| Tue 30 Mar 2004, 10:37 | | Specific Grant Of Share Options For Cash |
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Frontrange Limited - Specific Grant Of Share Options For Cash
Release Date: 30/03/2004 09:55:03 Code(s): FRO
FRONTRANGE LIMITED - SPECIFIC GRANT OF SHARE OPTIONS FOR CASH
FRONTRANGE LIMITED
(Incorporated in the Republic of South Africa)
(Registration number 1997/009928/06)
Share code: FRO ISIN: ZAE000035325
("FrontRange")
SPECIFIC GRANT OF SHARE OPTIONS FOR CASH
1 Introduction
Mr Michael McCloskey, who is based in the USA, joined FrontRange"s board of
directors ("Board") as a non-executive director in June 2003. Effective from 20
August 2003, he agreed to stand as permanent chief executive officer ("CEO") of
FrontRange and its 100% held, US-based operating subsidiary, FrontRange
Solutions Inc, which generates 96% of the group"s revenue, on the basis that he
will receive a total share option grant equivalent to 10% of the current issued
shares of FrontRange on a fully-diluted basis
Mr McCloskey is highly experienced and well known in FrontRange"s industry. The
directors believe that the skill, business acumen and experience that he will
bring to the Board and executive management of the FrontRange group will be
invaluable.
2 Details of the specific grant
Mr McCloskey was granted 1 580 000 share options ("initial options") through the
FrontRange share trust on 20 June 2003. In order to receive the aforementioned
total share option grant, it is proposed that Mr McCloskey now receives a
specific grant for cash of 21 162 905 share options (" the specific grant"), and
that the initial options previously granted to him are cancelled.
The specific grant will have a strike price of 138,4 cents, which was arrived at
by taking the weighted average of:
* the strike price of the initial options of 106 cents; and
* the strike price of the remaining 19 582 905 options to be granted of 141
cents. This price was determined with reference to 20 August 2003, being the
date that Mr McCloskey took over as CEO of FrontRange Solutions Inc.
The strike prices of 106 cents and 141 cents were based on the lowest closing
share price of FrontRange in the 30 days prior to the grant of the respective
options, in accordance with the provisions of the FrontRange share trust.
The effective date of this transaction will be the 20 August 2003 subject to the
fulfilment of the conditions precedent below.
3. Rationale for the specific grant
FrontRange has to compete with several significantly larger, well-funded
competitors, such as Microsoft, Sage and SAP. FrontRange is a developer of its
own products and is thus completely dependent on the calibre of its intellectual
capacity and human resources for its success. The appointment of Mr McCloskey as
CEO is considered by the board to be in line with FrontRange"s strategy to
appoint world-class executives, to achieve growth and to increase shareholder
value. The board is satisfied that Mr McCloskey brings a new depth of experience
to the management team. In addition, he has already recruited and will continue
to attract the top calibre talent that is required for FrontRange to grow both
profits and sales in a very competitive global market.
It is common practice in the United States to remunerate executives employed in
the information technology industry with share options. Mr McCloskey and the
majority of the senior executives of the group are based in the United States,
further justifying the need for this type of remuneration.
As the options will be priced relative to the effective date of his appointment
as CEO, Mr McCloskey will benefit only to the extent that he can help to
increase FrontRange"s share price above the level at that time.
4 Conditions precedent
The specific grant for cash is subject to the fulfilment of the following
conditions precedent:
* the requisite majority of FrontRange shareholders approving the specific grant
for cash; and
* the cancellation of the initial options.
5 Financial effects of the specific grant
Based on interim results of FrontRange for the six months ended 31 December
2003, the pro forma financial effects of the specific grant on FrontRange"s
earnings per share, headline earnings per share, net asset value per share and
net tangible asset value per share are set out below. This pro forma financial
information has been prepared for illustrative purposes only and because of its
nature may not give a true picture of FrontRange"s financial position and
results of operations, nor the effect and impact of the specific grant going
forward. The pro forma financial information is the responsibility of the
directors of FrontRange.
Before the Adjustmen After the %
specific t specific Chan
grant(1) grant ge
Loss per share
("EPS") (cents) (6,4) 1,3 (5,1) (2) 20,3
%
Headline earnings
per share ("HEPS")
(cents) 2,0 0,3 2,3 (2) 15,0
%
Net asset value per
share ("NAV") 60,3 9,4 69,7 (3) 15,6
(cents) %
Net tangible asset
value per share
(NTAV) 27,3 13,3 40,6 (3) 48,7
%
Shares in issue 155 489 073 21 162 176 651 978 13,6
905 %
Weighted average
shares in issue
upon which EPS and
HEPS are based 155 352 584 21 162 176 515 489 13,6
905 %
Notes
1) Based on the published consolidated reviewed results of FrontRange for the
six months ended 31 December 2003;
2) Based on the assumption that the specific issue was implemented on 1 July
2003 at the weighted average strike price of 138,4 cents and that proceeds were
paid in full. Earnings and headline earnings have been adjusted to include
interest received on the cash of R29,3 million at an interest rate of 6% with no
taxation effect given the group"s assessed tax position; and
3) Based on the assumption that the specific issue was implemented on 31
December 2003.
6 Independent opinion
Ernst &Young Corporate Finance (Proprietary) Limited ("EYCF"), acting as
independent professional experts to FrontRange"s board of directors, has
considered the terms and conditions of the specific grant. The text of EYCF"s
fair and reasonable opinion is included in the circular to FrontRange
shareholders, details of which are given below.
7 Documentation
A circular, the full text of which can be found on FrontRange"s website at
www.frontrange.co.za/InvestorRelations/circular.asp, will be posted to
shareholders on or about 31 March 2004 containing details of the specific grant
and convening a general meeting in order that shareholders can approve the
specific grant.
Johannesburg
30 March 2004
Sponsor
Nedbank Capital
Independent reporting accountants
Deloitte & Touche
Independent professional experts
Ernst & Young Corporate Finance (Proprietary) Limited
