Taiga Motors Announces Private Placement of $40.15 million of Secured Convertible Debentures and Provides Corporate and Financial Update
MONTREAL, March 17, 2023 /CNW/ - Taiga Motors Corporation ("Taiga" or the "Company") (TSX: TAIG), a leading electric off-road vehicle manufacturer, announced today that, following a robust process to identify financing options and secure sufficient capital to fund the ongoing ramp-up of its business operations, the Company has entered into definitive subscription agreements for a private placement of $40.15 million aggregate principal amount of 10% secured convertible debentures due March 31, 2028 (the "Debentures") (collectively, the "Private Placement"). The entirety of the Private Placement was subscribed for by two institutional investors, with existing significant shareholder Northern Private Capital (together with its affiliates and funds managed by it, "NPC") and Investissement Québec ("IQ", and together with NPC, the "Investors") having respectively subscribed for $25.15 million and $15 million of the Debentures.
In addition, the Company has granted NPC an option, exercisable in whole or in part, to subscribe for an additional Debenture no later than April 27, 2023, on the same terms as the original Debenture (other than the amount of the first interest payment to the extent the additional Debenture is issued after the original Debenture), with a principal amount of up to $5 million (the "NPC Option"). IQ has committed to concurrently subscribe for an amount that is equal to or greater than $2.5 million, provided that if the NPC Option is exercised for an amount that is equal to or greater than $2.5 million but less than $5 million, IQ's commitment is to acquire an additional Debenture having a principal amount of $2.5 million and if the NPC Option is exercised in full, IQ's commitment is for an amount of $5 million.
Having been negotiated on an arm's-length basis, the Private Placement represents the culmination of an extensive review of various options and alternatives by the Company, with the assistance and advice of various advisors, which subsequently resulted in the formation of a special committee (the "Special Committee") of independent members of the board of directors (the "Board") of the Company to oversee such process. In the view of the Special Committee and the Board, the Private Placement will provide the Company with an improved financial footing going forward.
In connection with the Private Placement, the Company has applied to the Toronto Stock Exchange ("TSX") to obtain an exemption from the requirement that shareholders approve various elements of the Private Placement on the basis that the Company is in serious financial difficulty (the "Exemption"), the details of which are provided below under the heading "TSX Exemption from Shareholder Approval Requirement". Given its limited alternatives and the immediacy of the Company's need to address its obligations through the Private Placement, the Company does not have sufficient time to hold a special meeting of shareholders, and that is why the Company has applied to the TSX for the Exemption.
The Company intends to use the net proceeds from the Private Placement first, to pay its and its subsidiaries' current, near-term and future obligations incurred and to be incurred in the ordinary course for the remainder of 2023 as well as all transaction-related fees and expenses, second, to fund already contracted and/or budgeted expenditures in execution of the Company's existing business plan, including those associated with the production ramp-up of its all-electric, powersports vehicles, consisting of expenditures related to the development of additional manufacturing capacity and for the procurement of tooling and molds as well as expenditures on manufacturing equipment and facilities, and, finally, the remainder will be used for working capital purposes in the ordinary course of business.
Key Terms of the Debentures
Each Debenture will be convertible, at the holder's option, into common shares at a conversion price of $3.25 per share (the "Conversion Price") at any time before the maturity date of March 31, 2028 (the "Maturity Date"). The Debentures will bear interest at an annual rate of 10%, compounded and payable quarterly, which may, at the Company's election, be paid in cash or by issuing additional "paid in kind" Debentures with the same terms, all maturing on the same Maturity Date.
The Debentures may be redeemable by the Company on or after the second anniversary of their initial issuance date, in whole or in part, at par (or 100% of the then principal amount), together with accrued interest, provided the 20 trading day volume weighted average price ("VWAP") of the common shares on TSX is not less than 150% of the Conversion Price and also contain a customary put right in favour of Debentureholders in the event of a change of control.
In addition, the Company has granted customary pre-emptive rights to NPC in connection with any future offerings or issuances of equity or convertible equity or debt securities so as to allow NPC, for a period of time set out in the definitive documents, to maintain its pro forma and as-converted proportionate ownership interest in the Company.
In connection with and as part of the consideration under the Private Placement, the Company has also granted NPC and IQ certain director nomination rights described under "Governance Update" below.
The Private Placement is expected to close on or about March 27, 2023, subject to receipt of the necessary approvals of the TSX (including the granting of the Exemption as described below) and the satisfaction or waiver of other customary closing conditions.
Pursuant to applicable Canadian securities laws, the Debentures (and any underlying common shares issuable upon conversion of Debentures) will be subject to a hold period of four months and one day following the closing date.
"Taiga's Nomad snowmobile and Orca personal watercraft have proven to be a success with our customers and the innovative technology behind them has led to multiple prestigious accolades in their first year of production. We have great opportunities ahead of us and our vision has always been to mass produce electric off-road vehicles that are accessible to a broad base of customers," said Samuel Bruneau, Chief Executive Officer and Co-Founder of Taiga Motors.
"These funds will help drive our vision and allow us to invest in our production ramp-up, secure our supply chain and maintain our operations as we build the next generation of off-road electric vehicles. We are pleased to be able to count on partners such as Northern Private Capital, which has been a stalwart supporter of Taiga's mission since our early days, and Investissement Québec, which continues to be a key driver of innovation in Québec," added Mr. Bruneau.
"We are very excited to continue to support Taiga with a focus on continued operational improvements as it ramps up production to meet the market demand for its award-winning vehicles. We believe Taiga's first-mover advantage in electrification will enable it to become the leader in the rapidly growing electric powersports industry in the coming years and are excited to help the company realize that vision," commented Andrew Lapham, co-Founder and CEO of Northern Private Capital.
"Investissement Québec is committed to creating a transportation electrification hub in Québec, and thus we are proud to support Taiga in its project to grow and increase its production. Our intervention will stimulate innovation in clean technologies, contribute to reducing the environmental footprint of the sector, and promote the development and influence of a world-class player," stated Guy LeBlanc, President and CEO of Investissement Québec.
As part of the Private Placement, Taiga has agreed, as soon as practicable after the closing of the Private Placement and the release and filing of the Company's 2022 financial results and statements, to reconstitute its Board of Directors and it has granted one seat to a member designated by IQ, two seats to representatives of NPC and one seat to an independent member designated by NPC (collectively, the "Board Designees"). Each of the Investors' separate right to nominate their respective Board Designees will continue to apply at subsequent shareholder meetings of the Company involving the election of directors, subject to certain reductions in the number of Board Designees based on the Investors' ongoing pro forma as-converted ownership percentage as set out in the definitive documents.
As part of the Private Placement, Taiga has also agreed that as long as IQ is either a holder of Debentures or a shareholder, the Company will not move its head office, decision-making centre, principal place of business or research and development center outside the Province of Québec without IQ's prior written consent.
As a result of the Board reconstitution, Kent Farrell, Nadia Martel, François R. Roy and Gabriel Bernatchez have confirmed that they will be resigning from the Board of Directors once the Private Placement is completed and following the release and filing of the Company's 2022 financial results and statements, and Andrew Lapham, Michael Fizzell and Francis (Frank) Séguin will join the Board as nominees of NPC and Marc Fortin will join the Board as IQ's nominee. Current directors Samuel Bruneau, Martin Picard and Tim Tokarsky will remain on the Board. The Board will thus be reconstituted immediately following filing of the Company's 2022 financial results and statements and the seven directors, of which three will be independent directors, will serve on the Board until the next annual meeting of the Company's shareholders that is currently expected to be convened and held in June 2023.
TSX Exemption from Shareholder Approval Requirement
Absent an available exemption, the Private Placement would require the approval from the holders of a majority of the currently issued and outstanding common shares, excluding the votes attached to the common shares held by NPC, under Sections 607(g)(i), 607(g)(ii) and 604(a)(i) of the TSX Company Manual, as the full conversion of the Debentures could: (i) potentially result in the issuance of common shares in excess of 25% of the number of currently issued and outstanding common shares; (ii) potentially result in an issuance of common shares in excess of 10% of the issued and outstanding shares to an "insider" (namely NPC); and (iii) potentially materially affect control of the Company. In this regard, the number of common shares, assuming the full conversion of the Convertible Debentures (including any "paid in kind" (or PIK) Debentures), that would be issuable to the insider subscriber, namely NPC, would be 12,694,294 (or 15,218,011 common shares if the NPC Option is exercised in full, together with any PIK Debentures thereunder) and, in such event, NPC's ownership interest in the Company would increase from its current 11.3% to 31.3% on a pro forma and as-converted basis, or 32.9% if the NPC Option is exercised in full (including any PIK Debentures thereunder). To the Company's knowledge, Investissement Québec does not currently own any common shares and, upon closing of the Private Placement and its acquisition of a $15 million Debenture, its pro forma and as-converted proportionate ownership interest in the Company would be 14.5%, or 17.7% if IQ acquires an additional $5 million Debenture upon full exercise of the NPC Option (including any PIK Debentures thereunder). Assuming the NPC Option is exercised in full and all interest is paid in kind, NPC's pro forma as-converted ownership interest in the Company would increase to 40.0% assuming IQ were to never convert any portion of its Debentures into common shares (with IQ thus continuing to have no ownership interest in such scenario), while IQ's pro forma as-converted ownership interest would increase to 24.1% assuming NPC were to never convert any portion of its Debentures into common shares (with NPC's ownership interest reducing from 11.3% to 8.6%). The Company has thus applied to TSX to list a total of 25,312,877 common shares potentially issuable in connection with the Private Placement representing a maximum total dilution of 79.5% relative to the 31,825,716 currently issued and outstanding common shares.
As part of the Company's application to TSX for the Exemption, it is also requesting that securityholder approval not be required in connection with (i) the Conversion Price remaining $3.25 for any future issuance of PIK Debentures even though the Conversion Price was established with reference to the VWAP of the common shares prior to the Company having entered into the subscription agreements with NPC and IQ, and (ii) the Conversion Price (as well as the applicable floor Conversion Price in the event of certain adjustments) having been established during a blackout period of the Company shortly prior to the scheduled release of the Company's fourth quarter and full year 2022 financial and operating results, although the Company notes that the Conversion Price represents a meaningful premium of approximately 44% to the VWAP of the common shares for the 5-day period prior to the filing by the Company of its application to TSX for the Exemption.
Pursuant to Section 604(e) of the TSX Company Manual and upon the recommendation of the Special Committee consisting entirely of independent directors, the Company has applied for the Exemption from the shareholder approval requirements of the TSX described above, on the basis that the Company is in serious financial difficulty. As a result of various factors, including the COVID-19 pandemic, the failure by certain suppliers to deliver on contracts and supply chain constraints and challenges associated with ramping up production, the Company has experienced setbacks on the execution and delivery of its business plan and has been prevented from generating operating cash flows sufficient to at least partially offset its research and development and capital expenditures and other working capital requirements. After considering and reviewing all of the circumstances currently facing the Company and the Private Placement, including (i) the Company's current financial situation and liquidity and capital requirements in the immediate term, (ii) the determination that the Private Placement is the most viable financing option available to the Company at the present time given the Company's circumstances and current market conditions, (iii) the fact that the Proposed Financing is not subject to any unusual closing conditions for a transaction in the nature of the Proposed Financing, (iv) the fact that the conversion price of the Debentures is at a premium to the market price of the common shares, and (v) other relevant factors, the Special Committee determined that the Private Placement is designed to improve the financial condition of the Company. The Special Committee also determined that the terms of the Private Placement are reasonable given the circumstances of the Company. The full Board of Directors resolved to accept and concur with all of the Special Committee's recommendations as outlined above.
The Company expects that, as a consequence of its application and intention to rely on the Exemption, the TSX will place Taiga's listing of common shares under remedial delisting review, which is customary practice when a listed issuer seeks to rely on the Exemption. No assurance can be provided as to the outcome of such review and therefore continued qualification for listing on the TSX.
The Company is similarly relying on the exemption from the formal valuation and minority shareholder approval requirements of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions ("MI 61-101") contained in Section 5.5(g) and Section 5.7(1)(e), respectively, on the basis of the "financial hardship" exemption therein. All of the independent members of the current Board determined that the terms of the Private Placement are reasonable given the circumstances of the Company. The Company did not file a material change report related to the Private Placement more than 21 days before the expected closing of the Private Placement as required by MI 61-101 as the Company requires the consideration it will receive in connection with the Private Placement immediately for working capital and general corporate purposes.
The Special Committee was advised by Fasken Martineau DuMoulin LLP and the Company and the Board of Directors were advised by Norton Rose Fulbright Canada LLP. Additionally, National Bank Financial Inc. provided financial advice to Taiga, the Special Committee and the Board in relation to the Private Placement. NPC was advised by Goodmans LLP and IQ was advised by McCarthy Tétrault LLP.
Selected Preliminary Fourth Quarter and 2022 Financial and Operating Results
Given the Private Placement and related matters described above, the Company is, on an exceptional basis, disclosing below selected preliminary, estimated and unaudited metrics in relation to its fourth quarter and full year 2022 financial and operating performance:
The Company cautions that the above results are preliminary and estimates in nature and unaudited, as the Company's audit for the 2022 financial year has not yet been completed. Actual results may differ, even materially, from these estimates due to the completion of the Company's financial closing procedures, final adjustments, audit by the Company's auditors and other developments that may arise between now and the time the financial results are finalized. The Company currently expects to release its audited 2022 financial results on March 28, 2023. These estimates are not a comprehensive statement of the Company's financial results for the fourth quarter and the year ended December 31, 2022 and should not be viewed as a substitute for full financial statements prepared in accordance with International Financial Reporting Standards, and these estimates are not necessarily indicative of the results to be achieved for the fourth quarter and the year ended December 31, 2022. The preliminary results provided in this press release constitute forward-looking statements within the meaning of applicable securities laws, are based on a number of assumptions and are subject to a number of risks and uncertainties. Please see the section below entitled "Forward-Looking Statements".
Taiga (TSX: TAIG) is a Canadian company reinventing the powersports landscape with breakthrough electric off-road vehicles. Through a clean-sheet engineering approach, Taiga has pushed the frontiers of electric technology to achieve extreme power-to-weight ratios and thermal specifications required to outperform comparable high-performance combustion powersports vehicles. The first models released include a lineup of electric snowmobiles and personal watercraft to deliver on a rapidly growing demand from recreational and commercial customers who are seeking better ways to explore the great outdoors without compromise. For more information, visit www.taigamotors.com.
This press release contains "forward-looking information" within the meaning of applicable Canadian securities legislation. Such forward-looking information includes, but is not limited to, information with respect to the expected closing of the Private Placement, the preliminary and estimated unaudited figures provided herein with respect to selected metrics for the fourth quarter and year ended December 31, 2022, our objectives and the strategies to achieve these objectives, the expected operations, financial results and condition of the Company, expectations regarding market trends, the Company's growth rates, the Company's future objectives and strategies to achieve those objectives, including, without limitation, organic growth and future acquisitions, expected timelines for achieving mass production capabilities, the ramp-up of its current facility and development of its second facility, expected deliveries, the ability to obtain sufficient financing, the ability to advance the Taiga Service Providers program in a measured manner and the associated manufacturing benefits in respect thereof, including increased capacity as well as information with respect to our beliefs, plans, expectations, anticipations, estimates and intentions. This forward-looking information is identified by the use of terms and phrases such as "may", "would", "should", "could", "expect", "intend", "estimate", "anticipate", "plan", "foresee", "believe", and "continue", as well as the negative of these terms and similar terminology, including references to assumptions, although not all forward-looking information contains these terms and phrases.
Forward-looking information is provided for the purposes of assisting the reader in understanding the Company and its business, operations, prospects and risks at a point in time in the context of historical and possible future developments and therefore the reader is cautioned that such information may not be appropriate for other purposes.
Forward-looking information is based on a number of assumptions and is subject to a number of risks and uncertainties, many of which are beyond our control, which could cause actual results to differ materially from those that are disclosed in, or implied by, such forward-looking information. These risks and uncertainties include, but are not limited to, the conditions precedent to closing the Private Placement, the effective further supply chain disruptions, and the impact of such disruptions on ability to fulfil orders, pre-orders for the Company's vehicles being cancelled and those described in the Company's management's discussion and analysis for the three and nine-month periods ended September 30, 2022, and under the "Risk Factors" section of the Company's annual information form filed on March 28, 2022 on the Company's SEDAR profile at sedar.com. Forward-looking statements reflect management's current beliefs, expectations and assumptions and are based on information currently available to management. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the future circumstances, outcomes or results anticipated or implied by such forward-looking statements will occur or that plans, intentions or expectations upon which the forward-looking statements are based will occur. By their nature, forward-looking statements involve known and unknown risks and uncertainties and other factors that could cause actual results to differ materially from those contemplated by such statements.
All of the forward-looking information contained in this press release is qualified by the foregoing cautionary statements, and there can be no guarantee that the results or developments that we anticipate will be realized or, even if substantially realized, that they will have the expected consequences or effects on our business, financial condition or results of operation. Unless otherwise noted or the context otherwise indicates, the forward-looking information contained herein is provided as of the date hereof, and we do not undertake to update or amend such forward-looking information whether as a result of new information, future events or otherwise, except as may be required by applicable law.
SOURCE Taiga Motors Corporation