| Thu 18 Aug 2011, 15:11 | | AET - Alert Steel Holdings Limited - Granting of options to turnaround parties |
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AET
AET
AET - Alert Steel Holdings Limited - Granting of options to turnaround parties
and the executive managers and withdrawal of cautionary announcement
ALERT STEEL HOLDINGS LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 2003/005144/06)
JSE code: AET
ISIN: ZAE000092847
("Alert" or "the company")
GRANTING OF OPTIONS TO TURNAROUND PARTIES AND THE EXECUTIVE MANAGERS AND
WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
1 INTRODUCTION
Shareholders are referred to the cautionary announcements, of which the
last was dated earlier today, and are advised that the board of Alert has
identified Capital Africa Steel (Pty) Limited ("Capital Africa Steel") and
Mr J du Toit, the Chief Executive officer of Alert, ("the Turnaround
Manager")("collectively, the Turnaround Parties") as parties who will be
instrumental in the implementation of the turnaround strategy of Alert and
accordingly, in terms of the Turnaround Management Incentivisation
Agreement and the Turnaround Option Agreement, Alert has granted options to
each of the Turnaround Parties or their respective nominees, to require
Alert to allot and issue to the Turnaround Parties a certain number of
Alert shares, to be calculated on the basis recorded in such agreements,
depending on the financial performance (measured by EBITDA) of Alert during
the period of 3 years from 1 July 2011 to 30 June 2014 ("the Turnaround
Period") ("The Turnaround Option Grant").
In addition as an incentive to the Executive Managers to assist in
achieving a successful financial turnaround of the Group during the
Turnaround Period the Executive Managers have each been granted an option
to require the Company to allot and issue to each of them a certain number
of Alert shares, to be calculated as set out below. The maximum number of
Executive Options has been determined having regard to the remuneration and
anticipated responsibilities of each Executive Manager during the
Turnaround Period, but that the earnings targets for each Executive Manager
in order to become entitled to receive the maximum number of Alert shares
in terms of the Executive Options, is identical ("The Executive Option
Grant").
2 BACKGROUND AND RATIONALE
Shareholders are referred to the announcement released on SENS on 31 March
2011, wherein it was announced that the board intends to recapitalise the
Company, in order to return the Company to long-term stability and
sustainable profitability.
In order to return Alert to long-term stability and sustainable
profitability the Company is in the process of returning to its original
core business of selling and supplying steel and steel related products and
services, and to restructure the Company`s balance sheet as the Company is
presently operating under constrained financial circumstances.
The board of Alert identified parties which will be fundamental in this
turnaround and decided to incentivize these parties to the extent that the
company is profitable.
3 THE TURNAROUND OPTION GRANT
The maximum number of Alert shares that may be subscribed for by the
Turnaround Parties in terms of the Turnaround Options are as follows:
Turnaround Parties Number of Turnaround
Options granted
Capital Africa Steel 118 181 818
The Turnaround Manager 118 181 818
Total 363 636
3.1 THE TURNAROUND MANAGEMENT INCENTIVISATION AGREEMENT
As an incentive for the services to be performed by the Turnaround Manager
in overseeing the financial turnaround of the Group, Alert has granted an
option to the Turnaround Manager, exercisable at any time during the period
of 10 days after the cumulative EBITDA of Alert for the Turnaround Period
has been determined in writing by the auditors of Alert ("the Turnaround
Option Exercise Period"), to require the Company to allot and issue a
certain number of shares in Alert to the Turnaround Manger, to be
determined based on the financial performance (measured by EBITDA) of Alert
during the Turnaround Period. The maximum number of Turnaround Options
granted to the Turnaround Manager were determined by having regard to the
remuneration and anticipated responsibilities of the Turnaround Manager
during the Turnaround Period
As set out in the table above, the Turnaround Manager will, in terms of the
provisions of the Turnaround Management Incentivisation Agreement, be
entitled, at any time during the Turnaround Option Exercise Period, to
subscribe for a maximum of 118 181 818 Alert shares at 3,3 cents per Alert
share. The price of 3,3 cents per share represents a discount of 81,67% to
the 30 day volume weighted average price of Alert shares on 19 April 2011,
the date on which the Underwriting Agreement was signed, being 17 cents per
share. The directors are of the opinion that the 17 cents per share is not
a true reflection of the value of the company and therefore , the option
price was based on the net asset value of the Company as at 31 December
2010.
The exact number of shares which the Turnaround Manager will be entitled to
subscribe for in terms of the Turnaround Management Incentivisation
Agreement will be determined by applying the following formula:
- in the event that the cumulative EBITDA of the Group for the three
financial years ended 30 June 2014 is less than R55 million, the
Turnaround Manager will not be entitled to subscribe for any Alert
shares in terms of the Turnaround Option;
- in the event that the cumulative EBITDA of the Group for the three
financial years ended 30 June 2014 is R165 million or more, the
Turnaround Manager will be entitled to subscribe for the maximum
number, being 118 181 818, Alert shares in terms of the Turnaround
Option;
- in the event that the cumulative EBITDA of the Group for the three
financial years ended 30 June 2014 is more than R55 million but less
than R165 million, the Turnaround Manager will be entitled to
subscribe for a pro-rata number of shares, which will be calculated as
follows:
118 181 818 x (actual cumulative EBITDA for the three years ended 30 June 2014
less R55 million) / R110 million.
3.2 THE TURNAROUND OPTION AGREEMENT
Capital Africa Steel has added significant value to the Company in the
financial turnaround of the Company as follows:
Strategic issues
- Capital Africa Steel was instrumental in assisting the board with the
restructuring of the Company`s financial indebtedness to Nedbank; and
- Capital Africa Steel has given valuable input in relation to the new
strategy, branding and structures for the future of Alert.
Further facilitation of restructuring process and financial turnaround to
date
- Capital Africa Steel supplied an interim R10 million guarantee through
Alert Steel Northwest to assist in the supply of stock from suppliers;
and
- Capital Africa Steel`s subsidiaries are supplying products to Alert
without security.
In light of the above Alert and Capital Africa Steel have agreed that
Capital Africa Steel shall be granted an option to require the Company to
allot and issue to Capital Africa Steel a certain number of shares,
depending on the success of the financial turnaround of the Company during
the Turnaround Period.
The exact number of shares which Capital Africa Steel will be entitled to
subscribe for in terms of the Turnaround Option will be determine as set
out in paragraph 3 above, Capital Africa Steel will, in terms of the
provisions of the Turnaround Option Agreement, be entitled, at any time
during the Turnaround Option Exercise Period, to subscribe for a maximum of
118 181 818 Alert shares at 3,3 cents per Alert share. The price of 3,3
cents per share represents a discount of 81,67% to the 30 day volume
weighted average price of Alert shares on 19 April 2011, the date on which
the Underwriting Agreement was signed, being 17 cents per share.
Notwithstanding this, the option price was based on the net asset value of
the Company as at 31 December 2010.
4 THE EXECUTIVE OPTION GRANT
The maximum number of Alert shares that may be subscribed for by the
Executive Managers in terms of the Executive Options are as follows:
Executive managers Designation Number of Executive
Options granted
Wynand Schalekamp Deputy Chairman 39 393 939
Neil Cresswell Chief Financial Officer/ 26 590 909
Financial Director
Dawie de Beer Managing Executive Business 23 636 364
Development
Theresia Managing Director Branch 20 681 818
Engelbrecht Operations
Edwin Bohmer Chief Information Officer 14 772 727
Charlotte du Toit Managing Executive Corporate 8 863 636
and Hole Sale
Barend Barnard Marketing Executive 8 863 636
Total 157 575 756
The Executive Managers will collectively be entitled to subscribe, at any
time during the Turnaround Option Exercise Period, for a maximum of 157 575
756 Alert shares at 3,3 cents per share. The price of 3,3 cents per share
represents a discount of 81,67% to the 30 day volume weighted average price
of Alert shares on 19 April 2011, being 17 cents per share. Notwithstanding
this, the option price was based on the net asset value of the Company as
at 31 December 2010.
The exact number of Alert shares which the Executive Managers will be
entitled to subscribe for in terms of the Executive Options will be
determined by applying the following formula:
- in the event that the cumulative EBITDA of the Group for the three
financial years ended 30 June 2014 is less than R55 million, none of
the Executive Managers will be entitled to subscribe for any shares in
terms of the Executive Options;
- in the event that the cumulative EBITDA of the Group for the three
financial years ended 30 June 2014 is R165 million or more, each of
the Executive Managers will be entitled to subscribe for the maximum
number of Alert shares referred to alongside the name of such
Executive Manager in the table above ("the Maximum Executive Shares");
- in the event that the cumulative EBITDA of the Group for the three
financial years ended 30 June 2014 is more than R55 million but less
than R165 million, each Executive Manager will be entitled to
subscribe for a pro-rata number of shares, which will be calculated as
follows:
Maximum Executive Shares pertaining to such Executive Manager x (actual
cumulative EBITDA for the three years ended 30 June 2014 less R55 million)
/ R110 million.
5 CATEGORISATION OF THE OPTIONS AND CIRCULAR TO SHAREHOLDERS
The Turnaround and Executive Option Grants are classified as a specific
issue of shares for cash in terms of sections 5.51 and 5.53 of the JSE
Listings Requirements and, accordingly, is subject to the approval of the
shareholders of Alert.
6 PRO FORMA FINANCIAL EFFECTS OF THE OPTIONS
The Turnaround and Executive Option Grants will not have any material
financial effect on Alert as at 30 December 2010, which is the date of the
last published financial results, as:
- the options are only exercisable based on the cumulative EBITDA of the
company for the three years ended 30 June 2014 and once all
conditions are met; and
- therefore only the diluted issued share capital is affect.
7 WITHDRAWAL OF CAUTIONARY ANNOUNCEMENT
With regard to the information as provide above shareholders are advised
that caution is herewith withdrawn.
Pretoria
18 August 2011
Designated Adviser
Vunani Corporate Finance
Date: 18/08/2011 15:11:00 Produced by the JSE SENS Department.
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