OTTAWA, Sept. 16 /CNW Telbec/ - Allen-Vanguard Corporation (TSX: VRS) ("Allen-Vanguard" or the "Company") of Ottawa, Canada updated investors today on the status of its evaluation of expressions of interest for significant investment in the Company by outside investors. As reported on August 14, 2008 in its financial results news release for the third quarter of fiscal 2008, the Company had received several unsolicited expressions of interest in a significant investment position in the Company and had engaged RBC Capital Markets (the "Investment Bankers") to assist with an evaluation of proposals.
At August 14 the Company had accepted a proposed non-binding term sheet from one investor with terms based on advanced due diligence already substantially completed by the investor, and with an intended closing date before September 30, 2008. However, the final terms proposed by the investor subsequent to August 14 differed materially from the initial proposal and the board rejected it on the basis that it was not in the best interest of Allen-Vanguard or its shareholders.
Since then, the Company has asked its Investment Bankers to consider the remaining unsolicited expressions of interest, and also to solicit interest from other potential investors and explore alternative recapitalization scenarios. The Company currently has long-term debt of approximately $185 million under a $200 million term loan facility with a banking syndicate led by the Royal Bank of Canada (the "lending syndicate"), under which it is required to make quarterly principal payments of approximately $10 million and meet certain financial covenants which are measured as at the end of each quarter. The Company was in compliance with the terms of the facility for the last reported period at June 30, 2008. The Company also has a revolving credit facility of up to $50 million limited by a borrowing base (the "Revolver") with the same lending syndicate. The borrowing base contains a number of eligibility requirements including with respect to foreign receivables. At present, it is drawn to a cash amount of only $8.0 million and an encumbrance of $3.6 million on account of letters of credit. If the eligibility requirements were changed, this Revolver would be sufficient for working capital purposes.
Discussions on various recapitalization alternatives are actively underway in conjunction with advisory work by the Company's Investment Bankers and other outside advisors. However, in contrast to the situation at August 14 when the closing of an outside investment appeared imminent, the extended process currently underway means that it is now unlikely the Company will conclude a transaction by September 30, 2008, at which time it is scheduled to make its next $10 million quarterly payment and meet quarterly covenants. Without an improvement in cash flow, an investment transaction or accommodation from the Company's lending syndicate by September 30, the Company may be unable to make the principal repayment due that date or meet all of its covenants that are measured as of that date. The Company is approaching the administrative agent for the lending syndicate seeking accommodation in this eventuality. Although the Company is hopeful that there will be a favorable result from discussions with investors and the lending syndicate, normal risks apply to the process, including those explained in the Company's disclosure documents, and there is no guarantee that the Company will secure accommodation or investment.
"Timing of major defense orders and extended integration issues have contributed to an extremely disappointing fiscal 2008 following our acquisition of Med-Eng a year ago," said David E. Luxton, President and CEO. The acquisition of Med-Eng was transformational for Allen-Vanguard, making it a global leader in counter-terrorist solutions against hazards such as improvised explosive devices and chemical, biological and radiological threats. However, expected orders for electronic counter measures were significantly delayed, and integration of sales staff into a coherent global team affected the pace of some of the Company's more traditional product sales. "We do not believe that performance in fiscal 2008 is reflective of the future prospects and sustainable earnings capability of Allen-Vanguard," added Mr. Luxton. "We have changed and transformed the organization and management ranks over the past months and have a much stronger execution team going forward."
Mr. Luxton went on to say that after a low-water mark in the third quarter, order visibility and intake are up and backlog has more than doubled to $100 million, but that the Company remains cautious and is re-calibrating to operate with a lower cost base and lean management of operations while it rebuilds revenue. "This remains an attractive long-term business with scale, core revenue from a global customer base in more than 120 countries, leading technologies in a growth market, and the ability to deliver EBITDA margins superior to our industry peers. With these positive long-term fundamentals and a battered stock price it is understandable that the Company is attracting interest from outside investors. One of our top priorities is to resolve the short-term financial requirements on terms that preserve the long-term value creation opportunity."
Allen Vanguard
Forward looking statements
This press release may contain forward-looking statements, which reflect Allen-Vanguard's current expectations regarding future events, its strategy, expected performance and condition. Forward-looking statements include statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "expects," "anticipates," "plans," "believes," "estimates" or negative versions thereof and similar expressions. In addition, any statement that may be made concerning future performance, strategies or prospects, and possible future acquisitions or dispositions, is also a forward-looking statement. Forward-looking statements are based on current expectations and projections about future events and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company and economic factors. Forward-looking statements are not promises or guarantees of future performance, and actual events and results could differ materially from those expressed or implied in any forward-looking statements made about the Company. Any number of important factors could contribute to these digressions, including, but not limited to, general economic, political and market factors in North America and internationally, interest and foreign exchange rates, global equity and capital markets, business competition, technological change, changes in government regulations, unexpected judicial or regulatory proceedings, and catastrophic events. We stress that the above-mentioned list of important factors is not exhaustive. We encourage you to consider these and other factors carefully before making any investment decision and we urge you to avoid placing undue reliance on forward-looking statements. Further, you should be aware that the Company disclaims any obligation to publicly update or revise any such forward-looking statements whether as a result of new information, future events or otherwise, prior to the release of the next Management Discussion and Analysis to be released by the Company or except as required by law .
About Allen-Vanguard
Allen-Vanguard Corporation supports the mission of military and homeland security forces around the world with leading proprietary solutions for protection and counter-measures against hazardous devices of all kinds, whether chemical, biological, radiological or explosive (CBRNE), including improvised explosive devices (IEDs) and remotely controlled IEDs (RCIEDs). Allen-Vanguard equipment is in service in more than 120 countries. Products include Electronic Counter-Measures ("ECM") equipment for jamming remote detonation of terrorist devices, specialty security equipment for Explosive Ordnance Disposal ("EOD"), remote intervention robots for hazardous applications, and personal protective wear for use in dealing with explosive and bio-chemical agents. Allen-Vanguard is the developer and/or sole, worldwide licensee of proprietary technologies such as the Med-Eng bomb suit, the Defender(TM) and Vanguard(TM) Mk2 bomb disposal robots, and the Universal Containment System and CASCAD Foam system for blast mitigation and decontamination of bio-chemical warfare agents. Professional services encompass counter-IED intelligence, training and advisory services, including the Triton(TM) Report on terrorist incidents around the world. The Company operates globally through its wholly-owned subsidiaries under the names "Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office operations are located in Ottawa, Ontario, Canada, with manufacturing operations in Stoney Creek and Pembroke, Ontario; Ogdensburg, New York; Tewkesbury, U.K.; and Cork, Ireland; The Company has professional services operations in Shrivenham, UK, Canada and in the U.S. in Arlington, Virginia, plus sales offices in Canada, the U.S., the U.K. and Asia. Allen-Vanguard's shares are listed on The Toronto Stock Exchange (TSX) under the symbol "VRS".
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our website at www.allenvanguard.com.
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