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REDLINE COMMUNICATIONS GROUP INC. ANNOUNCES PROPOSED PRIVATE PLACEMENT OF $8,300,000 CDN. PRINCIPAL AMOUNT OF SECURED CONVERTIB

^{Published on 2011-04-20 15:10:47 - Market Wire}
 

TORONTO, April 20 /CNW/ - Redline Communications Group Inc. (the "Corporation" or "Redline")(TSX: RDL), a developer and manufacturer of specialized broadband wireless systems, today announced that it proposes to complete a private placement (the "Private Placement") of an aggregate of $8,300,000 Cdn principal amount of senior secured convertible debentures (the "Debentures"). The Private Placement will be completed in two tranches. An aggregate of (i) $1,924,000 principal amount of Debentures will be issued in the first tranche ("First Tranche") and (ii) $6,376,000 principal amount of Debentures will be issued in the second tranche ("Second Tranche"). The net proceeds from the Private Placement will be used to strengthen the Corporation's financial position and provide the working capital required to fund the Corporation's ongoing operations.

The Debentures will be issued to:

The Debentures mature 5 years from the date of issuance and bear interest at the rate of 10% per annum, subject to adjustment. If, after the closing of the Private Placement, the market price (as such term is defined in the TSX Company Manual) of the common shares of the Corporation ("Common Shares") exceeds (i) $0.80 for 10 consecutive days, then the applicable interest rate on the Debentures will be reduced to 7.5% per annum fixed, or (ii) $1.00 for 10 consecutive days, then the applicable interest rate on the Debentures will be reduced to 5% per annum fixed, in each case, from the first day following this 10 day period. Interest on the Debentures will accrue and be added to applicable Debenture purchase price at maturity.

The Debentures are convertible, at any time 90 days following the date of issuance, at the option of the holder into an aggregate of 18,043,478 Common Shares at a conversion price of $0.46 Cdn (the "Conversion Price"). As compensation for their participation in the Private Placement, the Corporation will grant to each Investor: (i) first Common Share purchase warrants ("First Warrants") enabling each Investor to purchase that number of Common Shares equal to fifty percent (50%) of the number obtained by dividing the principal amount of Debentures purchased by such Investor by the Conversion Price. The First Warrants will be exercisable at $0.575 per Common Share; and (ii) second Common Share purchase warrants ("Second Warrants" and, collectively with the First Warrants, the "Warrants") enabling each Investor to purchase that number of Common Shares equal to fifty percent (50%) of the number obtained by dividing the principal amount of Debentures purchased by such Investor by the Conversion Price. The Second Warrants will be exercisable at $1.15 per Common Share. The Debentures will be subject to standard anti-dilution provisions. The aggregate maximum of Common Shares issuable in connection with (i) the conversion of the Debentures is 27,065,217, (ii) the exercise of the First Warrants is 9,021,739, and (iii) the Second Warrants is 9,021,739, and (iv) the conversion of the aggregate Debentures and full conversion of the Warrants is 45,108,695 Common Shares, representing approximately 212% of the issued and outstanding Common Shares, on a non-diluted basis, prior to the Private Placement.

Pursuant to a general security agreement ("Security Agreement") among the Investors the Corporation, and its subsidiaries, the Debentures will be secured by a general security interest in all of the assets of the Corporation which will rank senior to all other indebtedness of the Corporation, except the security interest previously granted by the Corporation to the Government of Ontario - Ministry of Economic Development ("Province of Ontario") pursuant to the loan agreement among the Corporation, Redline Communications Inc., and the Province of Ontario. The Security Agreement provides, however, that the Investors will subordinate their charge over the accounts receivable of the Corporation in the event that the Corporation arranges for working capital financing, through a factoring or similar arrangement, which is secured by accounts receivable.

Telemedia, Mogensen, Soni, Williams and Partner, each of whom is an insider of the Corporation, are currently the registered and beneficial holders of the Common Shares (or % of the Common Shares) set forth beside their names in the table below. Telemedia is an insider of the Corporation by nature of being controlled by Philippe de Gaspé Beaubien III, who is a current director of the Corporation.  Mogensen and Soni are each an insider of the Corporation by nature of each being a director of the Corporation. Williams is an insider by nature of being the Senior Vice President of Engineering and Operations of Redline.  Partner is an insider by nature of being the Vice President of Marketing and Human Resources of Redline. The table below also indicates, with respect to each subscribing insider and each Investor who could potentially acquire an approximate 20% ownership interest in the Corporation, (i) the Common Shares issuable upon the full conversion of their respective Debentures; (ii) the Common Shares issuable upon the full exercise of their respective Warrants, (iii) the aggregate number of Common Shares issuable with respect to (i) and (ii) and the approximate percentage that such number of Common Shares represent as a percentage of the issued and outstanding Common Shares post Private Placement; and (iv) the approximate percentage of Common Shares each applicable Investor would hold upon full conversion of their respective Debentures and Warrants in the unlikely event that no other Investors converted, or exercised, their respective Debentures or Warrants.

1 Assumes that all of the Investors convert and exercise their respective Debentures or Warrants.
2 Assumes that none of the other Investors convert, or exercise, their respective Debentures or Warrants.

Kramer, JSVB, Franbeau, US Venture and the Other Investors are each arm's length to the Corporation, are not insiders, and consequently are entitled to vote their Common Shares to consent to, and approve, the Private Placement.

Due to the fact that Telemedia, Mogensen, Soni, Williams and Partner, who are each insiders of the Corporation, will subscribe for Debentures, their subscriptions under the Private Placement will be "related party transactions" for the purposes of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The First Tranche of the Private Placement will be completed in reliance on available exemptions from the formal valuation and minority approval requirements of MI 61-101 provided in paragraph (a) of Section 5.5 and paragraph (a) of Section 5.7, respectively, of MI 61-101.  Neither the fair market value of the Debentures issued nor the consideration paid for the Debentures pursuant to the first tranche will exceed 25% of the Corporation's market capitalization. The Second Tranche of the Private Placement will be completed in reliance on: (1) the available exemption from the formal valuation requirements of MI 61-101 provided in paragraph (c) of Section 5.5, as the Private Placement securities are being distributed for cash, and (2) either (i) a successful exemptive relief application in relation to the minority approval requirements of MI 61-101, or (ii) an affirmative vote from Redline's shareholders at Redline's next annual and special meeting.

The Investors, to the Corporation's knowledge, are each making their own investment decisions and are acting independently and not jointly and in concert.  Since, however, the Private Placement will, as outlined above, provide for the issuance (i) of securities that could materially affect the control of the Corporation as the Private Placement results, or could result, in a new holding of more than 20% of the voting securities by one security holder or combination of security holders acting together, (ii) to insiders of the Corporation of greater than 10% of the number of common shares of the Corporation which are outstanding, and (iii) of an aggregate number of common shares greater than 25% of the number of Common Shares of the Corporation which are outstanding, on a non-diluted basis, at a price per Common Share less that the market price (as such term is defined in the Toronto Stock Exchange ("TSX") Company Manual) prior to the date of the closing of the Private Placement, the rules of the TSX require that the Corporation obtain approval of the Private Placement from the holders of a majority of the voting shares of the Corporation, excluding the votes attached to the Common Shares of the Corporation held by

Telemedia, Mogensen, Soni, Williams and Partner and their respective associates and affiliates and any other insiders that may subscribe for Debentures under the Private Placement. However, the rules of the TSX also provide that such approval may be obtained in writing from shareholders without the requirement to convene a shareholders meeting for such purposes.

A special committee of the Corporation's board of directors, comprised of three directors who are all independent from the investors, considered the reasonableness and fairness of the Private Placement and it unanimously recommended to the Corporation's full board of directors that the Private Placement be approved.  When considering the Private Placement, the Special Committee took into consideration the following factors: (i) Redline's financial situation and the prior cease trade orders which made it challenging to secure financing; (ii) the time frame and cost relating to the implementation of the Private Placement as compared to other possible forms of financing; (iii) negotiations with the Investors, undertaken with the guidance of the Special Committee's legal advisors and ModelCom, which led to a revised financing proposal with more favourable terms for Redline; (iv) ModelCom's determination that the terms and conditions of the Private Placement were inline with market comparables; and (v) Redline's need for working capital to fund on-going operations and strengthen its financial position.  The board of directors subsequently approved the Private Placement (the members of the board that would be considered interested parties having declared their interests and abstained from voting on the resolution approving the Private Placement) and there was no contrary view of abstention by any independent director on the resolution approving the Private Placement.

The Closing of the First Tranche and Second Tranche will occur as soon as the applicable closing conditions, including TSX approval, have been satisfied, but in no event earlier than April 28, 2011.

About Redline Communications

Redline Communications ([ www.rdlcom.com ]) manufactures powerful and versatile wireless broadband products used to cost-effectively deploy distributed applications and services.  Municipalities use Redline products to quickly and easily deploy or extend their video surveillance networks; oil and gas companies to monitor how their oil wells are operating; service providers and enterprises to bring business grade access to buildings, and the military to create secure networks in any location. For over 10 years, Redline has been delivering reliable wireless solutions with the strong combination of high capacity, speed, range and reliability. Redline products are marketed and supported locally through an exclusive network of value added resellers in the Americas; the Middle East, and Africa.

Forward-Looking Statements

Certain statements in this release, including the estimate of future revenues, sales, provided above, constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws. In some cases, forward-looking statements can be identified by terms such as "could", "expect", "may", "will", "anticipate", "believe", "intend", "estimate", "plan", "potential", "project" or other expressions concerning matters that are not historical facts. Readers are cautioned not to place undue reliance upon any such forward-looking statements.

Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause the actual results, performance, achievements or developments of Redline to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements, by their nature, are based on certain assumptions regarding expected growth, management's current plans, estimates, projections, beliefs, opinions and business prospects and opportunities (collectively, the "Assumptions").  While the Company considers these Assumptions to be reasonable, based on the information currently available, they may prove to be incorrect.

Many risks, uncertainties and other factors could cause the actual results of Redline to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include but are not limited to the following: the timing of the closing of the Private Placement, the receipt of regulatory approval to close the Private Placement, significant competition, competitive pricing practices, cautious capital spending by customers, industry consolidations, rapidly changing technologies, evolving industry standards, frequent new product introductions, short product life cycles and other trends and industry characteristics affecting the telecommunications industry; any material, adverse affects on Redline's performance if its expectations regarding market demand for particular products prove to be wrong; any negative developments associated with Redline's suppliers and contract manufacturing agreements including the Company's reliance on certain suppliers for key components; potential penalties, damages or cancelled customer contracts from failure to meet delivery and installation deadlines and any defects or errors in Redline's current or planned products; fluctuations in foreign currency exchange rates; potential higher operational and financial risks associated with Redline's efforts to expand internationally; a failure to protect Redline's intellectual property rights, or any adverse judgments or settlements arising out of disputes regarding intellectual property; changes in regulation of the wireless industry or other aspects of the industry; any failure to successfully operate or integrate strategic acquisitions, or failure to consummate or succeed with strategic alliances; and Redline's potential inability to attract or retain the personnel necessary to achieve its business objectives or to maintain an effective risk management strategy (collectively, the "Risks"). For additional information on these Risks, see Redline's most recently filed Annual Information Form ("AIF") and Annual MD&A, which are available on SEDAR at [ www.sedar.com ] and on the Company's website at [ www.redlinecommunications.com ]. Redline assumes no obligation to update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by law. All forward looking statements contained in this release are expressly qualified in their entirety by this cautionary statement.