TORONTO, June 9, 2017 /CNW/ - Redknee Solutions
Inc. ("Redknee" or the "Company") (TSX: RKN) announces that it
has entered into a Standby Purchase Agreement with Wave Systems
Corp. ("Wave"), an affiliate of ESW Capital, LLC ("ESW"), and ESW
in connection with the launching of an approximately
US$54 million rights offering, fully backstopped by Wave (the
"Rights Offering"). The net proceeds of the Rights Offering will be
used to fund a restructuring of the business (the "Restructuring")
in furtherance of the previously announced strategic plan (the
"Strategic Plan") which will, among other things, create a strong
platform for long-term growth, simplified operations and sustained
profitability for the Company. The Company is also announcing
certain leadership changes in connection with the
Restructuring.
Subject to the closing of the Rights Offering, the Company will
enter into (i) a services agreement with Crossover Markets,
Inc. ("Crossover") pursuant to which Crossover will provide the
Company with access to service providers (the "Crossover Services
Agreement"), and (ii) a technology services agreement with
DevFactory FZ-LLC ("DevFactory") pursuant to which DevFactory will
provide certain technology services to the Company (the "DevFactory
Services Agreement" and, together with the Crossover Service
Agreement, the "Services Agreements"). The Company has
extended the interim Services Agreements with Crossover and
DevFactory to the earlier of (i) the Special Meeting referred to
below, if the necessary shareholder approvals are not obtained, and
(ii) the termination of the Standby Purchase Agreement. Crossover
and DevFactory are affiliates of ESW.
Entering into the Standby Purchase Agreement represents the
outcome of a review of alternatives undertaken by a special
committee of independent directors (the "Special Committee") of the
board of directors of the Company (the "Board"), comprised of Mr.
Keith Graham (chair), Ms.
Christina Jones and Mr. Farhan Thawar (the "Independent Directors"). The
Special Committee was advised by TD Securities Inc., as financial
advisor, and Goodmans LLP, as legal advisor. The Special Committee,
with the assistance of its advisors, has determined that the Rights
Offering, the Standby Purchase Agreement and the Services
Agreements collectively represent the best available alternative
for the Company.
A copy of the Standby Purchase Agreement will be available on
the Company's profile at www.sedar.com.
Rights Offering, Standby Purchase Agreement and
Related Transactions
Subject to receipt of all necessary shareholder and regulatory
approvals, including those required by the Toronto Stock Exchange
(the "TSX"), the Company will undertake the Rights Offering and
offer to holders ("Shareholders") of subordinate voting shares
("Subordinate Voting Shares") of Redknee one right ("Right") for
each Subordinate Voting Share held at the close of business on the
record date for the Rights Offering (the "Record Date"). The Record
Date, currently anticipated to be in or around early August 2017, will be specified in a rights
offering circular (the "Rights Offering Circular") of the Company
which is expected to be filed with securities regulatory
authorities in each province and territory of Canada (the "Qualifying Jurisdictions") in
late July 2017. The Rights Offering
will allow all Shareholders the opportunity to maintain their pro
rata equity interests in the Company.
Each Right will be transferable. One
Right will entitle the holder to purchase one Subordinate
Voting Share (the "Basic Subscription Privilege") at a price equal
to the Canadian dollar equivalent of US$0.50 per Subordinate Voting Share (the
"Subscription Price"), as determined on the business day prior to
the Special Meeting (defined below).
The Rights Offering will remain open for at least 21 calendar
days following the date of mailing to Shareholders of the rights
offering notice (the "Rights Offering Notice") of the Company for
the Rights Offering. Any Rights not exercised on or before the time
that the Rights expire will be void and will have no value.
Pursuant to applicable securities laws, and to the extent that
other holders of Rights do not exercise all of their Rights under
the Basic Subscription Privilege, each holder of Rights who
exercises its full Basic Subscription Privilege will be entitled to
subscribe for additional Subordinate Voting Shares on a pro rata
basis at the Subscription Price in the manner prescribed by
securities laws and as further detailed in the Rights Offering
Circular (the "Additional Subscription Privilege").
Pursuant to the Standby Purchase Agreement, ESW has agreed to
exercise its Basic Subscription Privilege and Additional
Subscription Privilege. In addition, Wave has agreed to acquire, at
the Subscription Price, any Subordinate Voting Shares available
under the Rights Offering that are not otherwise subscribed for by
Shareholders, ensuring that Redknee will receive not less than
approximately US$54 million in gross proceeds under the Rights
Offering (the "Standby Commitment"). The Standby Commitment
provides certainty that the Rights Offering for aggregate gross
proceeds of approximately US$54
million will be completed, subject to the terms of the
Standby Purchase Agreement and any applicable regulatory
approvals.
Subject to the terms of the Standby Purchase Agreement,
including certain non-solicitation covenants, the Company may
terminate the Standby Purchase Agreement, upon the payment to Wave
of $1,080,000, if, prior to obtaining
Shareholder approval of the Transaction Resolution (as described
further below) and subject to a right of Wave to amend its Standby
Commitment to match any Superior Proposal (as defined in the
Standby Purchase Agreement), the Company accepts an Alternative
Financing Transaction Proposal or Acquisition Proposal (each as
defined in the Standby Purchase Agreement) that, in either case,
constitutes a Superior Proposal.
Pursuant to the Standby Purchase Agreement, and in consideration
solely for the Standby Commitment, the Company will issue to Wave a
subordinate voting share purchase warrant (the "Standby Warrant").
The Standby Warrant will entitle Wave to acquire 2,500,000
Subordinate Voting Shares at an exercise price of US$0.50 per share for a period of ten years from
the date of closing of the Rights Offering. The Standby Warrant
will provide for a cashless exercise feature and will contain
customary anti-dilution provisions. The issuance of the Standby
Warrant is subject to the successful completion of the Rights
Offering and performance by Wave of its obligations under the
Standby Purchase Agreement.
The completion of the Rights Offering is conditional upon the
satisfaction of certain conditions, including the Company receiving
all required approvals, including TSX approval and Shareholder
approval as further described below.
The closing of the Rights Offering is expected to occur in early
September 2017.
Further details on the Rights Offering (including the Record
Date for participation by Shareholders) and the procedures to be
followed by Shareholders in order to subscribe for Rights will be
included in the Rights Offering Circular and Rights Offering
Notice, which will be filed with the securities regulatory
authorities in the Qualifying Jurisdictions and also on
www.sedar.com after obtaining the approvals required in connection
with the Rights Offering from Shareholders and after the date on
which all necessary approvals and consents are received, including
from the TSX.
The Rights will be issued to Shareholders (i) resident in the
Qualifying Jurisdictions, and (ii) resident in any other
jurisdiction provided that the Company has satisfied itself that
such Shareholder is entitled to receive the Rights and Subordinate
Voting Shares issuable under the Rights Offering in accordance with
the laws of such jurisdiction without obliging the Company to
register the Rights or Subordinate Voting Shares issuable under the
Rights Offering or file a prospectus or other similar disclosure
document or to make any other filings or become subject to any
reporting or disclosure obligations that the Company is not
otherwise already obligated to make.
This news release shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of
securities in any province, state or jurisdiction in which such
offer, solicitation or sale would be unlawful prior to the
registration or qualification under the securities laws of any such
province, state or jurisdiction.
Pursuant to the terms of the Subscription Agreement between the
Company, Wave and ESW dated December 18,
2016 (the "Subscription Agreement"), Wave is entitled, but
not obligated, to maintain its pro rata interest on a fully-diluted
basis or its "Investor's Percentage" (as defined in the
Subscription Agreement) following completion of the Rights
Offering. As at the date hereof, the Investor's Percentage is
39%.
If, following and as a result of the Rights Offering, including
pursuant to the Standby Commitment, the Investor's Percentage is
less than 39%, Wave Systems Investment Corp. (the current
holder of the Company's Series A Preferred Shares) will be
entitled, but not obligated, to subscribe for such number of
additional Subordinate Voting Shares as is necessary to return the
Investor's Percentage to 39% (the "Subsequent Issuance"), subject
to receipt of all required Shareholder and regulatory approvals,
including the approval of the TSX. The Subordinate Voting Shares
issued pursuant to the Subsequent Issuance will be issued at a
price per share equal to the Subscription Price. If all
Rights are exercised under the Rights Offering by the holders
thereof, Wave Systems Investment Corp. will have the right,
but not the obligation, to acquire up to an additional 46.3 million
Subordinate Voting Shares, resulting in additional proceeds to the
Company of US$23.1 million.
As a result of the Rights Offering and the anti-dilution
provisions of the 46,285,582 warrants issued to Wave on
January 26, 2017 (the "Wave
Warrants"), the exercise price of the Wave Warrants will be reduced
from US$1.30 per Subordinate Voting
Share to US$0.73, assuming no
additional shares are issued as a result of the Subsequent
Issuance. If 46.3 million Subordinate Voting Shares are issued
pursuant to the Subsequent Issuance, the exercise price of the Wave
Warrants will be reduced to US$0.68.
If holders of the Rights, other than ESW and its affiliates, do
not exercise their Rights, ESW and its affiliates' participation in
the Rights Offering and the Standby Purchase Agreement may result
in a significant increase in their ownership interest of
Subordinate Voting Shares. If only ESW and its affiliates
participate in the Rights Offering, their collective ownership
interest in the Subordinate Voting Shares, prior to the exercise of
the Wave Warrants and the Standby Warrant, will increase from
approximately 13% to approximately 56% (approximately 64% on a
fully-diluted basis assuming the exercise of the Wave Warrants and
the Standby Warrant). Wave Systems Investment Corp. is the holder
of the Company's outstanding Series A Preferred Shares which
entitle it to elect a majority of the Board. In the event
that ESW and its affiliates' holdings of Subordinate Voting Shares
increases significantly following the completion of the
transactions described above, ESW and its affiliates will likely
have the ability to elect the balance of the directors of the
Company, being the Independent Directors.
Special Meeting of Shareholders
ESW is a "related party" of the Company as defined in
Multilateral Instrument 61-101 – Protection of Minority Security
Holders in Special Transactions ("MI 61-101"). The Rights
Offering and the Subsequent Issuance is each considered a "related
party transaction" for purposes of MI 61-101. While MI 61-101
provides for an exemption from the protections that generally apply
to related party transactions where the transaction is a rights
offering, this exemption is not available where the transaction has
an "interested party" (as defined in MI 61-101). ESW meets
the definition of "interested party" by virtue of the benefit it
and its affiliates will receive through the Subsequent Issuance and
the Services Agreements, respectively. Therefore the exemption from
the minority approval requirements of MI 61-101 is not available.
In addition, under the rules of the TSX, the Rights Offering, the
issuance to Wave of the Standby Warrant and the Subsequent Issuance
are subject to receipt of approval by an affirmative vote of a
majority of the votes cast by disinterested Shareholders, at a
meeting called to consider such matters.
Accordingly, a special meeting of Shareholders (the "Special
Meeting") will be called to consider a resolution to approve the
Rights Offering, the issuance of the Standby Warrant and the
Subsequent Issuance (the "Transaction Resolution"). In order for
the Transaction Resolution to be effective, it must be approved by
an affirmative vote of a majority of the votes cast by Shareholders
present in person or represented by proxy at the Special Meeting,
after excluding the votes cast by ESW, Wave or any of their
associates or affiliates or any other joint actor and any other
person whose vote must be excluded under applicable securities
laws.
Upon the recommendation of the Special Committee, the Board
(other than Scott Brighton and
Andrew Price who abstained from
voting) has unanimously resolved to recommend that Shareholders
vote in favour of the Transaction Resolution.
The Special Meeting will be held on July
25, 2017, and the record date for determining Shareholders
entitled to receive notice of and to vote at such meeting will be
June 20, 2017. An information
circular providing details of the Special Meeting will be mailed in
late June, 2017.
Restructuring
To achieve its Strategic Plan, the Company plans to reduce
headcount worldwide by approximately 500 employees. Redknee expects
that the majority of the net proceeds from the Rights Offering will
be used to fund associated employee severance payments. The balance
of the net proceeds will be used for location rationalization,
entity simplification and associated fees. It is expected that all
of the net proceeds from the Rights Offering will be used by the
Company within the 12 months following the Rights Offering.
The Services Agreements
The Services Agreements will assist the Company with the
implementation of the Restructuring and the Strategic Plan.
Resources provided by Crossover will enable Redknee to dedicate
personnel in countries where its customers are operating. By
sourcing local talent to work directly in the regions where
Redknee's customers' are domiciled, the Company expects to improve
its customer success while optimizing its cost structure.
DevFactory provides a technology toolset that will enable
Redknee to better manage its technology suite. The DevFactory
platform facilitates software source code management leading to
improvements in the quality of the code. The Company expects that
this technology will enable it to enhance the quality of its
products, going forward.
In connection with the review of the Services Agreement, the
Independent Directors, on behalf of the Board, retained KPMG LLP to
share leading practices for third party services agreements
including but not limited to contract terms and conditions,
governance, service levels and retained organizational roles. The
Board has determined that the Services Agreements are on reasonable
commercial terms to the Company that are no less favourable than an
arms' length transaction.
Set out below is a summary of the key terms of the Crossover
Services Agreement and the DevFactory Services Agreement. The
summary below is qualified entirely by reference to the full text
of The Services Agreements which are attached to the Standby
Purchase Agreement and will be available on the Company's profile
at www.sedar.com.
Crossover Services Agreement
The Company will outsource to Crossover the recruitment and
hiring of its employees and independent contractors. Through
its proprietary network of resources, Crossover will provide the
Company with access to globally sourced personnel at competitive
prices (the "Service Providers"). Crossover's proprietary platform,
WorkSmart, provides a software suite which includes time tracking
and productivity management that Redknee will use to manage some of
its Service Providers.
It is currently expected that during the first 12 months of the
Crossover Services Agreement, Crossover will provide the Company
with access to a number of Crossover sourced independent
contractor and/or employee Service Providers.
Crossover will receive a fee equal to 10% of the "Resource Fee"
which is calculated as the time worked by each Service Provider
multiplied by the hourly rate of such Service Provider. The
time worked by the Service Provider is tracked by WorkSmart. It is
estimated that Crossover will receive a fee not exceeding
US$6.8 million for services provided
during the first 12 months of the agreement.
Crossover will warrant to the Company that the Service Providers
will perform their services in a good and workmanlike manner,
acting in good faith and in the best interests of the Company.
Crossover will remove a Service Provider and furnish a replacement
Service Provider at the request of the Company and will refund
monies paid for the specific Service Provider for up to four weeks
of compensation and fees for the specific Service Provider
removed.
Crossover will indemnify and hold the Company harmless for
direct and third party claims of (i) gross negligence or
intentionally wrongful acts of Crossover, and (ii) infringement of
patent, copyright or trade secrets relating to WorkSmart. The
Company will indemnify and hold Crossover harmless for direct and
third party claims related to (i) the classification of a Service
Provider as an independent contractor, (ii) the classification
of Crossover as an employer, (iii) gross negligence or
intentionally wrongful acts of the Company, and (iv) any
employment-related or pre-employment related claims.
The Company will agree not to, without Crossover's consent,
directly or indirectly consult with, hire, solicit or attempt to
solicit Service Providers identified by Crossover for a period of
the later of (i) one year after the Service Provider last performed
a service for the Company or one year after the Service Provider
was identified by Crossover, unless the Company pays to Crossover a
finders' fee equal to 100% of such Service Provider's gross annual
compensation, which finders' fee will be reduced to 50% in the
event that the Company hires 100 or more Service Providers.
The Crossover Services Agreement, may be terminated by the
Company upon 30 days' prior notice and by Crossover immediately
upon non-payment of fees. There are no termination fees payable by
the Company in connection with the termination of the Crossover
Services Agreement.
DevFactory Services Agreement
The Company will acquire services from DevFactory to improve the
quality of its source code. DevFactory's services run proprietary
diagnostics on the Company's existing code base, and on future
improvements and bug fixes, to identify portions of the code that
are failing or hindering functionality. DevFactory's services will
highlight anti-patterns in the code base and developers' work
product. DevFactory will also improve the code base directly by
enhancing its built-in testing capacity. DevFactory will write unit
test code that provides early warning of introduced
errors.
DevFactory will receive a monthly fee for each of the Company's
active developers and for unit test code written by DevFactory per
line of executable code. The fees will be set out in a statement of
work ("SOW") that will provide the Company an opportunity to assess
unit test code before corresponding fees are incurred. The SOW sets
out objective criteria for such assessment. DevFactory will
provide work credits in the event that the Company's fees are less
favourable than the fees of any non-affiliated DevFactory customer.
It is estimated that DevFactory will receive a fee of US$10.5 million for all of the services provided
during the first 12 months of the DevFactory Services Agreement
pursuant to the SOW.
DevFactory will warrant that the services it provides operate in
a workmanlike and professional manner. It will indemnify the
Company for certain intellectual property claims, and will agree to
maintain minimum data security standards, preserve confidentiality
and adhere to the Company's code of conduct. DevFactory and the
Company will agree not to solicit each other's staff for a period
of one year after termination of the agreement.
The SOW will have a term of one year and will automatically
renew for successive one-year periods unless either party provides
30-days' notice of non-renewal prior to the end of the applicable
term. Either DevFactory or the Company may terminate the DevFactory
Services Agreement on breach, subject to cure periods, after the
termination of the SOW on 30 days' notice. On a change of control
of the Company, the Company may terminate the DevFactory Services
Agreement on 90 days' notice. If the DevFactory Services Agreement
is terminated because of the Company's material breach of a payment
or confidentiality obligation, the Company will have to pay fees
that would have been payable to the end of the then-current SOW
term. There are no other termination fees payable by the Company in
connection with the termination of the DevFactory Services
Agreement.
Leadership Changes
As part of the Restructuring, Redknee announces changes to its
executive leadership team designed to position the Company for
long-term growth and sustained profitability.
David Charron, Chief Financial
Officer, will be departing from Redknee. To ensure an orderly
transition, David will remain in his role as CFO until the Rights
Offering is closed. Anin Basu will
assume the role of CFO on an interim basis. Anin currently serves
as Vice President, Finance at Redknee and has previous experience
in dealing with public companies and technology businesses.
Following David's departure, the Board will undertake a formal
search process for a permanent CFO.
Redknee would like to announce the appointments of Mo Jamal to Chief Revenue Officer and Jozsef
Czapovics to Vice President, Engineering. Mr. Czapovics brings many
years of experience to Redknee, having worked for a number of
leading organizations in North
America and Europe. Mr.
Jamal has been with Redknee for over a decade in various high
impact sales positions. With more than 20 years of
telecommunications software experience, he has been an instrumental
part of Redknee, and has on-boarded some of its key global
customers.
Vishal Kothari, Chief Operating
Officer, and Chris McGrady, Vice
President Human Resources, Integration Management and Corporate IT
and Security, will be departing the Company in the next 12 months.
In the interim, they will continue working with senior management
to ensure an orderly transition. Redknee intends to undertake a
formal search process with the intent of bringing on new leadership
in Operations, Marketing and Human Resources. Mr. Kothari will
continue to work with Redknee as an advisor following his departure
from the Company. Redknee's current senior management team led by
Danielle Royston, CEO, will assume
responsibility for Redknee's operating and human resource
initiatives following the departures of Mr. Kothari and Mr.
McGrady.
Redknee remains committed to delivering long-term value to all
stakeholders by strategically investing in the business,
strengthening its customer relationships and executing on its
long-term strategic growth plan.
About Redknee
Redknee monetizes today's digital world. We provide a complete
portfolio of mission-critical monetization and subscriber
management solutions and services that allow communications service
providers to charge for things in new and innovative ways.
Redknee's real-time billing, charging, policy and customer care
offerings provide the agility and scalability to drive a unique
user experience, increase profitability and support any new product
or business model. Available on premise, cloud-based, or as a
Software-as-a-Service, Redknee's low-risk, flexible solutions power
~250 communication service providers across the globe. Established
in 1999, Redknee Solutions Inc. (TSX: RKN) is the parent of the
wholly-owned operating subsidiary Redknee Inc. and its various
subsidiaries.
References to Redknee refer to the combined operations of those
entities. For more information about Redknee and its solutions,
please go to www.redknee.com.
SOURCE Redknee Solutions Inc.