Sunora renegotiates terms of going-private transaction Sunora renegotiates terms of going-private transaction
2021-10-26 14:59 ET - News Release
Mr. Steve Bank reports
SUNORA RENEGOTIATES AGREEMENT FOR GOING PRIVATE TRANSACTION
Further to Sunora Foods Inc.'s news releases dated Jan. 21, Feb. 25, March 16, April 22, May 10 and June 21, 2021, the corporation has renegotiated the terms of the previously announced going-private transaction and entered into a new arrangement agreement dated Oct. 22, 2021, with 2326230 Alberta Ltd., a wholly owned subsidiary of Folspire Inc., which is owned and controlled by Charles O. Eghobamien. The corporation will effect the going-private transaction through a statutory plan of arrangement under Section 193(1) of the Business Corporations Act (Alberta).
The purchaser will acquire 100 per cent of the corporation's outstanding common shares for an aggregate purchase price of $6,887,606, which is the same price as previously agreed to. However, previous efforts to complete the transaction were delayed because the purchaser could only secure financing to satisfy $6-million of the purchase price. As a result, the transaction failed to close despite several months of negotiating with the purchaser.
In order for the arrangement to proceed, and to preserve the opportunity for the corporation's shareholders, two of the corporation's largest shareholders, one of whom is Steve Bank, president and chief executive officer, will carry a portion of the purchase price in order to ensure the purchaser has sufficient financing to complete the arrangement. Under the arrangement agreement, the purchaser will acquire 35,294,117 common shares, representing 87.12 per cent of the outstanding common shares, at a price of 17 cents per common share for an aggregate of $6-million. The purchaser will acquire the remaining balance of 5,221,215 common shares, representing 12.88 per cent of the outstanding common shares, held by the major shareholders in exchange for $887,606 worth of Series I preferred shares in the capital of the purchaser. The combination of the cash consideration and the VTB financing will satisfy the purchase price.
The major shareholders own an aggregate of 30 million common shares of the corporation, but will only receive cash consideration for 24,778,785 common shares, being the number of common shares not being exchanged under the VTB financing. The redemption amount will be redeemed by the purchaser five years from the date of issuance of the preferred shares. In consideration for the risk taken by the major shareholders on the VTB financing, the redemption amount will be a secured obligation of the purchaser (subordinated to the senior debt of the purchaser), and the major shareholders will receive an annual dividend equal to 5 per cent of the redemption amount, commencing on the date that is 24 months from the closing date of the arrangement.
Following the completion of the arrangement, the corporation will apply to have its common shares delisted from the TSX Venture Exchange and will also apply to the applicable Canadian securities regulatory authorities to cease to be a reporting issuer in each province in which it currently reports. The purchaser has previously advanced a non-refundable deposit of $100,000 to be applied against the purchase price.
The transaction is not considered a related party transaction under Multilateral Instrument 61-101.
Due to the material nature of the amended arrangement structure and payment terms, the arrangement is subject to new approval by the Court of Queen's Bench of Alberta and shareholder approval. A special meeting of shareholders of the corporation has been set for Dec. 3, 2021, at which the arrangement must be approved by two-thirds of the voting common shares. Further details will be provided in a future news release if the status of the meeting changes. If approved at the meeting, it is expected the arrangement will close on or before Dec. 31, 2021. The application for the interim order is expected to be heard by the court on Nov. 3, 2021, and, if granted by the court, a copy of the interim order will be included in the management information circular to be mailed to shareholders.
The board of directors has reviewed the cash consideration and the VTB financing payable by the purchaser under the arrangement with its legal and financial advisers, and, on the basis of its review and internal deliberations, the board (including the independent members of the board) believes the arrangement and the consideration are in the best interest of the corporation and all stakeholders, and has unanimously resolved to recommend to holders of the common shares to vote in favour of the arrangement. The corporation's major shareholders, holding an aggregate of 30 million common shares, have agreed to vote their respective common shares in favour of the arrangement. A summary of the arrangement and the consideration payable thereunder, including a description of the rights, privileges and restrictions of the preferred shares, will be included in the corporation's management information circular for the meeting, a copy of which will be mailed to each shareholder and will also be available under the corporation's SEDAR profile. It is expected that the management information circular will be mailed to shareholders on or about Nov. 8, 2021.
The arrangement is subject to the following conditions:
- Dissent rights not being exercised with respect to greater than 5 per cent of the corporation's outstanding common shares;
- Major shareholders and the corporation being satisfied with the terms of the VTB financing;
- Court and shareholder approvals;
- Assignment of the lease agreement for the corporation's head office;
- Completion of the arrangement by Dec. 31, 2021.
Reason for the arrangement
As noted in previous news releases, the corporation wishes to complete the arrangement in order to provide its shareholders with the opportunity to realize some value for their common shares, having regard to: COVID-19-related economic uncertainty; the significant cost of maintaining a public listing; and the common shares being thinly traded. Based on the significant premium to historical trading prices over the past number of years and the value of the cash consideration, the board believes the arrangement is in the best interest of the corporation and all stakeholders. The arrangement will also eliminate the enormous burden of continuing as a reporting issuer, which effectively eliminates a lot of the positive cash flow. Under applicable securities laws, a broad range of regulatory obligations are imposed on companies with public shareholders, including: the provision of quarterly financial statements and information to shareholders; mandatory solicitation of proxies for annual meetings; increased insurance costs; transfer agent and stock exchange fees and compliance costs; and shareholder communication costs. These regulatory requirements necessitate the employment of independent accountants, financial consultants, printers, lawyers and other skilled personnel. Management of the corporation believes that the present and anticipated time and costs entailed in meeting the additional disclosure and other regulatory obligations to which public companies are subject cannot be justified in the view of the economic uncertainty and uncertain upside to shareholders in the future.
We seek Safe Harbor.