TORONTO, ONTARIO--(Marketwired - Jan. 26, 2016) -
NOT FOR DISTRIBUTION THROUGH UNITED STATES NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES
Tuckamore Capital Management Inc. (TSX:TX)(TSX:TX.DB.B) (" Tuckamore " or the " Company ") announced today that it has entered into a purchase agreement and a backstop commitment letter with Canso Investment Counsel Ltd. (in its capacity as portfolio manager for and on behalf of certain accounts that it manages, " Canso "), in respect of Tuckamore's proposed refinancing previously announced on December 22, 2015.
In connection with the proposed refinancing, Tuckamore has called a special meeting of its shareholders to be held on February 19, 2016 (the " Meeting ") and will shortly commence the mailing of a management information circular (the " Circular "), which sets out details of the refinancing transactions and shareholder approvals required. Shareholders of record as of the close of business on January 12, 2016 are entitled to notice of, and to vote at, the Meeting and are encouraged to read the Circular in its entirety. The Circular will be available on the Company's SEDAR profile at www.sedar.com .
Canso Purchase Agreement and Backstop Commitment Letter
Pursuant to the purchase agreement (the " Purchase Agreement ") and the backstop commitment letter (the " Backstop Commitment Letter ") entered into between Canso and the Company, Canso has agreed to purchase up to: (i) $176,228,000 principal amount of 8.00% senior secured debentures due 2026 of the Company (" Senior Secured Debentures "); and (ii) up to $35,000,000 principal amount of 10.00% second lien secured convertible debentures due 2026 of the Company (" Convertible Secured Debentures "). The Convertible Secured Debentures will be convertible into common shares at a price of $0.35 per common share (subject to adjustment).
A minimum of $130,000,000 in Senior Secured Debentures will be purchased by Canso and up to $46,228,000 will be made available to certain other accredited investors, provided that any such Senior Secured Debentures not issued to such accredited investors shall be purchased by Canso pursuant to the Backstop Commitment Letter (the " Senior Secured Debenture Private Placement ").
Further, a minimum of $25,000,000 in Convertible Secured Debentures will be purchased by Canso by way of private placement (the " Convertible Secured Debenture Private Placement "). The Company expects to offer up to $10,000,000 aggregate principal amount of Convertible Secured Debentures to holders of its common shares pursuant to an offering of transferable rights (the " Rights Offering "), provided that Canso has committed pursuant to the Backstop Commitment Letter to purchase any Convertible Secured Debentures not otherwise purchased by shareholders pursuant to the Rights Offering. The Company anticipates filing a preliminary prospectus with securities regulators for the Rights Offering shortly. The Rights Offering, together with the Senior Secured Debenture Private Placement and Convertible Secured Debenture Private Placement are referred to as the " Refinancing Transactions ".
The proceeds of the Refinancing Transactions will be used to repay the Company's outstanding indebtedness including under the Company's existing 8.00% secured debentures due March 23, 2016 (the " Existing Debentures ") and its existing senior secured credit facilities, and to provide additional cash to fund ongoing working capital requirements.
A summary of the material terms of each of the Purchase Agreement, the Backstop Commitment Letter, the Senior Secured Debentures and the Convertible Secured Debentures is set out in the Circular. The Purchase Agreement and the Backstop Commitment Letter will be available on the Company's SEDAR profile at www.sedar.com . The completion of the Refinancing Transactions will be subject to the terms and the conditions set out in the Purchase Agreement, including receipt of the requisite shareholder approvals at the Meeting in respect of the resolutions related to the Refinancing Transactions, as well as the approval of the Toronto Stock Exchange (the " TSX ").
Waiver of the Application of the Shareholders Rights Plan
At the Meeting, and as part of the resolutions to be considered by shareholders in respect of the Refinancing Transactions, shareholders will be asked to authorize and approve a waiver of the shareholder rights plan of the Company (established pursuant to the shareholders rights plan agreement dated as of August 20, 2014 between the Company and CST Trust Company (the " Rights Plan ")) in respect of, among other things, the Refinancing Transactions and the securities to be issued thereunder. The approval of the waiver of the Rights Plan by shareholders at the Meeting is a condition to the completion of the Refinancing Transactions. Further details regarding the waiver of the Rights Plan to be sought at the Meeting can be found in the Circular.
Issuance of Convertible Debentures to Executive Chairman
As further detailed in the Circular, at the Meeting, shareholders will also be asked to authorize and approve certain amendments to the employment agreement of Mr. Dean MacDonald, the Executive Chairman of the Company, providing for the settlement of certain change of control payments in the amount of approximately $2.6 million to which he would be entitled, in consideration of the issuance by the Company to him of $1,000,000 aggregate principal amount of Convertible Secured Debentures. If approved, the issuance of the Convertible Secured Debentures to Mr. MacDonald will be in addition to the Convertible Secured Debentures to be issued pursuant to the Convertible Secured Debenture Private Placement and the Rights Offering, and will be subject to disinterested shareholder approval at the Meeting in accordance with the requirements of the TSX. Further details regarding the issuance of Convertible Secured Debentures to Mr. MacDonald and the shareholder approval to be sought at the Meeting in respect thereof can be found in the Circular.
Dilution Pursuant to the Terms of the Convertible Debentures
The Convertible Secured Debentures will be convertible into common shares of the Company at a conversion price of $0.35 per common share (subject to adjustment in certain customary circumstances). Assuming that: (a) all interest on the Convertible Secured Debentures is paid in kind in accordance with their terms over the term to maturity as additional Convertible Secured Debentures (the " PIK Debentures "), (b) no Convertible Secured Debentures are redeemed in accordance with their terms, (c) all Convertible Secured Debentures are converted immediately prior to maturity in accordance with their terms, (d) Canso purchases, pursuant to the commitment provided in the Backstop Commitment Letter, $10,000,000 principal amount of Convertible Secured Debentures to be offered in the Rights Offering (in addition to $25,000,000 principal amount of Convertible Secured Debentures in connection with the Convertible Secured Debenture Private Placement), (e) there is no adjustment to the conversion price of the Convertible Secured Debentures, and (f) $1,000,000 principal amount Convertible Secured Debentures are issued to Mr. MacDonald as described in the preceding paragraph, a maximum of 267,709,879 common shares (representing approximately 244% of the current issued and outstanding common shares of Tuckamore), may be issued pursuant to the conversion of Convertible Secured Debentures (including PIK Debentures).
Concurrent Private Placements
The closing of both the Senior Secured Debenture Private Placement and the Convertible Secured Debenture Private Placement are expected to occur concurrently with the closing of the Rights Offering, and the closing of such private placements is a condition to closing the Rights Offering. The Company is currently in discussions with its senior lenders to further extend the maturity of the Company's indebtedness owing under its existing senior secured credit facilities from January 31, 2016 in order to allow for the completion of the Refinancing Transactions.
The Rights Offering
Further details regarding the Rights Offering will be provided in the Company's preliminary short form prospectus which is anticipated to be filed by the Company in the coming days. The Rights Offering will be subject to review and acceptance by securities regulatory authorities and the TSX.
Restatement of Financial Statements
In connection with the anticipated filing by the Company of a preliminary short form prospectus in respect of the Rights Offering, the Company will re-file its unaudited interim consolidated financial statements for the three and nine month periods ended September 30, 2015, together with the notes thereto (the " 2015 Q3 Financial Statements ") and the applicable management's discussion and analysis of the financial condition and results of operations of the Company, as the previously filed 2015 Q3 Financial Statements had not been reviewed by the auditors of the Company, as permitted by applicable securities law.
In connection with the review engagement with its auditors, the Company will be restating the 2015 Q3 Financial Statements, in addition to certain note disclosure, to include the following:
- The 2015 Q3 Financial Statements had been prepared on the basis of accounting principles applicable to a going concern, which assumes that the Company will continue in operation for the foreseeable future and will be able to realize its assets and discharges its liabilities in the normal course of operations. The Company, however, has two significant tranches of debt coming due on January 31, 2016 (in respect of the Company's existing senior secured credit facilities) and March 23, 2016 (in respect of the Existing Debentures), and the Company will require the continued support from its financial lenders. The Company is in the process of refinancing its business in order to continue as a going concern. In the event that the Company is unsuccessful or is unable to complete the Refinancing Transactions, there may be significant doubt as to the Company's ability to continue as a going concern.
- In connection with the review of the 2015 Q3 Financial Statements, the Company has re-evaluated the carrying values of the assets of the cash generating units. Indicators of impairment were identified at Quantum Murray LP. Although revenues have increased over the same period in the prior year, the business has experienced losses and a decline in margins as management is in the final stages of rationalizing its cost structure and implementing business process improvements. As a result, there will be a $5.2 million non-cash impairment charge to the assets of the Quantum Murray LP cash generating unit in the 2015 Q3 Financial Statements to be re-filed in connection with the Rights Offering.
Additionally, one of the conditions to the completion of the Refinancing Transactions is the obligation of the Company to provide evidence of the disposition of certain assets of the Company (other than the assets of ClearStream Energy Holdings LP). The Company has been actively pursuing the sale of sufficient assets as required in connection with the Refinancing Transactions. Based on expressions of interest received to date by the Company, the value of the asset sales will be significantly less than the carrying value of these assets, and the proceeds of any such sales will result in additional downward adjustment to the carrying values of such assets and liabilities to reflect the value at which these assets are ultimately sold, if at all. Such additional non-cash adjustments will be material to the Company's financial statements.
Voting at the Meeting
Holders of Tuckamore common shares as at January 12, 2016, the record date for the Meeting, will be entitled to one vote for each common share held in respect of, (a) a resolution approving the Refinancing Transactions, as more fully set forth in the Circular (the " Refinancing Resolution "), and (b) a resolution approving the amendment of Mr. MacDonald's employment agreement and the related issuance of Convertible Secured Debentures to him, as more fully set forth in the Circular. The Refinancing Resolution must be approved, with or without variation, by an affirmative vote of at least a simple majority of the votes cast by disinterested Shareholders voting in person or by proxy at the Meeting for the purposes of "minority approval" under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transaction (" MI 61-101 "), as the Refinancing Transactions will constitute a "related party transaction" under MI 61-101. The Refinancing Resolution must also be approved by an affirmative vote of at least a simple majority of disinterested Shareholders in accordance with the policies of the TSX. The proposed amendment to Mr. MacDonald's employment agreement and the anticipated issuance of the $1,000,000 principal amount of Convertible Secured Debentures pursuant thereto must be approved, by an affirmative vote of at least a simple majority of disinterested Shareholders in accordance with the policies of the TSX.
Shareholders are encouraged to vote at the Meeting, and should complete the form of proxy or voting instruction form and deposit it with CST Trust Company by mail to P.O. Box 721, Agincourt, Ontario, M1S 0A1, by fax to (416) 368-2502, or toll free (in Canada and the U.S. only) to 1-866-781-3111, by email of a scan copy to proxy@canstockta.com or in person at 320 Bay Street, Basement Level, Toronto, Ontario, M5H 4A6 not later than 10:00 a.m. (Toronto time) on Wednesday, February 17, 2016, or not later than 48 hours (excluding Saturdays, Sundays and statutory holidays in Toronto) before any adjournment(s) or postponement(s) of the Meeting.
This press release does not constitute an offer to sell or a solicitation of an offer to buy the securities described herein nor shall there be any sale of the securities described herein in any jurisdiction in which such offer, solicitation or sale would be unlawful.
About Tuckamore
Tuckamore ( http://tuckamore.ca ) has investments in four businesses representing a diverse cross-section of the Canadian economy.
Forward-looking information
This press release contains forward-looking information based on current expectations, including but not limited to Tuckamore's expectations in connection with the Refinancing Transactions, the expected performance of the Company, benefits of the Refinancing Transactions, the re-filing of the 2015 Q3 Financial Statements and conditions precedent to the completion of the Refinancing Transactions. Forward-looking information is often, but not always, identified by the use of the words "contemplate" and "anticipate" and statements that an event or result "may", "will", "should", "could" or "might" occur and any similar expressions or negative variations thereof. In providing forward-looking information in this press release, management of the Company has made numerous assumptions regarding the Refinancing Transactions which it believes to be reasonable, including assumptions relating to: (i) the Company's existing and future business prospects and opportunities, including that the Company will secure further extensions to the maturity of its indebtedness under its existing senior secured credit facilities; (ii) the receipt of shareholder approval in respect of the Refinancing Transactions; (iii) the satisfaction or waiver of all other conditions to the completion of the Refinancing Transactions; (iv) the expected actions of third parties; and (v) the outcome of the Refinancing Transactions and related transactions and agreements including the expected use of proceeds.
Forward-looking information entails various risks and uncertainties however that could cause actual results to differ materially from those reflected in the forward-looking information. Specific risks that could cause actual results to differ materially from those anticipated or disclosed herein include, but are not limited to: (i) failure to satisfy the conditions to complete the Refinancing Transactions including failure to receive required regulatory approval, stock exchange, shareholder, third party approvals and/or consents; (ii) the occurrence of any event, change or other circumstance that could give rise to the termination of the Purchase Agreement and Backstop Commitment Letter; (iii) the Company's inability for any reason to obtain further extensions to the maturity of its existing indebtedness under its senior secured credit facilities prior to the consummation of the Refinancing Transactions; (iv) the delay of consummation of the Refinancing Transactions or the failure of the Refinancing Transactions to be completed for any other reason; (v) the amount of costs, fees and other expenses incurred in connection with the Refinancing Transactions; (vi) the anticipated timing of the Meeting; and (vi) the risk that the anticipated effects of the Refinancing Transactions, if completed, may not result in the outcomes expected by management. In addition, general risks relating to capital markets, economic conditions, regulatory changes, changes in interest rates as well as the management and operations of the Company's business may also cause actual results to differ materially from those anticipated or disclosed herein. These and other risks and uncertainties relating generally to Tuckamore's business and the Refinancing Transactions in particular are more fully discussed in the Company's disclosure materials, including its annual information form and MD&A, filed with the securities regulatory authorities in Canada and available at www.sedar.com and the Company's management information circular in respect of the Meeting. Forward-looking information are not guarantees of future performance, and management's assumptions upon which such forward-looking information are based may prove to be incorrect.
Accordingly, there can be no assurance that actual events or results will be consistent with the forward-looking information disclosed herein. In light of the significant uncertainties inherent in forward-looking information, any such forward-looking information should not be regarded as representations by Tuckamore that its objectives or plans relating to the Refinancing Transactions or otherwise will be achieved. Investors are cautioned not to place undue reliance on any forward-looking information contained herein and that such forward-looking information are provided solely for the purpose of providing information about management's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. In addition, forward-looking information relates to the date on which they are made. Tuckamore disclaims any intention or obligation to update or revise any forward-looking information contained herein, whether as a result of new information, future events or otherwise, except to the extent required by law.
