be quoted;
(p) the ASX makes a statement to any person that official quotation of the underwritten shares will not be granted;
(q) at any time after the date of this agreement, the indicator rate for bonds issued by the Commonwealth of Australia, which have a tenor of either three or ten years, rises 1.0% or more above the level of the indicator rate as at the close of business on the date immediately prior to the date of this agreement (as published in the Australian Financial Review on the date of this agreement);
(r) any of the making of the Rights Issue, the issue of the Offer Documents or the distribution of the Offer Documents constitutes misleading or deceptive conduct;
(s) any circumstance arises after the Offer Documents are issued that results in the Company doing any of the following: repaying, or offering to repay, any Application Monies the Company receives from Shareholders; or
