Pacific Safety Products Inc.
TSX VENTURE : PSP

Pacific Safety Products Inc.

April 18, 2012 11:25 ET

Pacific Safety Products Inc. Signs Letter of Intent for Proposed Reverse Take-Over Transaction With ArmorWorks Enterprises Canada, ULC

ARNPRIOR, ONTARIO--(Marketwire - April 18, 2012) -

NOT FOR DISTRIBUTION IN THE UNITED STATES OR FOR DISSEMINATION TO U.S. NEWS WIRE SERVICES AND DOES NOT CONSTITUTE AN OFFER OF THE SECURITIES DESCRIBED HEREIN. THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES UNLESS REGISTERED OR EXEMPT THEREFROM.

Pacific Safety Products Inc. ("PSP" or the "Company") (TSX VENTURE:PSP), announced today that it has entered into a Letter of Intent ("LOI") dated April 17, 2012 with ArmorWorks Enterprises LLC ("AWE") to acquire all of the issued and outstanding shares of ArmorWorks Enterprises Canada, ULC ("AW Canada") in a reverse take-over transaction (the "Transaction"). Upon completion of the Transaction, the combined entity (the "Resulting Issuer") will look to be one of Canada's leading survivability companies, providing a full range of protective products for the military, law enforcement and security sectors.

Information Concerning AW Canada and AWE

AW Canada was founded in 2009 as an indirectly owned subsidiary of AWE and is an unlimited liability company existing under the laws of British Columbia. AWE is a limited liability company existing under the laws of Arizona and is indirectly controlled by William J. Perciballi of Phoenix, Arizona. AWE is a leading provider of advanced survivability products to military and law enforcement agencies worldwide since 1996.

AW Canada services Canadian and international markets by designing and building advanced armour and survivability products including hard and soft body armour, armour protection for land, sea and airborne vehicles, and mine blast energy attenuating seating for land-based vehicles. Its manufacturing facility located in Kelowna, British Columbia has state-of-the-art manufacturing equipment including an automated high capacity autoclave, high-pressure press and advanced ballistic test lab. Personnel at the facility include an experienced engineering staff, skilled management and a highly trained production team. AW Canada currently employs 30 individuals and anticipates an increase to 45 by June due to a recent contract award from GDLS Canada for vehicle survivability components for the Canadian LAV III upgrade program. AW Canada is also a major partner in Team TimberWolf, a consortium of companies competing for the multi-billion dollar Canadian Tactical Armored Patrol Vehicle Program (TAPV). The program award is expected in approximately June of this year and a Team TimberWolf win would position AW Canada to add an estimated 150 additional jobs in the next three years.

Selected AW Canada Financial Information

As the Canadian startup unit of AWE, AW Canada generated a loss of $2.1 million for the year ended December 31, 2011 on revenues of $4.1 million and an asset base of $3.4 million (U.S. dollars, unaudited). This loss is due to significant investment in R&D, facility setup, management recruitment and other startup costs which were required to position the company for the substantial growth opportunities in the Canadian and international markets.

Transaction Summary

The Transaction is an arm's length transaction and will constitute a reverse take-over under the policies of the TSX Venture Exchange (the "TSX-V"). Completion of the Transaction (the "Closing") is subject to, among other conditions some of which are listed below, the approval of a simple majority of PSP shareholders, and PSP intends to convene a special meeting of shareholders (the "Meeting") to seek such shareholder approval as soon as practicable following the execution of a definitive share exchange agreement and receipt of all required TSX approvals.

PSP currently has issued and outstanding: (i) 57,454,895 common shares (the "PSP Common Shares"); (ii) incentive stock options to purchase 4,875,000 PSP Common Shares, each exercisable at a price of $0.10 per share; and (iii) $1,000,000 principal amount of debentures which are convertible into PSP Common Shares at a price of $0.10 per share (the "Convertible Debentures"). At the Meeting PSP intends to seek the approval of its shareholders to consolidate the PSP Common Shares on a 10 for 1 basis (the "Consolidation"). Assuming completion of the Consolidation, PSP would have issued and outstanding immediately prior to Closing: (i) 5,745,489 post-Consolidation PSP Common Shares; (ii) incentive stock options to purchase 487,500 post-Consolidation PSP Common Shares, each exercisable at a price of $1.00 per share; and (iii) $1,000,000 principal amount of Convertible Debentures which are convertible into post-Consolidation PSP Common Shares at a price of $1.00 per share.

At the Meeting, PSP will also seek shareholder approval to amend its articles to create convertible preference shares (the "PSP Preferred Shares"). The PSP Preferred Shares will be non-voting, will not pay a dividend and will be convertible, on a one-for-one basis, into post-Consolidation PSP Common Shares at any time provided the conversion will not result in the "public float" (within the meaning of the policies of the TSX-V) of PSP falling below 20% of the total post-Consolidation PSP Common Shares then outstanding.

It is currently contemplated that the Transaction will be completed by way of a share exchange agreement pursuant to which PSP will acquire all of the issued and outstanding shares of AW Canada in consideration for the issuance to AWE of: (i) 17,143,121 post-Consolidation PSP Common Shares; and (ii) 34,566,280 PSP Preferred Shares, each at a deemed value of $0.30 per share for aggregate consideration of $15,512,820. Pursuant to the Transaction, AW Canada will become a wholly-owned subsidiary of PSP and AWE will control approximately 75% of the PSP Common Shares and 90% of the total equity of the Resulting Issuer.

Conditions to the Transaction

The proposed Transaction is subject to a number of terms and conditions, including the entering into by the parties of a definitive agreement with respect to the Transaction (such agreement to include representations, warranties, conditions and covenants typical for a transaction of this nature), a cross licensing agreement for products designed by the respective parties, the completion of satisfactory due diligence investigations, the approval of the directors of each of PSP and AWE, the approval of the shareholders of PSP, and the approval of the TSX-V and other applicable regulatory authorities.

Prior to Closing, AWE will ensure that AW Canada has no long-term debt and that a $5,000,000 cash injection is made into the accounts of AW Canada.

Management and Board of Directors of Resulting Issuer

Upon Closing, two members of PSP's existing six member board of directors will be replaced with William J. Perciballi and Brad J. Field, each a nominee of AWE. In addition, AWE will be granted the right to nominate two-thirds of the management nominees to be proposed to shareholders for election as directors at the next annual general meeting of shareholders of the Resulting Issuer, provided the replacement of any new directors has been approved by the TSX-V.

Mr. Perciballi is the founder and President of AWE. He has more that twenty-five years experience in developing and producing armor and protective products, both in private and military organizations. He was an engineer in the U.S. Army Ballistic Research Laboratory and the U.S. Army Materials Technology Laboratory. Mr. Perciballi is a veteran of the Persian Gulf War. He holds a Bachelor of Science in industrial engineering technology from the University of Massachusetts Lowell.

Mr. Field is the founder and previous CEO of PSP. Under his tenure, PSP was named one of Canada's fastest growing companies for three years running from 1999 to 2001 and received an Okanagan Science and Technology Innovation award in 2005. He is currently a Director of Corporate Development for AWE with responsibilities in the US, Canada and UK assisting in defining the strategic direction of the business. Mr. Field is the recipient of three Entrepreneur of the Year awards, a Science and Technology Innovator of the Year award, the Queen's Golden Jubilee Community Achievement award and a St. John Ambulance Lifesaving award. He also holds numerous patents pertaining to safety related products.

Mr. Field is also expected to become Chief Executive Officer of the Resulting Issuer and lead an integrated management team.

Other Information

Closing of the Transaction is contemplated to take place on or about June 30, 2012 or such other date as may be agreed by AWE and PSP.

The LOI contains a non-solicitation covenant on the part of PSP and AWE and their respective directors, officers and affiliates.

Trading in PSP Common Shares will remain halted pending the satisfaction of all applicable requirements of the TSX-V. There can be no assurance that trading in PSP Common Shares will resume prior to the completion of the Transaction. Further details concerning the Transaction, AW Canada (including additional financial information) and other matters will be announced when a definitive agreement is reached.

PSP will engage a sponsor in connection with the Transaction if required in accordance with applicable TSX-V policies.

Information Concerning PSP

The mission statement of Pacific Safety Products Inc. is ...we bring everyday heroes home safely®. PSP is an established industry leader in the production, distribution and sale of high-performance and high-quality safety products for the defence and security market. These products include body armour to protect against ballistic, stab and fragmentation threats, ballistic blankets to reduce blast effects, tactical clothing, and protective products against chemical and biological hazards. PSP is the largest body armour manufacturer in Canada, directly supplying the Canadian Department of National Defence, Federal Government Agencies and major Canadian law enforcement organizations. The Company, through its U.S. subsidiary Sentry Armor Systems Inc., provides body armour products under the GH Armor Systems® brand to U.S. based law enforcement and private security firms. The Company also produces tactical clothing. Pacific Safety Products is a reporting issuer in British Columbia, Alberta and Ontario, Canada and publicly trades under the symbol PSP on the TSX Venture Exchange.

Forward-looking statements

This news release contains certain "forward looking statements" within the meaning of applicable securities laws, including, but not limited to, statements relating to the completion of the proposed Transaction on the terms set out herein or at all, convening the Meeting and the approval of the Transaction by PSP's shareholders, approval of the Transaction by regulatory authorities, satisfaction of the conditions to closing of the Transaction, PSP's anticipated share capital, management of the Resulting Issuer and the business of PSP and AW Canada.

With respect to the forward-looking statements contained in this news release, PSP has made numerous assumptions regarding, among other things, the ability of PSP, AW Canada and AWE to satisfy all of the closing conditions to complete the Transaction. Readers are cautioned that the plans, intentions or expectations disclosed in any forward-looking statements and underlying assumptions may not be achieved and that they should not place undue reliance on any forward-looking statement.

Such forward-looking statements relate to anticipated or assumed events or results and are based on management's expectations, estimates and projections. The forward-looking information contained herein is expressly qualified in its entirety by this cautionary statement. Although the Company believes that the expectations conveyed by the forward-looking information are reasonable based on information currently available to it, these statements are not guarantees and involve a number of risks, uncertainties and assumptions, both known and unknown. The results or events depicted in these forward-looking statements may differ materially from actual results or events. Many factors could cause results to differ materially from those stated including, but not limited to: the Transaction may not be completed upon the terms contemplated herein, or at all; the possibility of not satisfying all of the closing conditions to complete the Transaction; the possibility that PSP's shareholders do not approve the Transaction at the special meeting of shareholders; difficulties or delays in obtaining regulatory approvals; the ability of AW Canada or PSP to retain existing customer contracts; AW Canada or the Resulting Issuer may not be the winner of the TAPV program award; risks related to integration of acquisitions; and the ability to retain and obtain qualified staff as well as various other factors which are discussed in PSP's filings with applicable securities regulatory authorities at www.sedar.com. Any forward-looking statement speaks only as of the date of this news release and, except as may be required by applicable securities laws, PSP disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or results or otherwise.

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

Completion of the Transaction is subject to a number of conditions, including, but not limited to, acceptance by the TSX-V and shareholder approval. The Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the Transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement, as applicable, of PSP to be prepared in connection with the Transaction, any information released or received with respect to the Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of PSP should be considered to be highly speculative.

The 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.

Contact Information

  • Douglas Lucky
    Chief Executive Officer
    Pacific Safety Products Inc.
    (613) 623-6001
    www.pacsafety.com