Tuckamore terminates Birch Hill backed going private transaction, secures Orange Capital financing

July 25
16:26 2014

Tuckamore Capital Management Inc. (TSX: TX) and Triumph Acquisition LP have mutually agreed to terminate the previously announced plan of arrangement. As a result, the special meeting of shareholders to be held on July 31, 2014 has been cancelled.

Pursuant to a termination agreement entered into by Tuckamore and the purchaser, no break fee will be payable to the purchaser in connection with the termination of the arrangement. The purchaser will be reimbursed for expenses incurred in connection with the Arrangement, up to a maximum of $1.5 million.

On May 5, 2014, Tuckamore announced the agreement to be acquired by certain members of Tuckamore’s senior management, and with the backing of Birch Hill Fund IV family of funds, for cash consideration of $0.75 per share for an aggregate equity consideration of approximately $65 million.

Since the going private announcement, Canso and a group of shareholders have publicly announced their opposition to the deal.

Since the announced adjournment of the special meeting, Tuckamore board had been in discussions with the purchaser to improve its offer. At the same time, the board determined that it would be prudent to explore other alternatives in the event that the arrangement did not proceed and a special committee of independent directors was formed on July 10, 2014. The Special Committee is advised by its independent legal counsel Cassels Brock & Blackwell LLP and its independent financial advisor MPA Morrison Park Advisors Inc.

Tuckamore board determined that absent the arrangement, Tuckamore should focus on a plan to refinance its capital structure and specifically to obtain an extension to its outstanding senior secured credit facilities. Tuckamore had already sought such an extension in the context of the arrangement.

As a result of its efforts, Tuckamore has obtained approval from the lenders under its senior secured credit facilities made available to its subsidiary, Tuckamore Finance Corp. The extension is to be effective upon completion of a proposed $12.5 million private placement and a reduction of the outstanding indebtedness under the Credit Agreement by an amount equal to the net proceeds of the private placement (being approximately $12 million).

Tuckamore has entered into a subscription agreement with Orange Capital Master I, Ltd., to sell $12.5 million of common shares to Orange Capital at a price per share which will not be less than $0.75, resulting in the issuance of no more than 16,666,667 shares (or approximately 17% of the shares of Tuckamore following completion of the transaction).

The placement agreement contains an 18-month standstill provision that limits Orange Capital to owning no more than 19.9% of the outstanding shares and provides Orange Capital with the right to nominate one director and one observer to the board of directors, subject to Orange Capital maintaining certain shareholder ownership thresholds.

New York based Orange Capital, a value-oriented investment fund that invests across the capital structure, has agreed to assist Tuckamore in connection with the identification and implementation of a transaction or series of refinancing transactions to amend or extend the terms of, or to refinance, Tuckamore existing 8% Secured Debentures due March 23, 2016. Upon successful completion of the refinancing transaction, Orange Capital may receive a cash success fee on terms commensurate with customary market practice in similar circumstances, provided that the fee shall not exceed 3.0% of the then outstanding principal amount of the Secured Debentures.

Tuckamore has received conditional approval from the TSX for the private placement. Among other conditions, the TSX has required that for a period of one year following closing of the private placement, Orange Capital will neither tender to nor vote its shares for any going private transaction, including a takeover bid, involving any of Birch Hill Equity Partners or any of its affiliates or associates and/or management of the company, without the prior acceptance and approval of the TSX.

In order to facilitate board renewal and the addition of Orange Capital’s director nominee to the board, Mark A. Kinney and one additional director will not stand for re-election to the board at the next annual general meeting of shareholders.

Norton Rose Fulbright Canada LLP acted as Tuckamore’s legal advisor, and Canaccord Genuity Corp. acted as financial advisor.

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