Spinrite Income Fund

Spinrite Income Fund

September 04, 2007 20:13 ET

Spinrite Income Fund Enters Into an Acquisition Agreement With Sentinel Capital Partners

LISTOWEL, ONTARIO--(Marketwire - Sept. 4, 2007) - Spinrite Income Fund (TSX:SNF.UN) announced today that it has entered into an acquisition agreement (the "Agreement") with Spinrite Acquisition Corp., a company indirectly controlled by Sentinel Capital Partners, a New York-based private equity firm ("Sentinel"). Under the terms of the Agreement, Sentinel will acquire all of the assets of the Fund which will result in the Fund's unitholders receiving $2.25 per unit (the "Consideration"). Sentinel and other existing securityholders (some of whom are senior management of the Fund) currently own securities representing a 20% interest in Spinrite Holdings LP, a subsidiary of the Fund. Upon completion of the acquisition, Sentinel will also assume the Fund's bank debt, which is currently estimated to be approximately $35 million at closing, and other liabilities. The $2.25 per unit purchase price will be paid to the Fund's unitholders by way of a redemption of the Fund's outstanding units. Subsequent to the redemption of the units, the Fund will be wound up.

This transaction is the outcome of a review of strategic alternatives conducted by a Special Committee of the Board of Trustees of the Fund, whose members are independent of Sentinel. The price of $2.25 per unit represents a 56.2% premium over the volume weighted average trading price for the Fund's units on the Toronto Stock Exchange for the previous 20 trading days, and is within the valuation range as established by National Bank Financial Inc., the independent valuator retained by the Special Committee.

National Bank Financial has provided a verbal opinion to the Board of Trustees that the Consideration to be received by the Fund's unitholders is fair, from a financial point of view, to the Fund's unitholders, other than Sentinel. Based on the recommendation of its Special Committee, the Board of Trustees has unanimously resolved to recommend that unitholders approve the transaction. The Fund will issue a management information circular which will contain its recommendation to unitholders together with the formal valuation and fairness opinion.

The Agreement contains a "go shop" provision pursuant to which the Fund has the right to solicit and engage in discussions and negotiations commencing immediately with respect to potential competing proposals through the go shop period, which ends on October 19, 2007. After October 19, 2007, the Fund will not be permitted to solicit third party proposals, and will be restricted in its ability to provide information and engage in discussions with newly identified third parties. However, it will maintain the ability in certain circumstances to complete negotiations already in progress.

Royal Capital Management Corp. ("RoyCap"), which owns 3,662,458 units of the Fund, representing approximately 18.04% of the issued and outstanding units of the Fund, has signed a voting agreement with Sentinel, pursuant to which RoyCap has agreed to vote its units in favour of the transaction, subject to the terms and conditions thereof. The terms of the voting agreement also allow RoyCap to tender its units into a Superior Proposal or vote its units in favour of a Superior Proposal, as applicable.

The completion of the transaction is subject to the approval of the Fund's unitholders at a special meeting which is expected to be held on November 14, 2007. The transaction must be approved by the holders of units representing more than two thirds of the units represented at the meeting and by the holders of more than 50% of the units represented at the meeting, other than units held by certain members of senior management of the Fund and Sentinel.

The Fund may terminate the Agreement under certain circumstances, including if the Board of Trustees determines in good faith that it has received a Superior Proposal (as provided in the Agreement). If the Fund terminates the Agreement in order to accept a Superior Proposal, it must pay fees and expenses of approximately $1.5 million to Sentinel if such termination occurs during the go shop period or approximately $2.4 million if such termination occurs following the go shop period, representing approximately 1.6% and 2.6%, respectively, of transaction value (including all subordinated units and estimated debt at closing). Following the go shop period, Sentinel will have a right to match any Superior Proposal.

Pursuant to the terms of the Agreement, Sentinel has agreed that, in the event that the Fund accepts a Superior Proposal, Sentinel will tender the securities it owns into the Superior Proposal or vote its securities in favour of the Superior Proposal, as applicable. Sentinel has also agreed to waive its securityholder approval rights under the securityholders agreement dated February 8, 2005 among the Fund and certain of its subsidiaries, among others, in connection with a Superior Proposal.

Sentinel has represented to the Fund that it has obtained equity and debt financing commitments for the transaction contemplated by the Agreement, the aggregate proceeds of which will be sufficient to pay the aggregate cash consideration and related fees and expenses. Completion of the transaction is subject to various customary conditions precedent. Subject to the approval of the Fund's unitholders and the satisfaction or waiver to the other conditions of closing, the Fund and Sentinel expect to close the transaction on or about November 16, 2007.

BMO Capital Markets is acting as financial advisor to the Fund in connection with this transaction, including the solicitation of competing proposals during the go shop period. TD Securities is acting as financial advisor to Sentinel in connection with this transaction.

About Spinrite Income Fund

Spinrite Income Fund is the largest producer and marketer of craft yarn in Canada and one of the largest in the United States. Established in 1952, Spinrite researches, develops, manufactures and markets a broad variety of consumer craft yarns. The company also supports its market with patterns that provide customers with creative ideas for knitted products. Spinrite has approximately 470 employees at its fully integrated manufacturing and distribution centre in Listowel, Ontario.

Forward-Looking Statements

This press release may contain forward-looking statements relating to expected future events and financial and operating results of the Fund that involve risks and uncertainties. Actual results may differ materially from management expectations as projected in such forward-looking statements for a variety of reasons, including market and general economic conditions and the risks and uncertainties detailed from time to time in the Fund's annual information form filed with the Canadian securities regulatory authorities. Due to the potential impact of these factors, the Fund disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless required by applicable law.

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