Northern Frontier Corp.
TSX VENTURE : FFF.P

August 13, 2013 19:07 ET

Northern Frontier Corp. Provides an Update to the Proposed Acquisition of the NEC Group and Announces Filing of Preliminary Prospectus for the Offering of Units

CALGARY, ALBERTA--(Marketwired - Aug. 13, 2013) -

Not for Distribution to United States Newswire Services or for Dissemination in the United States

Northern Frontier Corp. (TSX VENTURE:FFF.P) (the "Corporation" or "Northern Frontier") is pleased to announce that it has entered into an amending agreement ("Amending Agreement") related to the purchase agreements announced on April 23, 2013, pursuant to which the Corporation, through its wholly-owned subsidiary, 1739365 Alberta Ltd., will acquire all of the issued and outstanding shares of 794522 Alberta Ltd. ("Numberco"), which carries on the business of the NEC Group (defined below), and certain assets held by CRC Open Camp & Catering Ltd. (the "CRC Carve-out Assets") that are used in the NEC Group business (together, the "Acquisition").

Numberco, along with its wholly-owned subsidiary, NEC Contractors (2012) Inc. ("NEC", and collectively with Numberco, the "NEC Group") provides sustaining capital services to large industrial energy customers in the steam assisted gravity drainage ("SAGD") region of northeastern Alberta. The NEC Group's head office and shop is located in Lac La Biche, Alberta and its field location is in Conklin, Alberta which is central to the substantial industrial energy production developments in the vicinity. The business focuses on the ongoing demand for services to support operating facilities, sustaining capital expenditures to maintain production levels of those facilities and the development of new production capacity.

The aggregate purchase price payable in connection with the Acquisition is approximately $56.9 million, subject to adjustment, consisting of approximately $50.9 million in cash, $5.0 million worth of securities of the Corporation, plus an additional deferred cash payment of $1.0 million payable March 31, 2014. The Corporation and the NEC Group agreed to a 3.9x purchase price multiple of the combined, pro forma adjusted earnings before interest, taxes, depreciation and amortization ("Adjusted EBITDA") of the NEC Group's business (including the CRC Carve-out Assets) of $12.8 million, normalized for significant capital asset additions made by the NEC Group during fiscal 2012. In addition, the purchase price in connection with the Acquisition is to be positively adjusted to address capital asset additions made subsequent to the agreed purchase price date but before the closing date of the Acquisition. The Corporation and the NEC Group estimate this adjustment to account for approximately $7.4 million of the aggregate purchase price.

Preliminary Prospectus

The Corporation also announces that it has filed, and received a receipt in respect of a preliminary prospectus dated August 12, 2013 for an offering (the "Offering") of subscription receipts ("Subscription Receipts") for aggregate gross proceeds of a minimum of $18.0 million. Each Subscription Receipt will entitle the holder to receive, without payment of additional consideration, one common share of the Corporation ("Common Share") and one-half of one common share purchase warrant. Each full purchase warrant ("Warrant") will entitle the holder to acquire one Common Share at a price of $4.00 per share for a period of 18 months following the closing date of the Acquisition. The preliminary prospectus is available at www.sedar.com under the Corporation's issuer profile. This Offering updates the preliminary prospectus filed on April 23, 2013 to reflect the first quarter financial results of the Corporation and Numberco, the terms of the Amending Agreement and proposed Credit Facilities (defined below).

The Corporation has engaged GMP Securities L.P. and Raymond James Ltd. as co-lead agents, together with Acumen Capital Finance Partners Limited and Cormark Securities Inc. (the "Agents") to complete the Offering at $3.50 per Subscription Receipt (the "Offering Price"). The Agents will receive a cash fee equal to 6% of the gross proceeds of the Offering. The net proceeds of the Offering will be used by the Corporation to fund a portion of the purchase price of the Acquisition. The preliminary prospectus is subject to the receipt of applicable regulatory approvals. The Offering will be qualified in the provinces of Alberta, British Columbia, Saskatchewan, Manitoba and Ontario. The Corporation will provide subsequent public disclosure regarding the Offering on completion of marketing efforts.

The Corporation has also agreed to grant the Agents an option (the "Over-Allotment Option") to purchase up to such number of additional Subscription Receipts and/or Common Shares and Warrants (as applicable, depending on when exercised) as is equal to 15% of the number of Subscription Receipts sold under the Offering to cover over-allotments, if any, and for market stabilization purposes. The Over-Allotment Option shall be exercisable, in whole or in part, on the closing of the Offering and for a period of 30 days thereafter.

Credit Facilities

In connection with the Acquisition, the Corporation has entered into a term sheet with a Canadian chartered bank with respect to a senior credit facility (the "Credit Facility"). If the Corporation raised the minimum offering amount, the Corporation expects to establish the Credit Facility on or prior to the closing of the Acquisition and utilize $21.5 million of the Credit Facility to fund a portion of the purchase price of the Acquisition. The Credit Facility is expected to consist of: (i) a $15.0 million committed revolving extendible credit facility; (ii) a $20.0 million committed revolving reducing extendible term loan; (iii) a treasury risk management facility subject to a limit of $1.0 million; and (iv) corporate MasterCard for up to $0.5 million. The term sheet with respect to the Credit Facility contains customary conditions precedent to the lender entering into the Credit Facility.

In addition, the Corporation has entered into a term sheet with a Canadian financial institution with respect to a $12.0 million 5-year term subordinated credit facility (the "Subordinated Facility", collectively with the Credit Facility, the "Credit Facilities") which is expected to be available in a single draw on the closing of the Acquisition and will be used to fund a portion of the purchase price of the Acquisition. The term sheet with respect to the Subordinated Facility contains customary conditions precedent to the lender entering into the Subordinated Facility.

Any net proceeds raised by the Corporation in connection with the Offering above the minimum Offering of $18.0 million may be used by the Corporation to fund a larger portion of the purchase price of the Acquisition. In that event, the Corporation would reduce, at their discretion, the amounts drawn under the Credit Facilities in order to fund a portion of the purchase price.

NEC Group Financial Summary

The following Exhibit 1.1 has been prepared by the NEC Group management and includes specific financial statement balances from the unaudited condensed interim consolidated financial statements of Numberco for the three months ended March 31, 2013 and audited consolidated financial statements of Numberco for the twelve months ended December 31, 2012, the five months ended December 31, 2011, the twelve months ended July 31, 2011 and twelve months ended July 31, 2010 which were prepared in accordance with Canadian generally accepted accounting principles which are International Financial Reporting Standards ("IFRS") for the Corporation. The following financial information includes the accounts of both Numberco and NEC provided that NEC was incorporated on December 23, 2011, and financial statements prior to this date only represent the accounts of Numberco.

Exhibit 1.1

$Cdn. Three Months
Ended Mar 31,
2013
Year Ended
Dec 31, 2012
Five Months
Ended
Dec 31, 2011
Year Ended
Jul 31, 2011

Year Ended
Jul 31, 2010
Revenue 18,979,226 42,596,121 13,923,892 29,115,138 13,693,485
Gross profit 4,889,672 8,894,432 2,845,287 6,081,606 1,827,655
Net profit (loss) 1,948,338 1,637,169 715,075 1,906,860 (1,053,876 )
Total Assets 35,611,043 23,664,002 17,080,787 12,551,202 7,544,533
Total Liabilities 30,828,788 20,830,085 15,884,039 12,069,529 8,969,740

The following Exhibit 1.2 has been prepared by Northern Frontier to provide additional disclosure of non-GAAP measures. The pro forma Adjusted EBITDA reflects the combined performance of the NEC Group and CRC Carve-out Assets for the respective periods presented.

Exhibit 1.2

$Cdn. Three Months
Ended Mar 31,
2013
Year Ended
Dec 31, 2012
Five Months
Ended
Dec 31, 2011
Year Ended
Jul 31, 2011

Year Ended
Jul 31, 2010
Pro forma Adjusted EBITDA 5,585,414 11,161,367 3,165,627 7,516,219 2,688,776
% of revenue 29.4 % 26.2 % 22.7 % 25.8 % 19.6 %

Regulatory Matters

Trading in the Common Shares will remain halted until such time as the TSX Venture Exchange (the "Exchange") has received the documentation required by Policy 2.4 - Capital Pool Companies.

Completion of the Acquisition is subject to a number of conditions including, but not limited to, Exchange acceptance and, if applicable pursuant to the requirements of the Exchange, majority of the minority shareholder approval. Where applicable, the Acquisition cannot close until the required shareholder approval is obtained. There can be no assurance that the Acquisition will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the preliminary prospectus of the Corporation, any information released or received with respect to the Acquisition may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

The Exchange has in no way passed upon the merits of the Acquisition and has neither approved nor disapproved the contents of this news release.

Non-GAAP Measures

Adjusted EBITDA

"Adjusted EBITDA" is defined as earnings before interest, taxes, depreciation and amortization and other specific expenses and exclusive of the charges paid to CRC for the rental of the CRC Carve-out Assets net of associated costs incurred by CRC related to these assets. Adjusted EBITDA is a supplemental non-GAAP financial measure that is not recognized under IFRS and does not have a standardized meaning prescribed by IFRS. Adjusted EBITDA should not be considered as an alternative to, or more meaningful than, net profit and comprehensive income or cash flows from operating activities as determined in accordance with IFRS or as an indicator of operating performance or liquidity. Management believes that Adjusted EBITDA is a useful supplemental measure as it provides an indication of the results generated by the principal business activities after considering CRC's related party relationship with the NEC Group and prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions. The computations of Adjusted EBITDA may not be comparable to other similarly titled measures of other companies, and accordingly Adjusted EBITDA may not be comparable to measures used by other companies.

Forward Looking Information

This news release includes certain statements that constitute forward-looking statements under applicable securities legislation. All statements other than statements of historical fact are forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as "may", "will", "should", "expect", "plan", "anticipate", "believe", "estimate", "predict", "potential", "continue", or the negative of these terms or other comparable terminology. These statements are made as of the date of this news release and the Corporation does not undertake to publicly update these forward-looking statements except in accordance with applicable securities laws. These forward-looking statements include, among other things:

  • completion of the Acquisition and the Offering;

  • anticipated use of net proceeds from the Offering;

  • the availability of the Credit Facilities, and the amounts drawn under the Credit Facilities;

  • anticipated benefits of completing the Acquisition and the Offering; and

  • terms and conditions of the Acquisition.

These statements are only predictions and are based on current expectations, estimates, projections and assumptions, which the Corporation believes are reasonable but which may prove to be incorrect and therefore such forward-looking statements should not be unduly relied upon. In making such forward-looking statements, assumptions have been made regarding, among other things, industry activity, marketability of the services of the NEC Group, the state of financial markets, business conditions, continued availability of capital and financing, future oil and natural gas prices and the ability of the Corporation to obtain necessary regulatory approvals. Although the Corporation believes the expectations expressed in such forward-looking statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the forward-looking statements.

By its nature, forward-looking information involves numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur. These risks and uncertainties include: the possibility that the parties will not proceed with the Acquisition and the Offering, that the ultimate terms of the Acquisition and the Offering will differ from those that are currently contemplated, that the Acquisition and Offering will not be successfully completed for any reason (including the failure to obtain the required approvals from regulatory authorities) and regulatory changes. Investors are cautioned that forward-looking statements are not guarantees of future performance and actual results or developments may differ materially from those projected in the forward-looking statements. For more information on the Corporation, investors should review the Corporation's continuous disclosure filings that are available at www.sedar.com.

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

Contact Information

  • Northern Frontier Corp.
    Bradford N. Creswell
    President and Director
    (206) 689-5685
    (206) 204-1710 (FAX)