Nordex Explosives Ltd.
TSX VENTURE : NXX

Nordex Explosives Ltd.

July 18, 2016 14:22 ET

Nordex Explosives Announces EPC Transaction Price Increase to $0.18 and Completion of Definitive Agreements

KIRKLAND LAKE, ONTARIO--(Marketwired - July 18, 2016) - Nordex Explosives Ltd. ("Nordex") (TSX VENTURE:NXX) is pleased to announce today that, at the request of the Board of Nordex, Société Anonyme d'Explosifs et de Produits Chimiques ("EPC") has agreed to improve its binding offer and to increase the price per share it will pay to shareholders in connection with the "Going Private Transaction" announced by Nordex in its press release of June 15, 2016 (the "June 15 Press Release") to $0.18 per share.

Omnia Holdings Limited Proposal

Nordex wishes to take this opportunity to respond to the Omia Holdings Limited press release dated July 14, 2016 that announced it "currently intends" to make an offer to acquire all of the outstanding commons shares of Nordex through its mining division ("BME"). It is important to clarify that, while BME has indicated it would launch its offer by the end of July, there is currently no binding offer available to shareholders to sell their shares to BME and that, despite the press release, BME is under no obligation to follow through on its current intentions. BME noted that even if launched, the obligation to complete the offer would be subject to many conditions, including that fully two-thirds, or approximately 13.6 million, of all outstanding shares must be tendered before it has any obligation to take up any shares. Further, it must obtain all third party consents including regulatory consents prior to taking up any shares - to the knowledge of Nordex, BME has not yet approached any of such parties to inquire whether these consents would be forthcoming. Finally, BME has indicated that it would not be obligated to purchase any securities of Nordex if a "material adverse change" occurs with respect to Nordex but it has not provided any clarity what events it considers would constitute such a change. While Nordex is pleased that BME has shown an interest in Nordex, shareholders should understand that there is no commitment on BME to launch any offer and that much has to occur before they would have an opportunity to actually sell their shares to BME, including the passage of at least 105 days from the date any offer is launched.

After Nordex announced the Offer Letter with EPC, BME offered to enter into alternate transactions with Nordex. However, after a review of such offer, the Board of Directors concluded it was inferior to the EPC's proposals for the following reasons:

  • BME had not received the approval of its board of directors for its offer to Nordex at that time, and wanted to include a condition that the deal would not proceed if such approval was not forthcoming. Subsequently, it removed this condition after Nordex notified it that this condition would not be acceptable but it was apparent that BME wished to leave an exit for itself if it changed its mind at any point in the process;
  • BME also agreed to fund Nordex in order to pay out higher interest rate debt and to provide working capital; however, it proposed to inject such funds by way of debt in the amount of up to $5.5m which would be repayable no later than November 30, 2016 and earlier in the event it could not acquire all the shares of Nordex pursuant to a takeover bid or if it could not reach agreement with Nordex lenders (see immediately below). The Board of Directors noted that these conditions were out of the control of Nordex, and if not met would lead to Nordex insolvency if it could not find alternate funding in short order, but BME did not alter its proposal to accommodate these concerns.
  • As with the EPC offer, the BME offer was conditional on entering into debt repayment agreements with Nordex's major lenders; NIL Funding Corporation ("NIL"), Jograh Investments Ltd. ("Jograh") and the Royal Bank of Canada ("RBC"). However, EPC already had agreements or arrangements with NIL, Jograh and RBC, while BME had not yet had discussions with any of these lenders. Moreover, the Board of Directors believed that it was unlikely that BME would be able to convince RBC to agree that the BME offer was superior to that of EPC given the timing of the proposed transaction and since the BME proposal would materially increase the debt load of Nordex and significantly increase RBC's risk exposure to Nordex and therefore a critical condition to completion of the BME offer would not be met.
  • As noted, BME's offer included debt which would negatively impact Nordex' cash flow and compromise its ability to continue as a going concern in the near term. Since that debt would carry a 10% interest rate and was due and repayable in its entirety on November 30, 2016 regardless whether the takeover was successful, the Board felt it posed too much uncertainty for all of the Corporation's stakeholders, including its suppliers and employees, since Nordex was not aware of any plan in place to deal with the debt when it became due;
  • BME's offer initially did not include any provisions to pay to Nordex a "break fee" if BME did not follow through on its commitments regarding the loans or takeover bid (unlike the EPC Offer Letter, which included a $200,000 break fee). As Nordex was obligate to pay a $500,000 break fee to EPC if it determined to accept the BME offer instead, Nordex felt it needed the protection of such a fee if BME did not follow through (a legitimate concern given the many conditions precedent, risks and uncertainties associated with the BME offer). BME's offer included that Nordex would have to pay a $500,000 break fee to BME if, among other things, Nordex accepted a superior offer; however, BME ultimately only offered to pay a $250,000 "expense reimbursement" fee, also on certain conditions, which the Board felt was inadequate to cover its exposure.
  • BME's proposed "superior proposal" language was more restrictive than that of EPC's in that it required the value to be at least 125% of its proposal, making the likelihood of a completing offer less likely.

Overall, when viewing BME's proposal in its entirely, the Board of Directors felt that BME's proposal did not contain as much deal certainty as that of EPC, was potentially catastrophic from a financial point of view if there were any impediments to closing and that BME had left itself too many avenues to cleanly walk away at any time during the process. While the Board obviously recognizes that BME's per-share price offer was higher than that of EPC's, the Board determined that there were too many risks and delays associated with the BME offer that it would not be in the best interests of the Corporation to reject the EPC transaction in favour of BME. It should also be noted that BME has never made any binding proposals to Nordex during previous discussions, and that the price for Nordex' shares that BME previously proposed during such non-binding discussions was significantly lower than the $0.18 to which EPC ultimately legally agreed to pay.

As a result, the Board of Directors would like to reiterate that it continues to support the offer that EPC has made to Nordex and its shareholders for the following reasons:

  • the Change of Control Transaction (as defined below) which will inject significant equity into Nordex and the Going Private Transaction are not linked - if the latter does not proceed, the former would leave Nordex on much better financial footing than it is now and certainly better than it would be if the BME transaction were to proceed under the terms indicated to Nordex;
  • EPC has diligently entered into satisfactory agreements with all of Nordex' major lenders, thus clearing a significant hurdle to completion of the transactions;
  • EPC has obtained all necessary regulatory consents to complete its proposed transactions, including the conditional approval of the TSX Venture Exchange and confirmation from Industry Canada of receipt of a completed notice of investment and that the investment of EPC in Nordex is not reviewable under Part IV of the Investment Canada Act. As a result, the 45 day "window" to provide notice of a review with respect to national security will end August 13, 2016 and if no notice is received, closing can occur on any date afterwards. As noted above, it does not appear that BME has begun this process of obtain regulatory consent;
  • as noted below, definitive agreements between Nordex and EPC regarding the proposed transactions have now been completed, clearing the way to close such transactions immediately following receipt of the necessary shareholder approvals. As a result, assuming such approvals are received, funds can begin to flow to both Nordex and the shareholders in August. If the BME offer actually proceeds to completion, the earliest funds would flow is November and unless 90% of the outstanding shares are tendered there would be a further delay while BME conducts a "second step" transaction;
  • EPC proposes to inject capital into Nordex by way of (non-repayable) equity rather debt, enabling Nordex to significantly "clean up" its balance sheet and pay out all of its high interest debt obligations. The resulting increase in available cash flow puts Nordex on a much better footing to continue to grow its operations;
  • EPC has entered into voting support agreements with a major shareholder of Nordex and all of its directors and officers. As a result, shareholders holding approximately 20% of the outstanding securities have already agreed to support the EPC transactions - as the "Change of Control" and "Going Private" (see Definitive Share Purchase and Amalgamation Agreements" below) require a simple majority and a two-thirds majority, respectively, of those shares voted at the Meeting (see "Shareholder Meeting" below), EPC is already well on its way to receiving the necessary shareholder approvals;
  • EPC already has a foothold in the North American explosives-related markets and it is expected that there are possibilities for synergies that will benefit Nordex and all of its stakeholders. Moreover, EPC also has many years of experience and has indicated it will bring the benefit of such experience as well as its considerable resources to bear on the operations of Nordex, which the Board of Directors believes will be considerably beneficial to the company and its stakeholders, particularly the employees and the community of Kirkland Lake and surrounding areas.
  • The shareholder meeting process is already underway, with a meeting currently anticipated to be held on or about August 12, 2016. As a result, shareholders will have an opportunity much more quickly to realize value with respect to their shares than they will with the BME proposal.

For all of these reasons and in light of past discussions with BME, the Board of Directors believes that the EPC transactions evidence better value for the Nordex shareholders since EPC transactions are much more beneficial to the business and affairs of Nordex and the risks to completion are much lower than the alternatives. Furthermore, despite the EPC binding offer being in the Board's view for all those reasons superior to the BME proposal, the Board has convinced EPC to improve and increase its offer to the shareholders.

Definitive Share Purchase and Amalgamation Agreements

Nordex further announced, in connection with the Offer Letter, that EPC and Nordex have entered into a definitive share purchase agreement (the "Share Purchase Agreement") and a definitive amalgamation agreement (the "Amalgamation Agreement") with EPC, as further described below. The descriptions are qualified in their entirety by the full text of these agreements, which are available under the Corporation's profile on www.SEDAR.com.

Pursuant to the Share Purchase Agreement, EPC, or a wholly-owned subsidiary of EPC, will subscribe for 41,445,459 common shares of Nordex at a price of $0.12 per share, which remains unchanged, for gross proceeds of $4,973,455.08 (the "Change of Control Transaction").

As described in the June 15 Press Release, Nordex and EPC also propose to complete a transaction whereby EPC will become the sole shareholder of Nordex (the "Going Private Transaction" and, together with the Change of Control Transaction, the "Transactions"). Nordex and EPC have entered into the Amalgamation Agreement to complete the Going Private Transaction by way of amalgamation of Nordex and a wholly-owned subsidiary of EPC under the Canada Business Corporations Act (the "Amalgamation"), pursuant to which all of the issued and outstanding common shares of Nordex, other than those held by EPC or its affiliates, will be exchanged, on a one-for-one basis, into redeemable preference shares ("Redeemable Shares") of the amalgamated corporation ("Amalco"). The Redeemable Shares will then be immediately redeemed by Amalco in exchange for $0.18 per share payable in cash, which represents an increase of 20% of the initial price per share offered by EPC to the shareholders of Nordex.

Each of the Change of Control Transaction and the Going Private Transaction is subject to customary closing conditions as specified in the Share Purchase Agreement and the Amalgamation Agreement, respectively.

Shareholder Meeting

In accordance with the policies of the TSX Venture Exchange, the Change of Control Transaction will require approval of a majority of the votes cast by shareholders of Nordex, voting in person or by proxy, at the annual and special meeting of the shareholders of Nordex which is currently expected to be held on or about August 12, 2016 (the "Meeting"). The Going Private Transaction will require the approval of 66 2/3% of the votes cast by shareholders of Nordex, voting in person or by proxy, at the Meeting.

The management information circular (the "Circular") and form of proxy in relation to the Meeting, along with the letters of transmittal, will be mailed to registered holders of common shares of Nordex and will be available under the profile of Nordex at www.SEDAR.com. The letters of transmittal will explain how registered holders of Nordex common shares can deposit and obtain payment for their Nordex common shares upon completion of the Going Private Transaction. Registered holders of Nordex common shares must return their duly completed letters of transmittal to the depositary to be appointed in connection with the Going Private Transaction in order to receive the consideration to which they will be entitled for their Nordex common shares upon completion of the Going Private Transaction. Non-registered holders of Nordex common shares should carefully follow the instructions from the broker, investment dealer, bank, trust company, custodian, nominee or other intermediary that holds Nordex common shares on their behalf.

Complete details of the terms and conditions of the Change of Control Transaction and the Going Private Transaction are set out in the Share Purchase Agreement and the Amalgamation Agreement, respectively, which will be filed by Nordex under its profile on SEDAR at www.sedar.com.

Further information regarding the Transactions will be contained in the Circular which will be filed on SEDAR at the time that it is mailed to shareholders. All shareholders are urged to read the information circular once it becomes available, as it will contain additional important information concerning the Transactions. Nordex expects to mail the information circular to shareholders on or about July 22, 2016 and currently expects to hold the Meeting on or about August 12, 2016. The parties expect that the Transactions will be completed shortly after the Meeting, assuming they receive the approval of the shareholders and subject to satisfaction of all conditions to closing set out in the Share Purchase Agreement and the Amalgamation Agreement.

About EPC

EPC Groupe (www.epc-groupe.com), a pioneer in France in manufacturing and distributing industrial explosives, is one of the leading independent players in the core business of explosives and drilling and blasting in Europe, the Middle East and Africa. With total annual revenues of approximately Cdn$480,000,000 and over 1,800 employees, the EPC Groupe is currently active in more than 20 countries around the world. For over 120 years, the EPC Groupe has been committed to providing solutions for its customers: geographically, technically and commercially. This commitment is demonstrated both by its global and expanding presence as well as by its development of innovative technologies. For Olivier Obst, Chairman and CEO of EPC, "the integration of Nordex within the EPC Groupe is a synergy driven operation. It is a unique opportunity as it will both allow EPC to develop its presence in North America and will provide Nordex with a wider range of technologies, products and services in order to consolidate its existing activity and access new market segments."

About Nordex Explosives

Nordex Explosives Ltd. is a Canadian based manufacturer and distributor of explosives for the mining, quarry and construction industries since 1970. Its manufacturing operations and distribution centre is strategically located in one of the world's largest mining regions near Kirkland Lake, Ontario. Nordex is the exclusive supplier of the "Buttbuster" perimeter control explosive products in Canada. Additional information can be found at: www.nordexexplosives.com.

Disclosure Regarding Forward-Looking Statements

This press release contains certain "forward-looking statements" within the meaning of applicable securities legislation relating to the proposal to complete the Change of Control Transaction and the Going Private Transaction and associated transactions, including statements regarding the terms and conditions of the Transactions and the use of proceeds of the Change of Control Financing. The information about EPC contained in this press release has not been independently verified by Nordex. We use words such as "might", "will", "should", "anticipate", "plan", "expect", "believe", "estimate", "forecast" and similar terminology to identify forward looking statements and forward-looking information. Such statements and information are based on assumptions, estimates, opinions and analysis made by management in light of its experience, current conditions and its expectations of future developments as well as other factors which it believes to be reasonable and relevant. Forward-looking statements and information involve known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from those expressed or implied in the forward-looking statements and information and accordingly, readers should not place undue reliance on such statements and information. Although the Corporation believes, in light of the experience of its officers and directors, current conditions and expected future developments and other factors that have been considered appropriate, that the expectations reflected in this forward-looking information are reasonable, undue reliance should not be placed on them because the Corporation can give no assurance that they will prove to be correct. In evaluating forward-looking statements and information, readers should carefully consider the various factors which could cause actual results or events to differ materially from those expressed or implied in the forward looking statements and forward-looking information depending on, among other things, the risks that the parties will not proceed with the Change of Control Transaction or the Going Private Transaction and/or other associated transactions, that the ultimate terms of the Transactions, will differ from those currently contemplated, and that the Change of Control Transaction or the Going Private Transaction and/or other associated transactions will not be successfully completed for any reason (including the failure to obtain the required approvals or clearances from regulatory authorities). The statements in this press release are made as of the date of this release. The Corporation undertakes no obligation to comment on analyses, expectations or statements made by third parties in respect of the Corporation, EPC, or their respective financial or operating results (as applicable).

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This press release is intended for distribution in Canada only and is not intended for distribution to United States newswire services or dissemination in the United States. The securities being offered have not been, nor will they be, registered under the United States Securities Act of 1933, as amended, or any state securities laws and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons absent U.S. registration or an applicable exemption from the U.S. registration requirements. This release does not constitute an offer for sale of securities in the United States.

All information contained in this press release relating to EPC was provided by EPC to Nordex for inclusion herein. Nordex has not independently verified such information and shall bear no liability for any misrepresentation contained therein.

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