exactEarth Announces Private Placement of $13 Million of Convertible Debentures and Conclusion of Strategic Review

/NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR DISSEMINATION IN THE UNITED STATES/

CAMBRIDGE, ON, Dec. 4, 2018 /CNW/ - exactEarth Ltd. ("exactEarth" or the "Company") (TSX:XCT), a leading provider of Satellite AIS data services, is pleased to announce that it has entered into definitive agreements for a private placement of 13,000 convertible debentures (the "Convertible Debentures") of the Company at a price of $1,000 per Convertible Debenture (the "Offering Price") for aggregate gross proceeds of $13,000,000 (the "Private Placement"). The purchasers of the Convertible Debentures include a limited number of new and existing institutional investors, including Hisdesat and MMCAP. The net proceeds from the Private Placement will be used to fund the Company's ongoing working capital needs in support of business operations and for general corporate purposes.

The Private Placement has been negotiated on an arm's-length basis and represents the culmination of an extensive review of strategic alternatives by a special committee (the "Special Committee") of independent members of the board of directors (the "Board") of the Company and, in the view of the Company, will provide the Company with a solid financial footing going forward.

"This private placement represents the completion of our strategic review process, and I am excited about our continued pursuit of the growing opportunities to provide enhanced capabilities and services with our unique real-time Satellite AIS service," said Eric Zahler, Chairman of the Board of exactEarth and Chair of the Special Committee.

Details of the Private Placement

Each Convertible Debenture would be convertible into 2,000 common shares of the Company (each, a "Common Share"), being an effective conversion price of $0.50 at the option of the holder (subject to customary adjustments from time to time), at any time prior to the fifth anniversary of the Closing Date (as defined below).

Holders of the Convertible Debentures will be entitled to interest payments as follows: for the first two years following the Closing Date, interest of 9% (consisting of 3% to be paid in cash semi-annually in arrears and 6% to be accrued and payable at maturity); and for the following three years, interest of 8% (consisting of 4% to be paid in cash semi-annually in arrears and 4% to be accrued and payable at maturity).

In addition, the Company may elect, at its option, to redeem all or part of the Convertible Debentures at any time following the issue date at the redemption price set forth below plus accrued and unpaid interest, if redeemed during the calendar year:

Year     Percentage
2019     110.0%
2020     107.5%
2021     105.0%
2022     102.5%
2023     100.0%

The Company will also have the right to redeem the outstanding Convertible Debentures, commencing on the second anniversary of the Closing Date, if the volume weighted average price of the Company's common shares for the preceding 20 trading days is at or above $1.00. The Company may elect to settle the redemption in Common Shares (at its discretion) at a per Common Share amount equal to the volume weighted average price for the preceding 20 trading days prior to the date of the notice of redemption.

At all times while the Convertible Debentures are outstanding, the Company would be prohibited from buying back any Common Shares or making any distributions thereon. Further, the Company would be prohibited from incurring indebtedness other than in the ordinary course of business and for certain specified limited purposes. The events of default under the Convertible Debentures include defaults in payments of interest or principal, bankruptcy/insolvency, and breach of any material covenants or terms of the Convertible Debentures, subject to a 60-day cure period for such breach. The Convertible Debentures also contain customary provisions related to anti-dilution protection, conversion, payment on redemption, and payment of interest on conversion.

The Private Placement is expected to result in net proceeds of approximately $11.5 million to the Company after deduction of expenses for the Private Placement and the strategic review process, including advisory, legal, listing and other fees. The closing of the Private Placement is expected to occur on or about December 13, 2018 (the "Closing Date"), subject to the final approval of the Toronto Stock Exchange ("TSX"). Pursuant to applicable securities laws and the policies of the TSX, the Convertible Debentures (and any underlying Common Shares received in exchange for conversion of any Convertible Debentures, as applicable) will be subject to a hold period of four months and one day following the Closing Date.

Background to the Private Placement

The Company continues to face significant liquidity challenges with recurring operating losses and negative cash flows. Based on the Company's forecasted cash flows for the next twelve months, on September 14, 2018, the Company announced that its current cash flow from operations may not be sufficient to cover its commitments, obligations and operating costs for at least the next twelve months, which could have a negative impact on its ability to continue as a going concern.

In light of the financial performance of the Company, in January 2018, the Board publicly announced that it had commenced a process to explore and evaluate potential strategic alternatives focused on maximizing shareholder value, including a financing, a sale of assets, a sale of the Company or a merger or other business combination or other strategic transactions that may be available to the Company. In conjunction with the strategic review, the Board formed the Special Committee of independent directors to oversee the strategic review process, and National Bank Financial Inc. was retained to provide financial advice in connection with its strategic review process.

The Special Committee, based on its thorough review of available alternatives and with the advice of their financial and legal advisors, has now concluded that entering into the Private Placement is in the best interest of the Company. In connection with the Private Placement, National Bank Financial Inc. has delivered a fairness opinion to the Board that the consideration to be received by the Company under the Private Placement is fair, from a financial point of view, to the Company.

Assuming completion of the Private Placement, the review of strategic alternatives by the Special Committee will be completed.

Governance Matters

In connection with the Private Placement, Ewing Morris & Co. Investment Partners Ltd. ("Ewing Morris") has been granted nominating rights in respect of two nominees for the next 24 months provided they own Common Shares or Convertible Debentures and following the second anniversary of closing, two nominees if they have a voting interest equal to or greater than 10%, one nominee if they have a voting interest equal to or greater than 5% and the agreement will terminate if they have less than a 5% voting interest. In addition, the Company has also agreed with Hisdesat to certain amendments to its existing nominating agreement that provide Hisdesat with substantially similar rights as granted to Ewing Morris. It has also been agreed that the Board of Directors will be reduced to six directors.

With the refinancing of exactEarth at hand, the Honorable Dennis Kloske and Mr. William (Mac) Evans have confirmed that they will be resigning from the Board of Directors once the Private Placement has been completed, in part to facilitate the appointment of Mr. Lee Matheson to the Board following closing. Mr. Matheson is a partner with Ewing Morris, which has subscribed for $3 million principal amount of Convertible Debentures. In addition to 69,800 Common Shares currently held, Ewing Morris will have a beneficial interest over approximately 12.7% of the Common Shares on an as-converted, non-fully diluted basis. Mr. Matheson's full biography is included in this press release under the heading "Biographical Information".

"I'd like to thank Dennis and Mac for their work as members of the board and for their active roles as members of the Special Committee guiding the strategic review of the Company," noted Eric Zahler, Chairman of the Board. "Both Dennis and Mac provided the board with tremendous insight into the sector and we are very appreciative of their efforts. We would also like to take the opportunity to welcome Lee Matheson to the board, and look forward to his contribution as exactEarth pursues its strategic business plan."

While Ewing Morris is entitled to two nominees on the Board, at Closing they only intend to nominate one person, being Mr. Matheson. Accordingly, it is expected that the Board on closing will consist of Messrs. Eric Zahler (independent chair), Harvey Rein, Miguel Angel Panduro Panadero, Miguel Angel Garcia Primo, Lee Matheson and Peter Mabson (CEO). The Audit Committee is anticipated to be comprised of Messrs. Harvey Rein (chair), Eric Zahler and Lee Matheson.

Exemption from Shareholder Approval and MI 61-101

As part of the Private Placement, MM Asset Management Inc., on behalf of MMCAP International Inc. ("MMCAP"), which currently beneficially owns, directs or controls 19.9% of the issued and outstanding Common Shares of the Company, proposes to subscribe for Convertible Debentures with an aggregate subscription price of C$4,567,000. Hisdesat Servicios Estratégicos, S.A. ("Hisdesat"), which currently beneficially owns, directs or controls 26.9% of the issued and outstanding common shares of the Company, will subscribe for Convertible Debentures with an aggregate subscription price of C$2,000,000.

The Company currently has 21,626,288 issued and outstanding Common Shares. The Convertible Debentures are convertible at the option of the holders into an aggregate of 26,000,000 Common Shares of the Company, representing 120% of the currently issued and outstanding Common Shares.

The table below indicates, with respect to each subscribing insider and each investor who could potentially acquire an approximate 20% ownership interest in the Company, (i) the Common Shares issuable upon the full conversion of their respective Convertible Debentures and the approximate percentage that such number of Common Shares represent as a percentage of the issued and outstanding Common Shares post Private Placement; and (ii) the approximate percentage of Common Shares each applicable investor would hold upon full conversion of their respective Convertible Debentures in the event that no other investors converted their respective Debentures.

Investors

Current Common

Shares registered

and beneficially

owned

Common Shares

issuable upon full

conversion of the

applicable Convertible

Debentures (or % of the

Common Shares)(1)

% of the Common

Shares owned by

Investor upon full

conversion of

applicable

Convertible

Debentures(2)

Ewing Morris

69,800 (0.3%)

6,000,000 (or 12.7%)

21.9%

MMCAP

4,303,631 (19.9%)

9,134,000 (or 28.2 %)

43.7%

Hisdesat

5,817,471 (26.9%)

4,000,000 (or 20.6%)

38.3 %

(1)

Assumes that all of the investors convert their respective Convertible Debentures.

(2)

Assumes that none of the other investors convert their respective Convertible Debentures.

The Private Placement triggers the requirement for approval from the holders of a majority of the currently issued and outstanding Common Shares, excluding the votes attached to the Common Shares held by Hisdesat and MMCAP, under Sections 607(g)(i), 607(g)(ii) and 604(a)(i) of the TSX Company Manual, unless an exemption is applicable, as the Private Placement will (i) result in the issuance of Common Shares that is greater than 25% of the number of Common Shares currently issued and outstanding, (ii) result in the issuance of Common Shares to insiders of the Company that is greater than 10% of the number of Common Shares currently issued and outstanding, and (iii) provide for the issuance of securities that could materially affect the control of the Company as the Private Placement could result in a new holding of more than 20% of the voting securities by one security holder.

The subscriptions for Convertible Debentures by each of MMCAP and Hisdesat constitute a "related party transaction" within the meaning of Multilateral Instrument 61-101 – Protections of Minority Security Holders in Special Transactions ("MI 61-101"). However, in light of the fact that the Board and the Special Committee have determined that the Company is in serious financial difficulty, exactEarth is relying on the exemption from the formal valuation and minority shareholder approval requirements of MI 61-101 contained in Section 5.5(g) and Section 5.7(1)(e) of MI 61-101, respectively, on the basis of the "financial hardship" exemption therein.

The Company's decision to rely on the financial hardship exemption was made upon the recommendation of the Special Committee, all of whose members are independent directors free from interest in the Private Placement, and unrelated to the parties involved in the Private Placement. After considering and reviewing all of the circumstances currently surrounding the Company and the Private Placement, including: (i) the Company's current financial situation and capital requirements; (ii) the fact that the Private Placement is the most attractive financing option available to the Company at the present time; (iii) the fact that the conversion price of the Convertible Debentures is at a premium to the market price; and (iv) all other relevant factors available to the Special Committee, the Special Committee unanimously determined that: the Company is in serious financial difficulty; the Private Placement is designed to improve the financial condition of the Company; and the terms of the Private Placement are reasonable in the circumstances of the Company.

Based on this determination and the recommendation of the Special Committee, the Board (including all of the independent members of the Board), acting in good faith, have also unanimously determined that the Company is in serious financial difficulty, that the Private Placement is designed to improve the Company's financial position, and that the terms of the Private Placement, including the subscriptions of MMCAP and Hisdesat for Convertible Debentures thereunder, are reasonable in the Company's circumstances. In making these determinations, there were no material disagreements between the Board and the Special Committee with respect to the Private Placement, and no member of the Board expressed any materially contrary view or abstained from voting in respect of the Private Placement.

In addition, for all of the reasons described above, the Company has also applied to the TSX for an exemption from the requirements to seek securityholder approval for the 26,000,000 Common Shares issuable pursuant to the Private Placement in reliance upon Section 604(e) of the TSX Company Manual, on the basis that the Company finds itself in a state of serious financial difficulty and that the Private Placement is designed to improve the Company's financial situation in a timely manner. The Private Placement remains subject to TSX conditional approval and final acceptance. For greater certainty, the Company's application to the TSX is for a maximum of 26,000,000 Common Shares issuable upon conversion or redemption of the Convertible Debentures and, as such, the issuance of any excess number of Common Shares is subject to TSX approval. As a consequence of relying upon the financial hardship exemption, the TSX has informed the Company that it will, in the ordinary course, commence a delisting review. The Company believes that, upon completion of the Private Placement, it will be in compliance with TSX listing requirements.

Biographical Information

Biographical information regarding Mr. Lee Matheson, CFA, is set forth below.

Lee Matheson, CFA

Lee Matheson, CFA, is a Partner, Investments, with Ewing Morris. Lee joined Ewing Morris in May 2017. Lee has worked as a securities analyst since 2002. He has worked at a number of investment firms across Canada including Cundill Investment Research, KJ Harrison & Partners and AIC Investment Services, as well as New York-based Pike Capital Management. He also was a co-founder of Broadview Capital Management in 2008. Lee holds the Canadian Investment Manager designation from the Canadian Securities Institute and became a CFA charterholder in 2009. Lee also serves on the Board of WesternOne Inc. (TSX:WEQ) and Echelon Financial Holdings Inc. (TSX: EFH).

About exactEarth Ltd (www.exactEarth.com)

exactEarth is a leading provider of global maritime vessel data for ship tracking and maritime situational awareness solutions. Since its establishment in 2009, exactEarth has pioneered a powerful new method of maritime surveillance called Satellite AIS ("S-AIS"). This service provides a comprehensive view of the location of AIS-equipped maritime vessels throughout the world, as well as other vital vessel characteristics. Under its alliance with Harris Corporation, exactEarth has launched exactView RT, which is the world's first S-AIS service designed to deliver real-time continuous global coverage of all maritime vessels. This ground-breaking system will allow exactEarth to deliver real-time data and information services characterized by rapid performance, reliability, security and simplicity to large international markets.

Forward Looking Statements

This news release contains statements that, to the extent they are not recitations of historical fact, may constitute "forward-looking statements" within the meaning of applicable Canadian securities laws. Forward-looking statements may include financial and other projections, as well as statements regarding exactEarth's future plans, objectives or economic performance, or the assumptions underlying any of the foregoing, including statements regarding, among other things, the use of proceeds, the expected closing date, the composition of the Board at closing of the financing, the anticipated impact of the Private Placement on exactEarth's financial position and approval of the Private Placement by the TSX. exactEarth uses words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements are based on assumptions and analyses made by exactEarth in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors exactEarth believes are appropriate under the relevant circumstances. However, whether actual results and developments will conform to exactEarth's expectations and predictions is subject to any number of risks, assumptions and uncertainties. Many factors could cause the impact of the Private Placement to differ materially from those expressed or implied by the forward-looking statements contained in this news release. These factors include, without limitation: uncertainty in the global economic environment; fluctuations in currency exchange rates; delays in the purchasing decisions of exactEarth's customers, the competition exactEarth faces in its industry and/or marketplace; the further delayed launch of satellites; the reduced scope of significant existing contracts; the possibility of technical, logistical or planning issues in connection with the deployment of exactEarth's products of services; the ability to refinance the Convertible Debentures on reasonable terms or at all, the ability of the Company to continue as a going concern; and the availability of reimbursable expenses. 

exactEarth does not undertake to update any forward-looking statements; such statements speak only as at the date made. Except as required by applicable law, exactEarth does not assume any obligation to update, or to publicly announce the results of any change to, any forward looking statement contained herein to reflect actual results, future events or developments, changes in assumptions or changes in other factors affecting the forward looking statements.

Disclaimer

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities described in this press release in the United States. The securities described in this press release have not been and will not be registered under the United States Securities Act of 1933, as amended (the "U.S. Securities Act") 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, a U.S. Person (as defined in Regulation S under the U.S. Securities Act) unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available.

The TSX does not accept responsibility for the adequacy or accuracy of this release.

SOURCE exactEarth Ltd.

For further information: INVESTORS: Dave Mason, Investor Relations, Tel: +1 416-247-9652, investors@exactearth.com

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