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Cell-Loc Location Technologies Inc. (TSX VENTURE:XCT) ("Cell-Loc" or the "Company)
On June 14, 2010, a group of dissident shareholders (the "Dissidents") filed a
dissident proxy circular. The Dissidents' slate of eight directors includes four
Brazilian nominees, three of whom are associated with Bravia Capital ("Bravia")
which, through its subsidiaries CLTI and X3 Telecomunicacoes E Equipamentos Ltda
("X3"), is Cell-Loc's largest debtor.
The directors of Cell-Loc believe that the Dissidents' circular fails to
demonstrate how the Dissidents' slate will increase shareholder value and how,
if elected, the directors associated with Bravia will adequately represent the
interests of all shareholders. In fact the Directors believe that if elected,
the Dissidents' actions may lead to the complete demise of Cell-Loc.
Overview
In addition to the general concerns highlighted above, the directors of Cell-Loc
are of the view that the Dissidents' circular has failed to:
-- disclose any plans for financing or recapitalizing Cell-Loc,
notwithstanding that the Dissidents have selectively discussed such
plans with some Cell-Loc shareholders;
-- adequately disclose or discuss the fundamental conflicts of interest
which exist between Cell-Loc and Bravia;
-- disclose any concrete business plans for Cell-Loc, including the timing
or business reasons for Cell-Loc to re-acquire X3 or how current debts
and obligations will be renegotiated;
-- disclose how the Company's technology and intellectual property will be
adequately protected, going forward;
-- consider the ramifications of proposing a Dissident eight member board
where only 2 of the nominees are independent and that overlooks
established Canadian corporate governance standards;
-- consider that, if elected, pursuant to Cell-Loc's By-laws the full
Dissident slate will not be able to transact business at board meetings;
or
-- include all material statements which have been made by the Dissidents
in the course of their solicitation of Cell-Loc shareholders.
Voting
Your board is extremely concerned that the Dissidents and perhaps Bravia's goal
is to seize effective control of Cell-Loc and its technology and intellectual
property without paying a control premium.
It is important that you vote with management of Cell-Loc in order to prevent
this from happening.
In order to support Cell-Loc and defeat the Dissidents you must complete and
submit your Management Proxy. If you have any questions about this process
please contact Sheldon Reid. President and CEO of Cell-Loc at 403.569.5700 (ext.
777).
The Dissidents and Bravia's actions are opportunistic and conflicted
The Dissidents' actions have been carefully timed to take advantage of
Cell-Loc's shareholders at a time when the share price does not reflect the
Company's intrinsic value. As announced in May of 2010 Cell- Loc has
successfully closed a transaction with Bravia which resulted in Cell-Loc
realizing positive cash flow on a prospective basis and has provided the Company
with an opportunity to increase the value of Cell-Loc for all shareholders.
Bravia is well aware of the opportunities this has created for Cell-Loc and
Cell-Loc's directors fear Bravia desires to capitalize on these opportunities at
the expense of Cell-Loc and its shareholders.
The board is concerned that this is an attempt by Bravia to gain effective
control of Cell-Loc and, in particular, its technology and intellectual property
without adequate governance protections for shareholders and when there is no
assurance that this outcome is in the best interests of Cell-Loc and its
shareholders. As described below, the interests of Bravia are not necessarily
aligned with the vast majority of Cell-Loc's shareholders. Cell-Loc needs your
support to ensure the Dissidents' attempt to seize effective control of Cell-Loc
is defeated at your June 29, 2010 shareholders meeting.
Re-acquiring X3 will not benefit Cell-Loc
In their circular, the Dissidents propose that the equity of CLTI and thereby
CLTI's Brazilian operating subsidiary, X3, be sold back to Cell-Loc on terms
"favourable" to Cell-Loc. The Dissidents' circular does not include any details
regarding the timing, terms or business reasons for such a transaction.
Shareholders should be made aware of the complete plan before electing the
Dissidents' slate and thereby implicitly endorsing this transaction without
sufficient detail.
As previously announced on May 5, 2010, all of the equity of CLTI was conveyed
by Cell-Loc to an affiliate of Bravia for a nominal sum. As part of this
transaction, Cell-Loc entered into a new technology license agreement with CLTI
(the "License Agreement"), providing CLTI and X3 the right to use certain of
Cell-Loc's proprietary wireless location technology. In this transaction,
Bravia, through CLTI, became obligated to Cell-Loc for the following amounts:
-- 1,600,000 Brazilian reais (approximately $912,000 Cdn.), to be paid to
Cell-Loc through four monthly payments of 100,000 Brazilian reais
(approximately $57,000 Cdn), with the first payment having been made,
the next payment due July 1, 2010, and the balance of 1,200,000
Brazilian reais (approximately $684,000 Cdn.) due on February 15, 2011;
-- a performance based amount of 11% of the EBITDA of X3 in each of fiscal
2011, 2012 and 2013 is payable to Cell-Loc upon the occurrence of
certain performance based events associated with X3's operations,
subject to a minimum payment of 400,000 reais/year (approximately
$228,000 Cdn./year); and
-- a monthly royalty payment to Cell-Loc under the License Agreement equal
to 3% of X3's gross revenues,
(the foregoing collectively being referred to as the "Obligations").
The Obligations described above represent material assets of Cell-Loc and a
substantial portion of Cell- Loc's current revenue. The directors of Cell-Loc
are concerned that, if elected, the Dissidents' board may fail to protect
Cell-Loc's interests by failing to protect these Obligations for the benefit of
the Company.
Bravia's indirect ownership of CLTI and X3 provides for a well-funded, arm's
length party (Bravia) being responsible for the Obligations. Conveying the
equity of CLTI (and thereby X3) back to Cell-Loc, resulting in CLTI and X3
becoming wholly owned direct or indirect subsidiaries of Cell-Loc, would result
in the Obligations becoming intercorporate obligations which would not benefit
Cell-Loc and its shareholders.
As intercorporate obligations, the likelihood increases that the Obligations
would not be kept current, or would be converted into equity of one or both of
CLTI and/or X3, or otherwise ultimately not be met in full. Any reconveyance of
CLTI or X3 back to Cell-Loc, other than on terms equal or better (to Cell-Loc)
than the terms agreed to in the May 2010 transaction, could allow Bravia to
circumvent its responsibility for the Obligations and could effectively end all
material revenue streams for Cell-Loc.
Any reconveyance of CLTI or X3 from Bravia back to the Company would likely be
subject to Multilateral Instrument 61-101, requiring disinterested shareholder
approval and a valuation of the subject matter of the transaction. Approval
under Multilateral Instrument 61-101 is costly and time consuming and would
diminish the resources of Cell-Loc even further. Although the Directors are
concerned with these costs, the Directors greater concern is that the Dissidents
may attempt to deny shareholders an opportunity to review, consider and approve
this reconveyance transaction by relying on an exemption from the Multilateral
Instrument 61-101 requirements. In the circumstances, any attempt to reconvey X3
back to Cell-Loc without the review and approval of shareholders would not be in
the best interests of all shareholders.
For these reasons, the repurchase of CLTI by Cell-Loc in the circumstances
contemplated by the Dissidents is inadvisable and ultimately materially
disadvantageous to shareholders.
The Dissidents' plans would increase costs without increasing capital funding
Cell-Loc requires significant capital to meet its ongoing operating
requirements, to meet trade payables and to fund the capital requirements of
developing its proprietary wireless location technology, including the
development of Beacon 7.
In order to allow the Company to continue its operations, certain directors and
officers have: (1) provided debt financing to Cell-Loc; (2) deferred salary
payments; and (3) agreed to temporarily forbear under these loans and salary
deferrals, pending the results of the cost cutting and asset monetization
measures recently undertaken by Cell-Loc.
Despite a lack of specifics in the Dissident circular, the Dissidents do clearly
state that it is their intention to increase costs to the Company by hiring back
the five former technical employees who are currently consulting to Bravia and
also propose to rehire Dr. Fattouche as the Company's Chief Technology Officer.
The Dissidents have not set forth any plan to fund the capital, operating and
debt requirements of Cell-Loc and therefore presumably have no current plan.
Additionally, the Dissidents have not stated how they intend to finance Cell-Loc
so that it can meet the materially increased general and administrative expenses
associated with these additional salaries and benefit obligations. Further, and
despite the fact that: (1) three of the directors proposed by the Dissidents are
Managing Directors and founders of Bravia; (2) Bravia is a Brazilian-based
investment management company with over US$100 million under management; and (3)
Bravia is the indirect owner of 3,210,000 common shares of the Company, the
Dissidents have not secured, nor presumably sought, as part of their "action
plan" the commitment of Bravia to assist with Cell-Loc's capital requirements
going forward. To the contrary (as discussed above), the Dissidents' action plan
calls for the re-acquisition of CLTI and X3 by Cell-Loc, with the result of
turning the Obligations into an intercorporate arrangement thereby likely
stripping the Company of material assets and its existing sources of revenue.
The Dissidents' failure to set forth a complete plan for financing the Company,
including a commitment from Bravia to participate, as well as intending on
taking steps that may result in Bravia's existing Obligations to Cell-Loc not
being met, is completely unacceptable and must be rejected by shareholders.
The Dissidents have no workable plan to reduce Cell-Loc's debt or obligations
As discussed, Cell-Loc has significant working capital requirements. Cell-Loc's
aggregate unpaid current debt and salary obligations are, as the date hereof,
approximately $2.7 million. In the event the Dissident slate is elected, the
Dissidents would not be in position to effectively persuade these debtholders to
continue to forbear on these obligations.
The May 2010 reorganization and the creation of the Obligations for the benefit
of Cell-Loc was an important step in Cell-Loc's business plan by reducing
operating costs while simultaneously generating a steady source of revenue and
eliminating outstanding liabilities. This transaction also allowed Cell-Loc to
continue to develop its proprietary wireless location technology and thereby to
seek to secure additional business opportunities for the technology, both in
domestic and international markets, and also to secure new sources of equity
and/or debt financing.
The Dissidents state that they plan to renegotiate Cell-Loc's debt liabilities,
obligations and accounts payable, without providing a detailed plan on how this
is to be accomplished. Given the significance to Cell-Loc shareholders of any
effort to renegotiate the Company's debt obligations, the Dissidents must
provide shareholders with full and complete details of any debt restructuring or
creditor compromise plans. To suggest that Cell-Loc is contemplating
compromising its creditors without such plan being fully thought out and
described to shareholders in the Dissidents' circular is, at a minimum,
irresponsible and potentially extremely prejudicial to shareholders.
Proposed Dissident Slate ignores established corporate governance standards
If the Dissidents' slate is elected the resulting board of directors would have
no more than two independent directors (assuming Dick Tchairdjian and Robert
Henschel remain independent directors). Accordingly, the Dissidents' board would
not be comprised of a majority of independent directors nor would that board be
able to form an audit committee comprised of at least three independent,
financially literate directors, all as strongly recommended by both securities
regulatory authorities and shareholder advocacy groups. The Dissident slate
would also not be able to form other committees of three or more directors (ie.
Compensation) comprised solely of independent directors, as suggested by
securities regulations. The lower standard of having Committees comprised of a
majority only of independent directors would result in Messrs. Tchairdjian and
Henschel serving on each such committee. Also, based on the Dissidents' circular
and other publicly available information, other than Mr. Bohn (who was a
director of a "junior capital company") and Dr. Fattouche (a former director of
Cell Loc and Wi-LAN Inc.), none of the proposed Dissident directors have any
experience as directors of Canadian public companies. Shareholders need to
understand that the Dissidents' slate falls well short, from the outset, of
established Canadian corporate governance standards and guidelines.
Proposed Dissident Slate is Largely Conflicted
Any deliberations and decisions taken by the Dissidents involving CLTI, X3 or
Cell-Loc's Brazilian business interests (being materially all of Cell-Loc's
business at this time), including any decisions regarding the proposed X3
reconveyance transaction discussed above, would require the sequestering of, and
abstention from voting by, the four Brazilian Dissident directors, as well as
any other proposed directors who have any undisclosed interests in that
business.
Proposed Full Dissident Slate will not be able to transact business at board
meetings
Cell-Loc's By-laws outline that the board shall not transact business at a
meeting (other than filling a vacancy in the Board) unless a majority of the
directors present are resident Canadians. Accordingly, if the Dissidents' slate
is elected, pursuant to Cell-Loc's By-laws the full Dissident slate will not be
able to transact business at board meetings.
This oversight by the Dissidents demonstrates, again, the Dissidents' lack of
understanding of Cell-Loc and Canadian corporate governance standards and
reveals again why shareholders should reject the Dissidents.
Re-establish Negotiations Regarding a Joint Venture with Samsung is not the way
forward
The Dissidents have stated that they will resume negotiations with Samsung
Electronics respecting a joint venture with Cell-Loc. Cell-Loc had previously
announced (on March 11, 2010) that Cell-Loc and Samsung had been unable to
deliver on any material milestones under their joint development project.
Cell-Loc had terminated negotiations with Samsung due to an impasse related to
unacceptable terms being insisted on by Samsung for the use of Cell-Loc's
intellectual property. The resumption of negotiations with Samsung at this time
is not in Cell-Loc's best interests, given its other challenges. Despite the
Dissidents' promise to reopen these negotiations, discontinuing negotiations
with Samsung was a prudent decision.
Inventor Participation is not the way forward
As highlighted above, the Dissidents intend to rehire Dr. Fattouche as its Chief
Technology Officer. In addition to immediately increasing costs, this step is
out of sync with the current development of the Company and its technology
demonstrating once again why shareholders should reject the Dissidents.
Cell-Loc's technology is proven and has been commercialized, and Cell-Loc's
current focus is on adding functionality to its technology for Cell-Loc's
existing and future customers. The Directors of Cell-Loc believe the business is
adequately and responsibly staffed for such purpose, with staffing levels having
been carefully reviewed for the purpose of completing the reorganization
transaction in May 2010.
The Dissidents' Circular is inadequate
The board of Cell-Loc has concerns regarding the level of disclosure contained
in the Dissident's circular. As highlighted above, there is a potential, and
likely unavoidable, conflict between Bravia and Cell-Loc. The Dissidents have
failed to acknowledge this conflict or provide shareholders with any assurances
that this potential conflict will or can be addressed.
In the course of speaking with certain shareholders of Cell-Loc, the board of
Cell-Loc has learned that the Dissidents have told certain shareholders that the
Dissidents or Bravia may raise additional equity capital for Cell-Loc. While an
equity financing, depending on its terms, may be of benefit to Cell-Loc, the
Dissidents have not included any disclosure regarding such a financing in their
Circular, such that the Dissidents have made this disclosure selectively and not
to all shareholders thereby unduly, intentionally and improperly influencing the
decisions of some shareholders. Furthermore if this disclosure is untrue or
misleading in any material manner it demonstrates, once again, why this
Dissident slate should be rejected by shareholders.
Conclusion
It is vital that you fully understand what may happen to your investment if the
Dissidents' slate seizes effective control of your Company. For the reasons
highlighted above, the board urges you to execute the Management proxy and vote
as recommended by the board and management of Cell-Loc.
Voting is a very quick and easy process that empowers you to state your position
and protect your investment, but you must act and vote your white proxy (as
previously delivered to registered shareholders) to ensure your position is
recognized. We believe that the depth of experience and strategic vision of the
Cell-Loc nominees are essential to the Company's success and makes us best
suited to lead your Company.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS:
Certain statements contained in this news release constitute forward-looking
statements, including, without limitation, the completion and success of the
Company's business plan. By their nature, forward-looking statements are subject
to numerous risks and uncertainties, some of which are beyond Cell-Loc's control
including the impact of general economic conditions, industry conditions,
currency fluctuations, competition from other industry participants, the lack of
availability of qualified personnel or management, stock market volatility and
ability to access sufficient capital from internal and external sources, the
inability to obtain required consents, permits or approvals, including
regulatory approvals, counter-party risks and the risk that actual results of
the Company will vary from the results forecasted and such variations may be
material. Readers are cautioned that the assumptions used in the preparation of
such information, although considered reasonable at the time of preparation may
prove to be imprecise and, as such, undue reliance should not be placed on
forward-looking statements. Cell-Loc's actual results, performance or
achievement could differ materially from those expressed in or implied by, these
forward-looking statements and, accordingly, no assurance can be given that any
of the events anticipated by the forward-looking statements will transpire or
occur, or if any of them do so, what benefits Cell-Loc will derive therefrom.
The forward-looking statements contained in this news release are made as of the
date of this news release. Except as required by law, Cell-Loc disclaims any
intention and assumes no obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise,
except as required by applicable securities laws.
Grafico Azioni Cell-Loc Location Technologies Inc. (TSXV:XCT)
Storico
Da Ago 2024 a Set 2024
Grafico Azioni Cell-Loc Location Technologies Inc. (TSXV:XCT)
Storico
Da Set 2023 a Set 2024
