Further to the news releases Precision Assessment Technology Corporation announced today that the terms of the US$12 million equity investment in Precision by Bison Capital Equity Partners, a private equity fund based in Los Angeles have been revised to provide for the issuance of US$12 million in exchangeable preferred stock of a wholly-owned US subsidiary of Precision, rather than the issuance of US$4 million in common shares of Precision and US$8 million in Preferred Stock of Precision US previously announced.
The initial investment by Bison will be US$8 million (8,000 shares of Preferred Stock for a subscription price of US$1,000 per share) to fund the acquisition of BC(2) Environmental Corp. ("BC(2)"), a southern California drilling company and to provide working capital. The second investment by Bison will be US$4 million (4,000 shares of Preferred Stock on the same terms) which is anticipated to close concurrently with the acquisition of an eastern United States drilling services company.
The Preferred Stock will bear a cumulative dividend of 10% per annum if paid in cash and 12% per annum in the event such dividends accumulate and are not paid. Up to 50% of the Preferred Stock may be redeemed by Precision US following the third anniversary date and in certain other circumstances for a redemption price per share of US$1,000 plus a dividend in such amount as is necessary to provide an internal rate of return to Bison of 22% after taking into account any dividends previously paid ("Clean-up Right"). Holders can request the dividend payable on the exercise of the Clean-up Right be paid by delivery of common shares of Precision based on the weighted average trading price of PATC Shares at such time, subject to receipt by Precision of required regulatory approvals.
Following the third anniversary date of the initial investment and subject to certain limitations as to timing, any Preferred Stock not redeemed by Precision US may be exchanged by the holder for PATC Shares on the basis of 4,348 PATC Shares for each one share of Preferred Stock (approximately C$0.27 per PATC Share), subject to standard anti-dilution provisions, with any accrued and unpaid dividends paid in cash at the time of exchange. Any Preferred Stock still outstanding on the fifth anniversary of the initial investment date will, provided that Precision is not in default and subject to certain other requirements, be automatically exchanged into PATC Shares on the basis of the Exchange Ratio with accrued and unpaid dividends to be paid in cash. In addition to the foregoing, Precision US can force the exchange of up to 4,000 shares of Preferred Stock for PATC Shares at the Exchange Ratio in the event that consolidated EBITDA of Precision in any of the 2007, 2008 and 2009 fiscal years exceeds US$8.9 million. Holders of the Preferred Stock will be entitled to receive an extraordinary dividend of US$125 per share to a maximum of US$1 million on Preferred Stock not redeemed by Precision US, payable at the time of exchange.
The Preferred Stock issued on the initial and second investments, if fully exchanged for PATC Common Shares, would result in the issue of up to 52,176,000 PATC Shares. If the Clean-up Right is fully exercised, the Preferred Stock issued on the initial and second investment may be exchanged for up to 26,088,000 PATC Shares.
The share provisions attaching to the Preferred Stock will contain certain restrictions, including restrictions on indebtedness, minimum EBITDA requirements, asset sales, acquisitions, capital expenditures and dividends. The dividend rate will increase to 14% per annum in the event Precision US is in default of certain covenants. If such Default Dividends are not paid in cash, the holder may require, subject to receipt by Precision of regulatory approval, that the default dividends be paid by issuing PATC Shares at the then current market price.
The acquisitions and the financing are subject to fulfilment of various conditions, including formal documentation and receipt of approval of the Toronto Stock Exchange. The completion of the initial equity investment by Bison is also subject to the concurrent completion of the proposed acquisition of BC(2), and the second investment is subject to the condition that either the eastern United States drilling services company referenced in Precision's March 1, 2007 news release (or an alternative) be completed. The proposed acquisitions also contemplate, subject to regulatory approval, the issuance of up to 4,006,500 PATC Shares as partial purchase price and, if applicable, earn-out consideration.
Precision currently has 77,446,107 PATC Shares issued and outstanding on a non-diluted basis (83,406,614 on a fully diluted basis). If the Clean-up Right is fully exercised, the equity financing and the acquisitions could (excluding any dividends paid on common shares) result in the issue of up to an additional 30,094,500 PATC Shares (representing 22% of the issued and outstanding shares following the equity financing and the acquisitions, or 38.8% of the current issued and outstanding). If all of the Preferred Stock is exchanged into PATC Shares, the equity financing and the acquisitions may result in the issue of up to an additional 56,182,500 PATC Shares (representing 42% of the issued and outstanding shares following the equity financing and the acquisitions, or 72.5% of the current issued and
outstanding).
The equity financing will result in a new holding of more than 20% of the issued and outstanding PATC Shares by one security holder, which is considered by the TSX to materially affect control. If all of the Preferred Stock is exchanged into PATC Shares, Bison or its client accounts will hold up to 52,176,000 PATC Shares (representing 39% of the issued and outstanding shares on a post-conversion basis). Currently, Conor Pacific Canada Inc. owns, or exercises control or direction over, 24,781,567 PATC Shares (representing 32% of the current issued and outstanding). Assuming all of the Preferred Stock is exchanged into PATC Shares by Bison, Conor Pacific's interest in Precision will be reduced to approximately 18.8%.
No insider of the Company has any direct or indirect interest in the equity financing or the acquisitions, and all of the parties thereto are dealing at arm's length.
Shareholder approval of the equity financing and the acquisitions is required by the TSX. Precision is relying on section 604(d) of the TSX Company Manual, which permits the Company to provide the TSX with written evidence that holders of more than 50% of the PATC Shares are familiar with the terms of, and are in favour of, the equity financing and the acquisitions, in lieu of holding a shareholders meeting. The initial investment and the acquisition of BC(2) are anticipated to close on or about March 27, 2007. The second investment and the acquisition of the eastern United States drilling services company are expected to be completed on or before April 30, 2007. -- www.cnxmarketlink.com
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