Investor News Release
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Subject to the closing of the Rights Offering, the Company will enter into (i) a services agreement with Crossover Markets, Inc. ("Crossover") pursuant to which Crossover will provide the Company with access to service providers (the "Crossover Services Agreement"), and (ii) a technology services agreement with
Entering into the Standby Purchase Agreement represents the outcome of a review of alternatives undertaken by a special committee of independent directors (the "Special Committee") of the board of directors of the Company (the "Board"), comprised of Mr.
A copy of the Standby Purchase Agreement will be available on the Company's profile at www.sedar.com.
Rights Offering, Standby Purchase Agreement and Related Transactions
Subject to receipt of all necessary shareholder and regulatory approvals, including those required by the
Each Right will be transferable.
The Rights Offering will remain open for at least 21 calendar days following the date of mailing to Shareholders of the rights offering notice (the "Rights Offering Notice") of the Company for the Rights Offering. Any Rights not exercised on or before the time that the Rights expire will be void and will have no value.
Pursuant to applicable securities laws, and to the extent that other holders of Rights do not exercise all of their Rights under the Basic Subscription Privilege, each holder of Rights who exercises its full Basic Subscription Privilege will be entitled to subscribe for additional Subordinate Voting Shares on a pro rata basis at the Subscription Price in the manner prescribed by securities laws and as further detailed in the Rights Offering Circular (the "Additional Subscription Privilege").
Pursuant to the Standby Purchase Agreement, ESW has agreed to exercise its Basic Subscription Privilege and Additional Subscription Privilege. In addition, Wave has agreed to acquire, at the Subscription Price, any Subordinate Voting Shares available under the Rights Offering that are not otherwise subscribed for by Shareholders, ensuring that Redknee will receive not less than approximately US$54 million in gross proceeds under the Rights Offering (the "Standby Commitment"). The Standby Commitment provides certainty that the Rights Offering for aggregate gross proceeds of approximately
Subject to the terms of the Standby Purchase Agreement, including certain non-solicitation covenants, the Company may terminate the Standby Purchase Agreement, upon the payment to Wave of
Pursuant to the Standby Purchase Agreement, and in consideration solely for the Standby Commitment, the Company will issue to Wave a subordinate voting share purchase warrant (the "Standby Warrant"). The Standby Warrant will entitle Wave to acquire 2,500,000 Subordinate Voting Shares at an exercise price of
The completion of the Rights Offering is conditional upon the satisfaction of certain conditions, including the Company receiving all required approvals, including TSX approval and Shareholder approval as further described below.
The closing of the Rights Offering is expected to occur in early
Further details on the Rights Offering (including the Record Date for participation by Shareholders) and the procedures to be followed by Shareholders in order to subscribe for Rights will be included in the Rights Offering Circular and Rights Offering Notice, which will be filed with the securities regulatory authorities in the Qualifying Jurisdictions and also on www.sedar.com after obtaining the approvals required in connection with the Rights Offering from Shareholders and after the date on which all necessary approvals and consents are received, including from the TSX.
The Rights will be issued to Shareholders (i) resident in the Qualifying Jurisdictions, and (ii) resident in any other jurisdiction provided that the Company has satisfied itself that such Shareholder is entitled to receive the Rights and Subordinate Voting Shares issuable under the Rights Offering in accordance with the laws of such jurisdiction without obliging the Company to register the Rights or Subordinate Voting Shares issuable under the Rights Offering or file a prospectus or other similar disclosure document or to make any other filings or become subject to any reporting or disclosure obligations that the Company is not otherwise already obligated to make.
This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of securities in any province, state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such province, state or jurisdiction.
Pursuant to the terms of the Subscription Agreement between the Company, Wave and ESW dated
If, following and as a result of the Rights Offering, including pursuant to the Standby Commitment, the Investor's Percentage is less than 39%, Wave Systems
As a result of the Rights Offering and the anti-dilution provisions of the 46,285,582 warrants issued to Wave on
If holders of the Rights, other than ESW and its affiliates, do not exercise their Rights, ESW and its affiliates' participation in the Rights Offering and the Standby Purchase Agreement may result in a significant increase in their ownership interest of Subordinate Voting Shares. If only ESW and its affiliates participate in the Rights Offering, their collective ownership interest in the Subordinate Voting Shares, prior to the exercise of the Wave Warrants and the Standby Warrant, will increase from approximately 13% to approximately 56% (approximately 64% on a fully-diluted basis assuming the exercise of the Wave Warrants and the Standby Warrant).
Special Meeting of Shareholders
ESW is a "related party" of the Company as defined in Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The Rights Offering and the Subsequent Issuance is each considered a "related party transaction" for purposes of MI 61-101. While MI 61-101 provides for an exemption from the protections that generally apply to related party transactions where the transaction is a rights offering, this exemption is not available where the transaction has an "interested party" (as defined in MI 61-101). ESW meets the definition of "interested party" by virtue of the benefit it and its affiliates will receive through the Subsequent Issuance and the Services Agreements, respectively. Therefore the exemption from the minority approval requirements of MI 61-101 is not available. In addition, under the rules of the TSX, the Rights Offering, the issuance to Wave of the Standby Warrant and the Subsequent Issuance are subject to receipt of approval by an affirmative vote of a majority of the votes cast by disinterested Shareholders, at a meeting called to consider such matters.
Accordingly, a special meeting of Shareholders (the "Special Meeting") will be called to consider a resolution to approve the Rights Offering, the issuance of the Standby Warrant and the Subsequent Issuance (the "Transaction Resolution"). In order for the Transaction Resolution to be effective, it must be approved by an affirmative vote of a majority of the votes cast by Shareholders present in person or represented by proxy at the Special Meeting, after excluding the votes cast by ESW, Wave or any of their associates or affiliates or any other joint actor and any other person whose vote must be excluded under applicable securities laws.
Upon the recommendation of the Special Committee, the Board (other than
The Special Meeting will be held on
To achieve its Strategic Plan, the Company plans to reduce headcount worldwide by approximately 500 employees. Redknee expects that the majority of the net proceeds from the Rights Offering will be used to fund associated employee severance payments. The balance of the net proceeds will be used for location rationalization, entity simplification and associated fees. It is expected that all of the net proceeds from the Rights Offering will be used by the Company within the 12 months following the Rights Offering.
The Services Agreements
The Services Agreements will assist the Company with the implementation of the Restructuring and the Strategic Plan. Resources provided by Crossover will enable Redknee to dedicate personnel in countries where its customers are operating. By sourcing local talent to work directly in the regions where Redknee's customers' are domiciled, the Company expects to improve its customer success while optimizing its cost structure.
DevFactory provides a technology toolset that will enable Redknee to better manage its technology suite. The DevFactory platform facilitates software source code management leading to improvements in the quality of the code. The Company expects that this technology will enable it to enhance the quality of its products, going forward.
In connection with the review of the Services Agreement, the Independent Directors, on behalf of the Board, retained
Set out below is a summary of the key terms of the Crossover Services Agreement and the DevFactory Services Agreement. The summary below is qualified entirely by reference to the full text of The Services Agreements which are attached to the Standby Purchase Agreement and will be available on the Company's profile at www.sedar.com.
Crossover Services Agreement
The Company will outsource to Crossover the recruitment and hiring of its employees and independent contractors. Through its proprietary network of resources, Crossover will provide the Company with access to globally sourced personnel at competitive prices (the "Service Providers"). Crossover's proprietary platform, WorkSmart, provides a software suite which includes time tracking and productivity management that Redknee will use to manage some of its Service Providers.
It is currently expected that during the first 12 months of the Crossover Services Agreement, Crossover will provide the Company with access to a number of Crossover sourced independent contractor and/or employee Service Providers.
Crossover will receive a fee equal to 10% of the "Resource Fee" which is calculated as the time worked by each Service Provider multiplied by the hourly rate of such Service Provider. The time worked by the Service Provider is tracked by WorkSmart. It is estimated that Crossover will receive a fee not exceeding
Crossover will warrant to the Company that the Service Providers will perform their services in a good and workmanlike manner, acting in good faith and in the best interests of the Company. Crossover will remove a Service Provider and furnish a replacement Service Provider at the request of the Company and will refund monies paid for the specific Service Provider for up to four weeks of compensation and fees for the specific Service Provider removed.
Crossover will indemnify and hold the Company harmless for direct and third party claims of (i) gross negligence or intentionally wrongful acts of Crossover, and (ii) infringement of patent, copyright or trade secrets relating to WorkSmart. The Company will indemnify and hold Crossover harmless for direct and third party claims related to (i) the classification of a Service Provider as an independent contractor, (ii) the classification of Crossover as an employer, (iii) gross negligence or intentionally wrongful acts of the Company, and (iv) any employment-related or pre-employment related claims.
The Company will agree not to, without Crossover's consent, directly or indirectly consult with, hire, solicit or attempt to solicit Service Providers identified by Crossover for a period of the later of (i) one year after the Service Provider last performed a service for the Company or one year after the Service Provider was identified by Crossover, unless the Company pays to Crossover a finders' fee equal to 100% of such Service Provider's gross annual compensation, which finders' fee will be reduced to 50% in the event that the Company hires 100 or more Service Providers.
The Crossover Services Agreement, may be terminated by the Company upon 30 days' prior notice and by Crossover immediately upon non-payment of fees. There are no termination fees payable by the Company in connection with the termination of the Crossover Services Agreement.
DevFactory Services Agreement
The Company will acquire services from DevFactory to improve the quality of its source code. DevFactory's services run proprietary diagnostics on the Company's existing code base, and on future improvements and bug fixes, to identify portions of the code that are failing or hindering functionality. DevFactory's services will highlight anti-patterns in the code base and developers' work product. DevFactory will also improve the code base directly by enhancing its built-in testing capacity. DevFactory will write unit test code that provides early warning of introduced errors.
DevFactory will receive a monthly fee for each of the Company's active developers and for unit test code written by DevFactory per line of executable code. The fees will be set out in a statement of work ("SOW") that will provide the Company an opportunity to assess unit test code before corresponding fees are incurred. The SOW sets out objective criteria for such assessment. DevFactory will provide work credits in the event that the Company's fees are less favourable than the fees of any non-affiliated DevFactory customer. It is estimated that DevFactory will receive a fee of
DevFactory will warrant that the services it provides operate in a workmanlike and professional manner. It will indemnify the Company for certain intellectual property claims, and will agree to maintain minimum data security standards, preserve confidentiality and adhere to the Company's code of conduct. DevFactory and the Company will agree not to solicit each other's staff for a period of one year after termination of the agreement.
The SOW will have a term of one year and will automatically renew for successive one-year periods unless either party provides 30-days' notice of non-renewal prior to the end of the applicable term. Either DevFactory or the Company may terminate the DevFactory Services Agreement on breach, subject to cure periods, after the termination of the SOW on 30 days' notice. On a change of control of the Company, the Company may terminate the DevFactory Services Agreement on 90 days' notice. If the DevFactory Services Agreement is terminated because of the Company's material breach of a payment or confidentiality obligation, the Company will have to pay fees that would have been payable to the end of the then-current SOW term. There are no other termination fees payable by the Company in connection with the termination of the DevFactory Services Agreement.
As part of the Restructuring, Redknee announces changes to its executive leadership team designed to position the Company for long-term growth and sustained profitability.
Redknee would like to announce the appointments of
Redknee remains committed to delivering long-term value to all stakeholders by strategically investing in the business, strengthening its customer relationships and executing on its long-term strategic growth plan.
Redknee monetizes today's digital world. We provide a complete portfolio of mission-critical monetization and subscriber management solutions and services that allow communications service providers to charge for things in new and innovative ways. Redknee's real-time billing, charging, policy and customer care offerings provide the agility and scalability to drive a unique user experience, increase profitability and support any new product or business model. Available on premise, cloud-based, or as a Software-as-a-Service, Redknee's low-risk, flexible solutions power ~250 communication service providers across the globe. Established in 1999,
References to Redknee refer to the combined operations of those entities. For more information about Redknee and its solutions, please go to www.redknee.com.