Strategic Review and Valuation
As previously announced in November 2011, Warnex has undertaken a review of its strategic alternatives with a view to recognizing the full value of the company and its assets. The results of such review have led Warnex to believe that the combined value of its operating divisions could possibly materially exceed the market capitalization of Warnex, after accounting for all outstanding debt and other liabilities; however, there remains considerable risk in respect of Warnex's ability to realize that value.
In December 2011, Warnex announced the sale of its Medical Laboratories division for gross proceeds of $7.5 million, with the potential for additional proceeds of up to $2.6 million based upon the financial performance of the division during the twelve months following the closing of the transaction. Warnex has no assurances at this time as to whether any of such additional proceeds will in fact be received.
In December 2011, Warnex also announced that it had entered into a binding letter of intent for the sale of its Analytical Services division for a consideration comprising of, among other elements, $400,000 in cash, the refund of working capital in the amount of approximately $700,000 and a 15% passive equity interest in the purchaser. In February 2012, Warnex announced that this transaction would not proceed due to the failure of the prospective purchaser to perform its obligations. As a result, Warnex has initiated certain legal measures with a view to obtaining appropriate compensation from the prospective purchaser. The prospective purchaser has responded with its own legal proceedings alleging certain defaults on the part of Warnex and seeking redress from the court. Warnex intends to vigorously defend against such proceedings; however, it is not possible for Warnex to predict the outcome of these various legal proceedings at this time.
Warnex continues to evaluate all of its options for maximizing the value of both its Analytical Services division and its Bioanalytical Services division. In this regard, Warnex has received a number of non-binding expressions of interest with respect to potential transactions involving each of these divisions and proposing valuation ranges which, when combined, could materially exceed the current market capitalization of Warnex, after accounting for all outstanding debt and other liabilities. The prospective purchasers are currently in the process of conducting due diligence reviews of their target operations. However, Warnex cautions that there can be no assurance that any transaction will occur, or if a transaction is in fact undertaken, as to its terms or timing. Warnex's immediate priority continues to be to ensure that each of these divisions continues to maintain the highest standards of service delivery for the benefit of its customers, its employees and its other stakeholders.
Warnex continues to work to strengthen its financial situation. As a result of the sale of its Medical Laboratories division and the implementation of certain operational reforms, Warnex has paid down debt owing pursuant to its outstanding debentures (the "Debentures"), reducing their aggregate principal amount from US$4,590,277 and CDN$2,140,815 in December 2011, to CDN$1,460,079 in March 2012.
On March 16, 2012, Warnex received a notice of conversion from the remaining holder of the Debentures to the effect that such holder intends to convert CDN$725,000 in principal amount of the Debentures into such number of common shares of Warnex ("Common Shares") as would result in such holder owning approximately 51.56% of the outstanding Common Shares (the "Conversion"). The price at which the Common Shares are to be issued pursuant to the Conversion is based upon the five-day volume weighted average trading price of the Common Shares (the "VWAP") at the time of sending of the notice of conversion.
The remaining balance of the Debentures matured on March 19, 2012, and Warnex is in default under their terms. As a consequence of such default, under the terms of the Debentures, the outstanding balance owing (CDN$735,079 after giving effect to the conversion of CDN$725,000) is automatically increased by 20% to CDN$882,095, and interest thereon will accrue at a rate of 24% per annum. Moreover, the holder of the Debentures has advised Warnex that it may avail itself of its rights under its security.
On February 28, 2012, Warnex was notified by its principal banker that its senior secured CDN$1,250,000 operating credit facility will be withdrawn in its entirety as at March 31, 2012. In order to permit it to repay the remaining outstanding Debentures and to replace the withdrawn operating credit facility, Warnex has negotiated a term sheet with a financial institution which contemplates granting to Warnex a one-year commercial operating line of up to CDN$2,000,000. Warnex is pursuing its discussions with such financial institution with a view towards putting such credit facilities into place promptly. However, Warnex cautions that there can be no assurance that such credit facilities will in fact be put into place on such terms, or at all.
After consultation with the Toronto Stock Exchange (the "TSX"), Warnex has delayed the issuance of the Common Shares issuable upon the Conversion. Warnex understands that the TSX is assessing whether the VWAP calculation for the current conversion price (the "Current VWAP") fully reflects all material information pertaining to Warnex. The holder of the Debentures has advised Warnex that it intends to enforce its conversion rights under the Debentures using the Current VWAP.
Warnex announces that its Chief Financial Officer, Francois Jette, will be leaving the company as of March 23, 2012, in order to pursue other career opportunities. Upon his departure, his responsibilities will be assumed on an interim basis by Jean Vezina, who has significant relevant experience, having previously served as the Chief Financial Officer of a publicly listed pharmaceutical company. The Board of Directors of Warnex would like to thank Mr. Jette for his dedicated service to the company.
As previously announced, the TSX has advised Warnex that the Common Shares will be delisted as a result of Warnex's failure to meet the continued listing requirements of the TSX. As a result of the recent developments described above, the TSX has agreed to extend the date of such delisting to the close of business on April 2, 2012. Warnex continues to actively explore other means of maintaining the value and liquidity of its common shares; however, at this time, Warnex cannot ensure that the Common Shares will be listed on an exchange after April 2, 2012.
Warnex (www.warnex.ca) is a life sciences company devoted to protecting public health by providing laboratory services to the pharmaceutical sector. Warnex Analytical Services provides pharmaceutical and biotechnology companies with a variety of quality control services, including chemistry, chromatography, microbiology, method development and validation, and stability studies. Warnex Bioanalytical Services specializes in bioequivalence and bioavailability studies for clinical trials. Warnex has two facilities located in Laval and Blainville, Quebec.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this news release are forward-looking and are subject to numerous risks and uncertainties, known and unknown. For further information identifying known risks and uncertainties, relating to financial resources, liquidity risk, key customers and business partners, credit risk, foreign currency risk, government regulations, laboratory facilities, volatility of share price, employees, suppliers, and other important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the heading Risks and Uncertainties in Warnex's most recent Management's Discussion and Analysis, which can be found at www.sedar.com. Consequently, actual results may differ materially from the anticipated results expressed in these forward-looking statements.