On March 19, 2008, Warnex Inc. (TSX:WNX) ("Warnex") announced that it had
entered into agreements in principle with the various holders of all of its
outstanding debentures, aggregating CDN$11,345,000 in principal amount, in order
to modify the terms and conditions of such debentures. Warnex wishes to provide
further details as to the implementation of this debt restructuring.
Outstanding Debentures
The outstanding debentures are held by five different lenders (collectively, the
"Lenders"), as follows:
- SGF Soquia Inc. ("SGF") holds an aggregate of CDN$3 million of 12% debentures
maturing on July 9, 2008 which were convertible into common shares in the share
capital of Warnex ("Common Shares") on the following basis: (i) for the period
from July 10, 2003 to December 31, 2004, at a price of $1.75 per Common Share;
(ii) for the period from January 1, 2005 to December 31, 2005, at a price of
$2.00 per Common Share; (iii) for the period from January 1, 2006 to December
31, 2006, at a price of $4.00 per Common Share; and (iv) for the period from
January 1, 2007 to December 31, 2007, at a price of $6.00 per Common Share (the
"SGF Debentures").
- SIPAR Inc. ("Sipar") holds a CDN$1.5 million 12% non-convertible debenture
maturing on June 2, 2008 (the "Sipar Debenture").
- Midsummer Investment, Ltd ("Midsummer") holds a USD$3 million 7% debenture
maturing on June 25, 2008 which is convertible into Common Shares at a price of
$0.75 per Common Share (the "Midsummer Debenture").
- Islandia, L.P. ("Islandia") holds a USD$1 million 7% debenture maturing on
June 25, 2008 which is convertible into Common Shares at a price of $0.75 per
Common Share (the "Islandia Debenture").
- Crestview Capital Master, LLC ("Crestview") holds a USD$1 million 7% debenture
maturing on June 25, 2008 which is convertible into Common Shares at a price of
$0.75 per Common Share t (the "Crestview Debenture").
Outstanding Warrants
In addition, the following Lenders also hold the following warrants to purchase
Common Shares:
- Sipar holds warrants to purchase an aggregate of 2,000,000 Common Shares at a
price of CDN$0.75 per share at any time on or before October 24, 2011 (the
"Sipar Warrants").
- Midsummer holds warrants to purchase an aggregate of 1,178,237 Common Shares
at a price of CDN$1.17 per share at any time on or before June 25, 2009 (the
"Midsummer Warrants").
- Islandia holds warrants to purchase an aggregate of 392,746 Common Shares at a
price of CDN$1.17 per share at any time on or before June 25, 2009 (the
"Islandia Warrants").
- Crestview holds warrants to purchase an aggregate of 392,746 Common Shares at
a price of CDN$1.17 per share at any time on or before June 25, 2009 (the
"Crestview Warrants").
Amendments
Under the terms of the debt restructuring, Warnex and the Lenders have agreed to
the following:
- As regards the SGF Debentures, (a) CDN$1,000,000 in principal will be
converted into 6,666,666 Common Shares at a price of CDN$0.15 per share, (b)
CDN$500,000 in principal will be reimbursed and (C) the terms of the SGF
Debenture in respect of the remaining CDN$1,500,000 in principal will be amended
such that (i) the conversion price will be reduced to be at prices of CDN$0.50
and CDN$0.75, respectively, for each tranche of CDN$750,000 and (ii) the
maturity date will be extended to July 9, 2011.
- As regards the Sipar Debenture, (a) CDN$500,000 in principal will be converted
into 3,333,333 Common Shares at a price of CDN$0.15 per share, (b) CDN$500,000
in principal will be reimbursed and (C) the terms of the Sipar Debenture in
respect of the remaining CDN$500,000 in principal will be amended such that the
maturity date will be extended to June 2, 2011. In addition, the Sipar Warrants
will be amended in order to reduce their exercise price to CDN$0.25.
- As regards the Midsummer Debenture, its terms will be amended such that (i)
the currency exchange rate will be established at the time of payment, (ii) the
feature permitting the payment of interest through the issuance of Common Shares
will be removed, (iii) the conversion price will be reduced to be at prices of
CDN$0.15, CDN$0.20, CDN$0.25, CDN$0.50 and CDN$0.75, respectively, for each
tranche of US$600,000, (iv) the interest rate will be increased to 12% and (e)
the maturity date will be extended to June 25, 2011. In addition, the Midsummer
Warrants will be amended in order to reduce their exercise price to CDN$0.25 and
extend their expiry date to June 25, 2011.
- As regards the Islandia Debenture, its terms will be amended such that (i) the
currency exchange rate will be established at the time of payment, (ii) the
feature permitting the payment of interest through the issuance of Common Shares
will be removed, (iii) the conversion price will be reduced to be at prices of
CDN$0.15, CDN$0.20, CDN$0.25, CDN$0.50 and CDN$0.75, respectively, for each
tranche of US$200,000, (iv) the interest rate will be increased to 12% and (e)
the maturity date will be extended to June 25, 2011. In addition, the Islandia
Warrants will be amended in order to reduce their exercise price to CDN$0.25 and
extend their expiry date to June 25, 2011.
- As regards the Crestview Debenture, (a) USD$333,334 in principal will be
converted into Common Shares at a price of CDN$0.15 per share, using the
currency exchange rate prevailing at the time of conversion, (b) USD$333,333 in
principal will be reimbursed and (C) the terms of the Crestview Debenture in
respect of the remaining USD$333,333 in principal will be amended such that (i)
the currency exchange rate will be established at the time of payment, (ii) the
convertibility feature will be removed, (iii) the interest rate will be
increased to 12% and (iv) the maturity date will be extended to June 25, 2011.
In addition, the Crestview Warrants will be amended in order to reduce their
exercise price to CDN$0.25.
Pursuant to the debt restructuring described above (the "Debt Restructuring"),
approximately 12,243,313 Common Shares will be issued to the Lenders at closing,
representing approximately 23.56% of the number of Common Shares issued and
outstanding prior giving effect to such issuance, and approximately 21,663,729
additional Common Shares may be issued to the Lenders following the closing upon
the conversion of debentures or the exercise of warrants, representing, along
with the Common Shares to be issued at Closing, approximately 65.24% of the
number of issued and outstanding Common Shares prior to giving effect to all
such issuances.
The Debt Restructuring will not cause a change of control of Warnex. Except for
SGF, none of the Lenders will hold more than 10% of the number of issued and
outstanding Common Shares after giving effect to all of the issuances described
in the preceding paragraph. In addition to the 9,321,428 Common Shares that it
currently holds, SGF may be issued an additional 9,166,666 Common Shares
pursuant to the Debt Restructuring, representing, in total, approximately 35.57%
of the number of issued and outstanding Common Shares prior to giving effect to
all such issuances.
Regulatory Matters
SGF currently holds 9,321,428 Common Shares, representing approximately 18% of
the issued and outstanding Common Shares. As a result, SGF is an insider and
related party of Warnex within the meaning of applicable securities legislation
and, as a consequence, any amendment of the SGF Debentures and the SGF Warrants
will constitute a related party transaction pursuant to Regulation 61-101
respecting protection of minority security holders in special transactions
("Regulation 61-101"). The representatives of the SGF who sit on the Board of
Directors of Warnex have abstained from all decisions in connection with the
Debt Restructuring.
Warnex is relying upon exemptions available to it pursuant to Regulation 61-101
and pursuant to the rules and policies of the Toronto Stock Exchange, in light
of its current financial situation, in order to avoid the requirement to obtain
an independent valuation in connection with the Debt Restructuring and to obtain
the approval of its shareholders in connection with its implementation.
Given the importance of implementing the Debt Restructuring as expeditiously as
possible, the closing of the Debt Restructuring is expected to occur immediately
following the execution of definitive documentation and the receipt of all
requisite regulatory approvals, including the approval of the Toronto Stock
Exchange. The closing may therefore occur prior to the expiry of the 21-day
period otherwise contemplated by Regulation 61-101.
About Warnex
Warnex (www.warnex.ca) is a life sciences company devoted to protecting public
health by providing laboratory services to the pharmaceutical and healthcare
sectors. Warnex's analytical services division provides pharmaceutical and
biotechnology companies with a variety of quality control services, including
traditional chemistry, chromatography, microbiology, method development and
validation, and stability studies. Warnex's bioanalytical services division
specializes in bioequivalence and bioavailability studies for clinical trials.
Warnex's medical laboratories division focuses on genetic and biochemical
testing for the healthcare industry and has extensive expertise in genetic
testing for human identification, molecular diagnostics, and pharmacogenetics.
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