LAVAL, QUEBEC--(Marketwire - Aug. 3, 2011) - Warnex Inc. (TSX:WNX) ("Warnex") is providing additional information regarding the agreement in principle reached with the holders of all of its outstanding debentures to extend the maturity date and modify various other terms of their debentures that was previously announced in its press release of July 6, 2011.
"We are pleased to have entered into an agreement in principle with our debenture holders providing Warnex the time and opportunity to restructure its balance sheet in an orderly fashion, while continuing to deliver high-quality services to our clients," said Mark Busgang, President and CEO of Warnex. "The deferral of interest payments creates some flexibility to invest in our business, which consistently generates positive operating cash flows, while we continue to work diligently on restructuring our balance sheet in order to create value for all our stakeholders."
The outstanding debentures, which are held by four different lenders and bear interest at the rate of 12% per annum, are as follows:
- a US$2,873,008 non-secured convertible debenture maturing on July 5, 2011.
- a US$1,000,000 non-secured convertible debenture maturing on July 5, 2011.
- a US$333,333 non-secured non-convertible debenture maturing on July 5, 2011.
- a CDN$500,000 non-secured non-convertible debenture maturing on July 5, 2011.
- a CDN$1,500,000 non-secured convertible debenture maturing on July 9, 2011.
These debentures contain standard anti-dilution adjustment provisions in respect of the exercise price and the number of common shares of Warnex (the "Common Shares") for which outstanding debentures are exercisable which apply in the event of certain capital reorganizations or distributions of securities or assets.
The outstanding debentures were originally issued on July 10, 2002, June 25, 2004 and October 24, 2006, the proceeds of which were used to fund the Genevision research and development program (which has since been discontinued) and other general corporate purposes.
As previously announced, pursuant to the agreement in principle which has been reached with each of the debenture holders, the principal amendments to be made to the debentures are as follows:
- the maturity date for all debentures will be extended to November 8, 2011, with an option for a further extension to no later than December 13, 2011, upon the occurrence of certain events and the agreement of the parties;
- interest owing pursuant to the debentures as of June 30, 2011, will be deferred and paid in cash on August 1, 2011;
- interest owing pursuant to the debentures following June 30, 2011, will be accrued and added to the principal amount thereof;
- at the option of the holder, (i) the principal amount of the debentures will be convertible into Common Shares at the lower of $0.06 and the market price of the Common Shares at the time of conversion and (ii) the accrued interest owing pursuant to the debentures will be convertible into Common Shares at the market price of the Common Shares at the time of conversion; and
- the debentures will be secured by a charge on all of the property and assets of Warnex and its subsidiaries.
Closing of the transaction is subject to regulatory approval and the execution of definitive agreements by all parties and is expected to occur in August 2011.
Persistence Capital Partners LP ("PCP"), the holder of two of the debentures described above, currently owns 12,238,750 Common Shares, representing 18.2% of the issued and outstanding shares of Warnex. PCP is a related party to Warnex as a result of its level of shareholdings in Warnex.
In accordance with the policies of the Toronto Stock Exchange ("TSX"), shareholder approval is required for the transaction on the basis that it (i) may result in the issuance of Common Shares in excess of 25% of the number of currently outstanding Common Shares, (ii) may result in the issuance of additional Common Shares to PCP in excess of 10% of the number of currently outstanding Common Shares and (iii) may have a material effect on the control of Warnex as a result of such potential issuance of additional Common Shares to PCP. However, Warnex intends to rely upon the financial hardship exemption from the requirement to obtain shareholder approval of this transaction as provided for in Section 604(e) of the TSX Company Manual. TSX has informed Warnex that reliance on such exemption will result in a TSX delisting review and that Warnex will be required to meet all of the continued listing requirements of the TSX to remain listed on such exchange. While Warnex intends to continue to take appropriate steps to meet such listing requirements to remain listed on the TSX, it also intends to concurrently initiate the process of potentially obtaining a listing on the TSX Venture Exchange. Warnex also intends to rely upon the financial hardship exemption from the requirement to obtain, as regards to PCP, minority shareholder approval of this transaction as provided for in Multilateral Instrument 61-101 of the Canadian Securities Administrators. In support of its reliance upon such exemptions, the Board of Directors of Warnex has determined that Warnex (i) is in serious financial difficulty, as a result of the possible inability of Warnex to meet its obligations when they become due under the outstanding debentures, (ii) that the extension of the maturity dates of the outstanding debentures will improve its financial position and (iii) that the terms of this transaction are reasonable to Warnex in the circumstances.
For illustration purposes only, set out below is a table setting forth different scenarios under which Common Shares could be issued to all of the debenture holders upon conversion of the amended debentures, showing the resulting shareholdings of the debenture holders and the resulting potential dilution factor to existing shareholders of Warnex, as well as the resulting shareholdings and percentage holdings of PCP, which is deemed to be an insider of Warnex. The assumed market prices used in this table are for illustration purposes only as required by the TSX and do not represent any particular expected scenario. The dilution factor represents the factor by which the current number of outstanding Common Shares, being 67,117,191 Common Shares, would be increased in each scenario. The figures in the table are based on the following assumptions:
- all of the debentures remain outstanding until December 13, 2011, at which time all accrued interest and principal are converted into Common Shares at the applicable conversion price; and
- US dollars are converted into Canadian dollars at an exchange rate of 0.9657.
|Assumed market price of Common Shares at time of conversion
||Number of Common Shares issuable to all debenture holders upon conversion of the debentures
||Total potential dilution factor
||Number of Common Shares issuable to PCP upon conversion of the debentures
||Percentage holdings of PCP
upon conversion of the debentures
Warnex (www.warnex.ca) is a life sciences company devoted to protecting public health by providing laboratory services to the pharmaceutical and healthcare sectors. Warnex Analytical Services provides pharmaceutical and biotechnology companies with a variety of quality control services, including chemistry, chromatography, microbiology, method development and validation, and stability studies. Warnex Bioanalytical Services specializes in bioequivalence and bioavailability studies for clinical trials. Warnex Medical Laboratories provides specialized testing for the healthcare industry as well as pharmaceutical and central laboratory services. Warnex PRO-DNA Services offers DNA identification tests for paternity, maternity and other family relationships, as well as for immigration and forensic testing purposes. Warnex has three facilities located in Laval and Blainville, Quebec, and Thunder Bay, Ontario.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this news release are forward-looking and are subject to numerous risks and uncertainties, known and unknown. For information identifying known risks and uncertainties, relating to financial resources, liquidity risk, key customers and business partners, credit risk, foreign currency risk, government regulations, laboratory facilities, volatility of share price, employees, suppliers, and other important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the heading Risks and Uncertainties in Warnex's most recent Management's Discussion and Analysis, which can be found at www.sedar.com. Consequently, actual results may differ materially from the anticipated results expressed in these forward-looking statements.