background to arrangementNot impressed by a failure to put those words in to the index ; hiding data in plain sight.
I think the key section is a "
The Consideration is the result of an unsolicited offer received in January 2022 following the completion of a prior formal sale process in 2020 that did not lead to any formal offers to acquire the Corporation." -23-In early January 2022, following discussions between Mr. Yoon and Mr. Smith, Mr. Smith sent a draft non-binding letter of interest to Mr. Yoon that outlined the terms of a strategic transaction proposed by Aviat that, subject to the terms set out in the letter of interest, contemplated Aviat acquiring 100% of theoutstanding Common Shares for CDN$0.852 in cash per Common Share. The proposal indicated that the transaction was subject to a number of conditions, including completion of due diligence and negotiation of a definitive agreement, and contemplated Redline entering into exclusive negotiations with Aviat. Following initial discussions between Mr. Yoon and Mr. McDonnell, Redline determined that it wouldconsider the draft non-binding letter of interest further. At this time, Redline engaged Fasken to act as legal counsel with respect to the proposed transaction.On January 8, 2022, a meeting of the Board of Directors was held with Fasken, as legal counsel, attending as a guest, to discuss the proposed transaction with Aviat. The Board of Directors determined that the consideration offered in the draft letter of interest was insufficient but wished to continue to discuss a potential strategic transaction with Aviat.On January 9, 2022, following further discussions between the Board of Directors and management of Redline and after receiving input from its counsel, Redline sent a revised draft of the letter of interest to Aviat with certain revised terms for the proposed transaction, including an increase in the consideration per Common Share.Between January 9 and January 18, 2022, representatives of Redline and Aviat, and their respective legal counsel, continued to have discussions about the terms of the proposed strategic transaction, including the negotiation of a letter of interest.On January 18, 2022, Redline and Aviat entered into a non-binding letter of interest outlining the principal business terms of a proposed transaction whereby Aviat would acquire all of the outstanding Common Shares for the Consideration of CDN$0.90 per Common Share. The transactions contemplated by the letter of interest were subject to a number of conditions, including completion of due diligence and negotiation of a definitive agreement, and contemplated the parties negotiating exclusively for a period of 45 days.Following the execution of the non-binding letter of interest, representatives of Redline, with assistance from legal counsel, supported Aviat in completing its due diligence of Redline, including creating an electronic data room and providing documents requested by Aviat for its due diligence review relating to technical, legal, tax, accounting, financing, employment and other matters. Aviat also advised that its advisors would begin to prepare a draft arrangement agreement.Throughout the remainder of January, February and continuing into March, Aviat continued to complete its due diligence investigation of the Corporation. Representatives of Redline continued to have ongoing discussions with Aviat regarding various due diligence items, including further due diligence requests and multiple due diligence calls on various technical and other matters.At a meeting of the Board of Directors held on February 23, 2022, the Board resolved to form the Special Committee consisting of independent directors, being Mr. McDonnell, as Chair, and Josef Vejvoda, with a mandate to review a potential transaction with Aviat and to consider other available strategic alternatives. Mr. McDonnell also provided an update on the progress on the potential transaction with Aviat. Throughout January and continuing into April, members of the Board of Directors and the Special Committee and management frequently discussed and provided updates on the potential transaction. In mid-March, Blake, Cassels & Graydon LLP, legal counsel to Aviat, delivered to Fasken an initial draft of the Arrangement Agreement.
-25-•recommended that the Arrangement Agreement and the Arrangement be unanimously approved by the Board of Directors and that Redline enter into the Arrangement Agreement; and•recommended that the Board of Directors unanimously recommend that Shareholders vote in favor of the Arrangement Resolution and the Reduction of Stated Capital Resolution at the Meeting.Immediately after the Special Committee meeting, the Board of Directors met, with Mr. Jones and Fasken attending as guests, to consider the Arrangement and the final Arrangement Agreement and the execution thereof. After considering a number of factors, including those discussed under the headings “Reasons for the Recommendation” and “Risk Factors Relating to the Arrangement” below, and based upon the recommendation of the Special Committee, and after consultation with its legal advisors, the Board of Directors unanimously:•determined that the Arrangement and the Consideration are fair to the Shareholders and the Arrangement and the Reduction of Stated Capital are in the best interests of Redline, and unanimously recommended that the Shareholders vote in favour of the Arrangement Resolution and the Reduction of Stated Capital Resolution at the Meeting;•resolved that the Arrangement and the Reduction of Stated Capital be approved;•resolved that the Arrangement Agreement, and the execution thereof, and the performance of Redline’s obligations thereunder be approved.On April 13, 2022, the Arrangement Agreement and the Support and Voting Agreements were executed and delivered following approval by the Board of Directors and a joint press release announcing the Arrangement was issued by Redline and Aviat. Recommendation of the Special CommitteeThe Special Committee was formed to, among other things, consider the Arrangement and any other available strategic alternatives, and to make recommendations to the Board of Directors with respect to any such proposed transaction. After careful consideration, including a thorough review of the Arrangement Agreement, the advice of Evans & Evans, as financial advisor, and the Fairness Opinion, as well as a thorough review of other matters, including certain of the matters also considered by the Board of Directorsdiscussed below, and taking into account the best interests of Redline and the impact on the Shareholders,and after consultation with its financial and legal advisors, the Special Committee unanimously determined that the Arrangement and the Consideration are fair to the Shareholders and that the Arrangement and the Reduction of Stated Capital are in the best interests of Redline. Accordingly, the Special Committee unanimously recommended that the Board of Directors approve the Arrangement and the Reduction of Stated Capital and recommend that the Shareholders vote in favour of the Reduction of Stated Capital Resolution and the Arrangement Resolution. Recommendation of the Board of DirectorsAfter careful consideration, including a thorough review of the Arrangement Agreement, the advice of Evans & Evans as its financial advisor, receipt of the Fairness Opinion by the Special Committee, as well as a thorough review of other matters, and on the unanimous recommendation of the Special Committee, the Board of Directors unanimously determined that the Arrangement and the Consideration are fair to the Shareholders and that the Arrangement and the Reduction of Stated Capital are in the best interests of Redline. Accordingly, the Board of Directors unanimously approved the Arrangement and the -26-Reduction of Stated Capital and unanimously recommends that the Shareholders vote FOR the Arrangement Resolution and the Reduction of Stated Capital Resolution. Reasons for the RecommendationIn reaching its conclusion that the Arrangement and the Consideration are fair to Shareholders and that the Arrangement and the Reduction of Stated Capital are in the best interests of Redline, and in making its recommendation to Shareholders, the Board of Directors considered and relied upon a number of factorsand observed that a number of procedural safeguards were in place to enable the Board to represent the interests of Redline and the Shareholders, including: 1.Significant Premium - The Consideration of CDN$0.90 per Common Share represents a 43% premium to the closing price of the Common Shares of CDN$0.63 on April 13, 2022, the final trading day prior to announcement of the Arrangement, and a 13% premium to the volume weighted average price of the Common Shares over the 30 trading days prior to and including April 13, 2022of CDN$0.794.2.Fairness Opinion – Evans & Evans delivered its Fairness Opinion to the Special Committee to the effect that, based on the information, observations, and analyses conducted by Evans & Evans as well as other relevant factors discussed in the Fairness Opinion, the Consideration is fair, from a financial point of view, to the Shareholders. See “The Arrangement – Evans & Evans Fairness Opinion” in this Information Circular.3.Certain Value and Immediate Liquidity- The Common Shares have historically had low trading volumes on the TSX leading to poor liquidity for Shareholders. The Consideration is all cash, which provides certainty of value and liquidity, and is not subject to the execution risks associated with the business plan of Redline. These risks include, but are not limited to, significant competition in the market for Redline’s products and the possibility that Redline may require access to substantial additional capital in the future.4.Support and Voting Agreements - Each director and executive officer of Redline and certain large Shareholders have entered into the Support and Voting Agreements with the Purchaser and Aviat pursuant to which, and subject to the terms thereof, they have agreed to vote their Common Shares in favor of the Reduction of Stated Capital Resolution and the Arrangement Resolution. See “The Arrangement – Support and Voting Agreements” in this Information Circular. 5.Ability to Respond to Superior Proposals - The terms of the Arrangement Agreement permit the Board of Directors to terminate the Arrangement Agreement in certain circumstances, including to allow the Board of Directors to accept a Superior Proposal subject to certain conditions, including the Purchaser’s Right to Match and the payment by the Corporation of a Termination Fee of CDN$648,000, and in the good faith judgment of the Board of Directors, after consultation with its legal advisors, the amount of the Termination Fee is reasonable.6.Reasonable Conditions – The Board of Directors believes that the conditions to the completion of the Arrangement are reasonable in the circumstances and could reasonably be expected to be satisfied. 7.Financing Condition -The Arrangement is not subject to any financing condition.8.Special Majority and Majority of the Minority Approvals - The requirement that (i) the Arrangement Resolution must be passed by (A) at least 66% of the votes cast by Shareholders present in person or represented by proxy at the Meeting; and (B) a majority of the votes cast by -27-Shareholders present in person or represented by proxy at the Meeting, excluding the votes cast in respect of Common Shares beneficially owned or over which control or direction is exercised by any Interested Shareholders; and (ii) the Reduction of Stated Capital Resolution must be passed by at least 66% of the votes cast by Shareholders present in person or represented by proxy at the Meeting.9.Court Approval - The procedures by which the Arrangement is to be approved, including the requirement for approval by the Court at a hearing at which the fairness of the Arrangement to Shareholders will be considered.10.Availability of Dissent Rights - The availability of Dissent Rights to the Registered Shareholders with respect to the Arrangement.11.Prior Formal Sale Process and Superior Proposal - The Consideration is the result of an unsolicited offer received in January 2022 following the completion of a prior formal sale process in 2020 that did not lead to any formal offers to acquire the Corporation. 12.Comprehensive Arm’s Length Negotiations and Review by Special Committee - The terms of the Arrangement are the result of a comprehensive negotiation process, undertaken with the oversight and participation of the Special Committee and its legal counsel, and the Special Committee unanimously recommended that the Board of Directors approve the Arrangement. 13.100% Acquisition of Common Shares - The Arrangement is for 100% of the Common Shares and, under the Plan of Arrangement, all Shareholders are treated identically.14.Optionholders, DSU Holders and Warrantholders - The Arrangement contemplates a cash payment to Optionholders and Warrantholders, respectively, in an amount per Option or Warrant, if any, by which the Consideration exceeds the exercise price of such Option or Warrant, as applicable. The Arrangement contemplates that DSU Holders will receive a cash payment per DSU in an amount equal to the Consideration. 15.No Brokerage Fees or Commissions - The Arrangement will allow Shareholders to dispose of their Common Shares without incurring brokerage fees or commissions.The Board of Directors also considered a number of potential issues regarding and risks resulting from the Arrangement, including:1.The fact that Shareholders will not participate in the future earnings or growth of the Corporation or the appreciation of value of the Corporation, if any.2.The risks to Redline if the Arrangement is not completed, including the costs to Redline in resources and management attention in pursuing the Arrangement and the restrictions on the conduct of business prior to the completion of the Arrangement.3.The terms of the Arrangement Agreement restricting Redline from soliciting third parties to make an Acquisition Proposal and the specific requirements regarding what constitutes a Superior Proposal.4.The Termination Fee payable by the Corporation to the Purchaser in certain circumstances, including if Redline enters into an agreement with a third party to acquire Redline that constitutes a Superior Proposal.-28-5.The Expense Reimbursement payable by the Corporation to the Purchaser in certain circumstances, including if the Arrangement is not completed and the GOC Consent is not obtained prior to the Outside Date.6.The conditions to the Purchaser’s obligations to complete the Arrangement, including that holders of no more than 10% of the issued and outstanding Common Shares shall have exercised Dissent Rights.7.The right of the Purchaser to terminate the Arrangement Agreement under certain limited circumstances.8.The potential risk of not obtaining certain consents and approvals required to complete the Arrangement, including from the Court and the Shareholders, and obtaining the GOC Consent and the Investment Canada Act Approval.9.The potential risk of completing the Reduction of Stated Capital but not completing the Arrangement.10.The potential negative effect on the Corporation’s relationship with stakeholders, including customers, suppliers, and employees.The Board of Directors’ reasons for recommending the Arrangement include certain assumptions relating to forward-looking information, and such information and assumptions are subject to various risks. See “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors Relating to the Arrangement” in this Information Circular. The foregoing summary of the information and factors considered by the Board of Directors is not intended to be exhaustive. In view of the variety of factors and the amount of information considered in connection with its evaluation of the Arrangement, the Board of Directors did not find it practical to, and did not, quantify or otherwise attempt to assign any relative weight to each specific factor considered in reaching its conclusion and recommendation. The Board of Directors’ recommendation was made after considering all of the above-noted factors and in light of the Board of Directors’ knowledge of the business, financial condition and prospects of Redline, and was also based on the advice of financial advisors and legal advisors to the Board of Directors. In addition, individual directors of the Corporation may have assigned different weights to different factors.Evans & Evans Fairness OpinionEvans & Evans was retained by the Special Committee to act as financial advisor to Redline and to provide an opinion as to the fairness, from a financial point of view, of the Consideration payable to the Shareholders pursuant to the Arrangement Agreement. On April 13, 2022 Evans & Evans verbally delivered its opinion, subsequently confirmed in writing, that, as at the date thereof, based upon the scope of review and subject to the assumptions, limitations and qualifications set out therein, the Consideration payable to the Shareholders under the Arrangement is fair, from a financial point of view, to the Shareholders. The full text of the Fairness Opinion, setting out the assumptions made, matters considered and limitations and qualifications on the review undertaken in connection with the Fairness Opinion, are attached as Appendix C to this Information Circular. The summary of the Fairness Opinion described in this Information Circular is qualified in its entirety by reference to the full text of the Fairness Opinion.Pursuant to its engagement letter with Evans & Evans, Redline has agreed to pay Evans & Evans a fixed fee for its services as financial advisor, plus out-of-pocket disbursements (none of which is contingent on the substance of or the conclusions reached in the Fairness Opinion or the completion of the Arrangement). -29- The fee paid to Evans & Evans was negotiated and agreed to by Evans & Evans and the Special Committee. Given the fee was not contingent on the substance of or the conclusions reached in the Fairness Opinion or the completion of the Arrangement, the Special Committee did not view the fee as impacting Evans and Evans’ conclusions in the Fairness Opinion. Redline is not aware of any other relationship or arrangement between Evans & Evans and Redline or an interested party that may be relevant to a perception of lack of independence in respect of the advice received or opinion provided. The description of the Fairness Opinion, both below and elsewhere in this Information Circular, is a summary only, is not exhaustive and is qualified in its entirety by reference to the Fairness Opinion, including the assumptions, limitations and qualifications set out therein. In assessing the fairness of the Arrangement, Evans & Evans considered the following analyses and factors, amongst others:1.Guideline Company Analysis. Evans & Evans assessed the reasonableness of the implied CDN$12.8 million equity value by comparing certain of the related valuation metrics to the metrics indicated for referenced guidelines public companies. The identified guideline companies (as set out in the Fairness Opinion) selected were considered reasonably comparable to Redline. At the time of the Fairness Opinion, Redline traded below that of its peers. The Arrangement pricing implies an enterprise value to trailing 12-month revenues ratio of 0.44x, which is below the average and the median, although there are guideline companies trading near that range. However, in reviewing the data on the guideline companies, those companies with higher such ratios had either positive earnings before interest, taxes, depreciation and amortization or were realizing significantly higher growth rates in revenues as compared to Redline. 2.Precedent Transaction Analysis. In assessing the reasonableness of the implied CDN$8.5 million enterprise value of the Arrangement, Evans & Evans identified four transactions in the 24 months preceding the Fairness Opinion and found that the enterprise value to revenue multiples ranged from 0.46x to 0.99x. The enterprise value to revenue multiple implied by the Arrangement is at the low end of the selected transactions. 3.Current Trading Price. Evans & Evans assessed the reasonableness of the Consideration of CDN$0.90 per Common Share based on a review of the trading price of the Common Shares on the TSX. The Corporation’s average closing share price had been declining over the 90-trading days preceding the date of the Fairness Opinion:Trading Price (CDN$)(as of April 12, 2022)MinimumAverageMaximum10 days preceding$0.66$0.73$0.7830 days preceding$0.66$0.78$0.8290 days preceding$0.66$0.75$0.82180 days preceding$0.40$0.66$0.82Evans & Evans noted the recent decline in trading price had come on very small trading volumes, and only 1.1 million Common Shares traded in the 90 trading days preceding the date of the Fairness Opinion. Given the limited liquidity of the Common Shares, Evans & Evans deemed it appropriate to calculate the volume weighted average price (“VWAP”) of the Common Shares. The -30- Consideration implies a premium of approximately 12% to 28% of the VWAP of the Common Shares as of the date of the Fairness Opinion for periods ranging from five to 60 trading days. In the view of Evans & Evans, such a premium is reasonable.(CDN$)RedlineConsiderationPremium to VWAP5-Day VWAP$0.701$0.9028.3%10-Day VWAP$0.746$0.9020.6%20-Day VWAP$0.776$0.9016.0%60-Day VWAP$0.805$0.9011.9%4.Other Considerations. In arriving at its conclusion that the Consideration is fair, from a financial point of view, to the Shareholders, Evans & Evans considered the following:(a)The implied value of Redline is supported by precedent transactions. (b)The implied value of Redline under the guideline company analysis is reasonable. (c)The implied price per Common Share is a premium to the trading price of Redline’s Common Shares over the 180 trading days preceding the date of the Fairness Opinion. (d)The ability of Shareholders to receive greater than the Consideration in the market over the past 180 trading dates from the date of the Fairness Opinion was limited. (e)Redline engaged in a strategic process in 2020 and no formal offers were received.The Fairness Opinion is not a recommendation to any Shareholder as to how to vote or act on any matter relating to the Arrangement. The Fairness Opinion is only one factor that was taken into consideration by the Special Committee and the Board of Directors in making their respective determinations to recommend that the Shareholders vote in favour of the Arrangement Resolution. The Board of Directors urges the Shareholders to read the Fairness Opinion carefully and in its entirety.See Appendix C of this Information Circular.Support and Voting AgreementsThe Purchaser and Aviat have entered into Support and Voting Agreements dated April 13, 2022 with the Locked-Up Shareholders, being each of the directors and the executive officers of Redline and certain large Shareholders, pursuant to which the Locked-Up Shareholders have agreed, subject to the terms and conditions of the Support and Voting Agreements, to vote their Common Shares in favor of the Arrangement Resolution and the Reduction of Stated Capital Resolution. The Locked-Up Shareholderscollectively beneficially own or exercise control or direction over an aggregate of 5,112,049 Common Shares, which represent approximately 29.7% of the outstanding Common Shares. Their respective obligations under the Support and Voting Agreements may be terminated at any time (i) upon the written agreement of Aviat and the Locked-Up Shareholders, (ii) if the Arrangement Agreement -31-is terminated in accordance with its terms, (iii) by the Locked-Up Shareholder if any representation or warranty of the Purchaser or Aviat under the Support and Voting Agreement is untrue or incorrect in any material respect or if the Purchaser or Aviat, without prior written consent of the Locked-Up Shareholder, decrease the Consideration; (iv) by the Purchaser or Aviat if any representation or warranty of the Locked-Up Shareholder under the Support and Voting Agreement is untrue or incorrect in any material respect or if the Locked-Up Shareholder has not complied in any material respect with its covenants therein; or (v) upon the acquisition of the Common Shares by the Purchaser pursuant to the Arrangement.