MONTREAL, Dec. 7 /PRNewswire-FirstCall/ -- SR Telecom Inc. (TSX: SRX) today announced that it has entered into a new C$20 million convertible term loan following an amendment to its existing credit agreement. Current lenders under the credit agreement-DDJ Capital Management LLC (DDJ), Greywolf Capital LP (Greywolf) and Polar Securities Inc.-will advance the convertible term loan through funds or accounts they manage. In addition, Morgan Stanley & Co International Limited (Morgan Stanley) will also be included in the lender group for this new tranche. The financial terms of the convertible term loan will be as outlined in the credit agreement, including cash interest at a rate equal to the greater of 6.5% or the three-month US-dollar LIBOR rate plus 3.85%; additional interest that may be paid in cash or in kind at a rate equal to the greater of 7.5% or three-month US-dollar LIBOR rate plus 4.85%; and all convertible term loan lenders will share pro rata in a payout fee in the amount of 5% of the amount of the convertible term loan (C$20 million). The convertible term loan will have a five-year term and be fully secured on the assets of the Company, subordinate only to the existing loans under the credit agreement. In addition, the lenders of the convertible term loan will have the right to convert, at any time, their share of the aggregate amount of the convertible term loan, all "in kind" interest and other accrued and unpaid interest thereon into common shares of the Company at the conversion rate of C$0.17 per share. These transactions are expected to close on or about December 15, 2006. The Company will use the proceeds from the convertible term loan to fund its current working capital requirements.
"We are pleased to see this strong level of support from our lenders and shareholders," said Serge Fortin, president and chief executive officer. "SR Telecom remains burdened by the legacy of past restructuring efforts, which have been disruptive to operations. Today's announced transaction will enable the Company to deliver a growth strategy that will ensure future value to employees, customers and shareholders alike."
To the extent any of the lenders elects or is required pursuant to the credit agreement to convert its pro rata share of the convertible term loan, SR Telecom may issue up to 117,647,059 common shares (without taking into account capitalized or accrued interest) to the lenders at a price of C$0.17 per share, representing a volume-weighted 11% discount to the average market price of the common shares over the five trading days preceding December 7. The issuance of the common shares represents a dilution of approximately 16%, taking into account the conversion of the full amount of the convertible term loan (without taking into account capitalized or accrued interest). As the lenders already own a significant number of the Company's common shares, the transaction will not materially affect the control of the Company.
Certain funds and accounts managed or advised by DDJ hold 262,337,321 common shares (representing approximately 35.8% of the Company's outstanding common shares); certain funds and accounts managed or advised by Greywolf hold 135,928,924 common shares (representing approximately 18.5% of the Company's outstanding common shares); and Morgan Stanley and its affiliates hold 94,909,200 common shares (representing approximately 13.0% of the Company's outstanding common shares) and, as a result, are each considered insiders of the Company. Following the conversion of the convertible term loan (without taking into account capitalized or accrued interest), DDJ, Greywolf and Morgan Stanley will hold 322,144,728, 166,926,416 and 116,552,475 common shares, representing approximately 37.9%, 19.7 % and 13.7% respectively of the Company's outstanding common shares, after giving effect to the conversion of the convertible term loan (without taking into account capitalized or accrued interest) by, and the issuance of common shares to, all lenders of the convertible term loan.
As the number of common shares issuable pursuant to the conversion of the convertible term loan exceeds the number of securities issuable to insiders under the rules of the Toronto Stock Exchange without shareholder approval, the Company has requested that the TSX provide an exemption from the requirement to seek shareholder approval, as required pursuant to Section 607(g) of the TSX Company Manual, pursuant to Section 604(e) of the TSX Company Manual on the basis of its financial hardship. In addition, due to the participation of insiders, the transaction is a related party transaction for the purposes of OSC Rule 61-501 and Quebec Regulation Q-27 and the Company is relying on exemptions from the valuation and minority approval requirements of OSC Rule 61-501 and Quebec Regulation Q-27 based on a determination of financial hardship.
The Company has established a Special Committee of the Board composed of directors that are free from any interest in the transaction and are unrelated to any of the parties involved in the proposed transaction. The Special Committee retained Genuity Capital Markets to act as its financial advisor. The Special Committee has recommended the proposed transaction. Based on this recommendation, the Board has determined that SR Telecom is in serious financial difficulty, that the transaction is designed to improve its financial situation and is reasonable in the circumstances, and has endorsed this recommendation and approved the transaction. The Company will file a material change report less than 21 days before the closing date of the transaction, a shorter period that is reasonable and necessary in the circumstances and which will allow the Company to complete the transaction in a timely manner in light of the foregoing determination.
This news release is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States in the absence of registration or an exemption from registration. Any public offering in the United States will be made by means of a prospectus that may be obtained from the Company, and that will contain detailed information about the Company and management, as well as financial statements.
About SR Telecom
SR Telecom (TSX: SRX) is a recognized global leader in delivering innovative broadband wireless access (BWA) solutions that enable service providers to efficiently deploy quality voice, Internet and next-generation services in urban, suburban and remote areas. A technological pioneer with more than 25 years of experience in wireless networking, SR Telecom is the only BWA vendor with extensive real-world expertise in deploying the advanced features of the WiMAX standard. It actively promotes standards-based BWA networking through its role as a principal member of the WiMAX Forum.
With its primary offices in Montreal, Mexico City and Bangkok, SR Telecom is an agile, customer-focused organization with a proven track record. SR Telecom's products are currently deployed in more than 120 countries worldwide. For more information, visit http://www.srtelecom.com/.
About Genuity Capital Markets
Genuity Capital Markets is an independent investment dealer providing corporate, institutional and government clients with a range of financial services including, mergers and acquisitions and restructuring advisory, capital raising, institutional sales and trading and equity research through offices in Toronto, Montreal, Calgary, Vancouver and Boston. Genuity is a Participating Organization of the Toronto and TSX Venture exchanges and is a member of the Investment Dealers Association of Canada and the Canadian Investor Protection Fund. Genuity Capital Markets USA Corp., a wholly owned subsidiary, is a member of the National Association of Securities Dealers (NASD) and of the Securities Investor Protection Corporation (SIPC).
FORWARD-LOOKING STATEMENTS
Certain information in this news release, in various filings with Canadian and US regulators, in reports to shareholders and in other communications, is forward-looking within the meaning of certain securities laws, and is subject to important risks, uncertainties and assumptions. This forward-looking information includes, among others, information with respect to the Company's objectives and the strategies to achieve those objectives, as well as information with respect to the Company's beliefs, plans, expectations, anticipations, estimates and intentions. The words "may", "could", "should", "would", "suspect", "outlook", "believe", "anticipate", "estimate", "expect", "intend", "plan", "target" and similar words and expressions are used to identify forward-looking information. The forward-looking information in this news release describes the Company's expectations as of December 7, 2006.
The results or events predicted in such forward-looking information may differ materially from actual results or events. When relying on the Company's forward-looking information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. In making the forward-looking information contained in this news release, the Company does not assume any significant acquisitions, dispositions or one-time items. It does assume, however, the renewal of certain customer contracts. The Company has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to in the previous paragraph will not result in such forward-looking information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors. For additional information with respect to certain of these and other factors, refer to the risks and uncertainties disclosed in the Company's 2005 Annual Report and to its 2005 Annual Information Form (risks and uncertainties) filed with Canadian and US regulators.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS EXPECTATIONS OF SR TELECOM AS OF DECEMBER 7, 2006 AND, ACCORDINGLY, IS SUBJECT TO CHANGE. HOWEVER, SR TELECOM EXPRESSLY DISCLAIMS ANY INTENTION OR OBLIGATION TO REVISE ANY FORWARD-LOOKING INFORMATION, WHETHER AS A RESULT OF NEW INFORMATION, EVENTS OR OTHERWISE, EXCEPT AS REQUIRED BY APPLICABLE LAW.
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