Pivot to exchange common shares for preferred shares
Pivot Technology Solutions Inc (C:PTG)
Shares Issued 170,901,626
Last Close 1/25/2016 $0.53
Tuesday January 26 2016 - News Release
Mr. Doug Stuve reports
PIVOT TECHNOLOGY SOLUTIONS TO PROPOSE SHARE EXCHANGE TRANSACTION TO ITS SHAREHOLDERS
Pivot Technology Solutions Inc. has entered into an arrangement agreement with PTS Holdings Corp., a company controlled by a group of investors that includes two of the company's founders, and PTS Income Corp., a special purpose corporation that will receive cash distributions under the terms of preferred securities to be issued to PTS Income by a successor to the company. Under the terms of the Arrangement Agreement, once all shareholder, court and regulatory approvals are obtained, and subject to the satisfaction of other customary conditions of closing, the current common shares held by Pivot shareholders (the "Common Shares"), other than the members of the Founder Group, will be exchanged for preferred securities (the "Preferred Securities") of Income Corp (collectively, the "Transaction"). The Founder Group controls a combined 30,446,880 Common Shares.
John Sculley, the Chair of the Company's Board of Directors, controls an additional 9,375,000 Common Shares, and upon completion of the Transaction these Common Shares will be exchanged for Preferred Securities. Both the Founder Group and John Sculley will vote in favour of the Transaction.
Highlights of the Transaction
An exchange of Common Shares for Preferred Securities with a face value equivalent of $0.70 per Common Share Quarterly distributions on the Preferred Securities, representing an annual yield of 12.85% of face value, a three-fold increase on the current rate of Common Share dividends (equivalent to $0.09 per annum per Common Share) Preferred Securities will be perpetual securities Listing application for Preferred Securities has been made to the TSX Venture Exchange (there is no assurance that the TSX Venture Exchange will grant conditional or any other acceptance to the listing of the Preferred Securities); Common Shares to be de-listed from the TSX Venture Exchange Founder Group to control the successor entity to the Company
The Consideration
Upon completion of the Transaction, holders of Pivot Common Shares will receive one Preferred Security, with a face value of $10.00, for every 14.286 Common Shares of Pivot, representing $0.70 per existing Common Share based on the face value of the Preferred Securities to be issued in exchange for Common Shares. The closing trading price of Pivot's Common Shares on January 25, 2016 was $0.53 and the volume weighted average trading price of Pivot Common Shares for the ten trading days up to and including January 25, 2016 was $0.516. Subject to the terms of the indenture creating the Preferred Securities, holders of each Preferred Security will receive quarterly distributions of $0.321 ($1.285 per annum), representing an annual yield of 12.85% based on the face value of the Preferred Securities. The quarterly distributions to be paid to Preferred Securities holders represent a three-fold increase from the current quarterly dividend of $0.0075 ($0.03 per annum), paid in respect of the Common Shares. The Preferred Securities will be perpetual securities having no fixed maturity date or redemption date. Distributions on the Preferred Securities may be deferred at the option of Income Corp and the payment of deferred interest would be voluntary except in the event of liquidation. No distributions may be paid in respect of any securities that rank junior to the Preferred Securities, including common shares, unless distributions to Preferred Securities holders are up to date. The Preferred Securities will be secured by a pledge of preferred securities issued to Income Corp by a successor to the Company, which preferred securities will have similar terms to the Preferred Securities. Upon completion of the Transaction, PTS Holdco will acquire all of the Common Shares of Pivot, the Common Shares will be de-listed from the TSX Venture Exchange and PTS Holdco will be wholly owned by the Founder Group. Application has been made to the TSX Venture Exchange to list the Preferred Securities. There is no assurance that the TSX Venture Exchange will grant conditional or any other acceptance to the listing of the Preferred Securities.
Special Committee and Financial Advisors - Fairness Opinion
The Transaction is a "business combination" for the purposes of Canadian securities legislation. Accordingly, the board of directors (the "Board") of the Company appointed a special committee (the "Special Committee") of independent directors to review the terms of the Transaction and make a recommendation to the Board. Deloitte LLP ("Deloitte") acted as financial advisor to the Special Committee in connection with the Transaction and has provided its fairness opinion to the Special Committee that, subject to review of the final form of documents affecting the Transaction, as at the date of the Arrangement Agreement, the consideration to be received by Pivot shareholders pursuant to the Transaction is fair, from a financial point of view, to non-Founder Group Pivot shareholders (the "Fairness Opinion").
Recommendation of the Special Committee and Pivot Board
The Special Committee unanimously determined that the Transaction is in the best interests of the Company and recommended to the Board that the Company enter into the Arrangement Agreement and associated agreements required to give effect to the Transaction. The Special Committee also recommended to the Board that it recommend that the shareholders vote in favor of the Transaction. Based on the Fairness Opinion and the recommendation of the Special Committee, the Board has: (i) determined that the Transaction is in the best interests of Pivot; (ii) resolved to recommend that Pivot shareholders vote in favor of the Transaction; and (iii) determined that the consideration to be received by non-Founder Group Pivot shareholders pursuant to the Transaction is fair, from a financial point of view, to those shareholders.
Commentary
"We agree with the conclusions of the Fairness Opinion from Deloitte, and believe that the Preferred Securities represent an attractive investment opportunity for our shareholders" said Doug Stuve, Chair of the Special Committee. "Pivot has a track record of generating positive cash flow and this transaction provides an opportunity for Pivot's shareholders to receive significantly enhanced distributions derived from Pivot's underlying businesses."
Special Meeting of Shareholders - Approval requirements
The Board of Directors of Pivot intends to call a special meeting (the "Meeting") of Pivot shareholders, where the Company will seek approval of the Transaction, anticipated to be held in April 2016.
In accordance with requirements of applicable corporate law and securities law (including the requirements of Multilateral 61-101 - Protection of Minority Security Holders in Special Transactions applicable to a "business combination"), the required level of approval for the special resolution approving the Transaction will be (a) two thirds of the votes cast on the special resolution by shareholders present in person or represented by proxy at the Meeting and (b) a majority of the votes attached to the common shares held by shareholders present in person or represented by proxy at the Meeting, excluding for this purpose votes attached to common shares held by members of the Founder Group and related parties.
Arrangement Agreement
The Arrangement Agreement is subject to customary provisions, conditions of closing and termination rights, including termination at any parties' option if the Transaction has not been completed by May 31, 2016. In addition, the Company has the right to terminate the Arrangement Agreement if prior to obtaining shareholder approval, the Board authorizes the Company to enter into a definitive agreement in respect of a "Superior Proposal" (as defined). Termination of the Arrangement Agreement would not result in the payment of a termination fee.
Governance of PTS Holdco and Income Corp.
The Arrangement Agreement provides that effective on closing, PTS Holdco (as successor to the Company) will enter into a relationship agreement with Income Corp, pursuant to which Income Corp would have the right to nominate a minimum of one-third of the directors of PTS Holdco. The balance of the directors of PTS Holdco will be appointed by the Founder Group.
The board of Income Corp will consist of three current independent directors of the Company, each of whom will also be a trustee of a voting trust that will hold the sole common share of Income Corp.
The Founders
Upon completion of the Transaction, the Founder Group will own all of the shares of PTS Holdco and accordingly will control 100% of the Company. The members of the Founder Group consist of entities controlled by Gordon McMillan, a director of the Company, Shane Maine and Dana Gilman.
Closing Conditions and Completion
The Transaction is subject to various closing conditions, including receipt of Court approval, shareholder approval, and stock exchange approval to the listing of the Preferred Securities. Upon receipt of required approvals, the Company anticipates completion of the Transaction in the second quarter of 2016.
Further Details
Further details with respect to the Transaction will be included in the information circular to be mailed to Pivot shareholders in connection with the Special Meeting. The information circular and other relevant documents relating to the Transaction, including the Arrangement Agreement, will be filed on Pivot's SEDAR profile and will be available for viewing at www.sedar.com. All references in this press release to "$" are to Canadian dollars.
Conference Call
The Company will host a conference call on January 26, 2016 at 11:00 am ET. DATE: Tuesday, January 26, 2016
TIME: 11:00 am ET DIAL-IN NUMBER: 1 (647) 427-7450 or 1 (888) 231-8191 TAPED REPLAY: 1 (416) 849-0833 or 1 (855) 859-2056 Available from January 26, 2016 14:00 ET to February 2, 2016 23:59 ET Reference number: 38829041
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