Each of Maxwell’s and Nesscap’s board of directors has unanimously approved the Transaction. In approving the Transaction, Nesscap’s Board of Directors has received a verbal fairness opinion from its financial advisor, Paradigm Capital Inc., stating that the consideration to be received by Nesscap is fair from a financial point of view to Nesscap and it expects to receive the written fairness opinion in connection with the mailing of a circular to its shareholders.
Based on recent share price ranges and subject to the payment by Nesscap of outstanding indebtedness owed by Nesscap to I2BF Energy Limited (“I2BF”) and Arbat Capital Group Ltd. (“Arbat”) in an aggregate principal amount of $4.5 million (plus accrued and unpaid interest) and of certain other outstanding liabilities, Nesscap shareholders and debt holders are expected to own approximately 12% of Maxwell’s total outstanding common shares following completion of the Transaction. As part of the Arrangement, Maxwell entered into a principal shareholders agreement with I2BF and Arbat, which together own approximately 80% of the common shares of Nesscap, and will represent approximately 10% of the ownership of Maxwell following closing, subject to any adjustment based on Maxwell’s share price as set forth above. Pursuant to the terms of the principal shareholders agreement, Maxwell has agreed to appoint a representative of I2BF and Arbat to Maxwell’s Board of Directors, which such representative shall initially be Ilya Golubovich. Such appointment is subject to the closing of the Transaction and is intended to be no later than one business day following Maxwell’s 2017 Annual Meeting of Shareholders.
In order to become effective, the Transaction must be approved by two-thirds of Nesscap shareholders. In addition, I2BF and Arbat are both a related party to the Company, as such term is defined in Multilateral Instrument 61-101 – Protection of Minority Securityholders in Special Transactions (“MI 61-101″). Therefore, the Arrangement will also be conditional upon the approval of a simple majority of the Nesscap shareholders, excluding I2BF and Arbat. Nesscap has relied on the exemption from the valuation requirements of MI 61-101 contained in section 4.4(1)(a). Upon completion of the Arrangement, it is expected that Nesscap will voluntarily dissolve (the “Dissolution”) pursuant to Section 237(a) of the Business Corporations Act (Ontario).
It is expected that a special meeting of Nesscap Shareholders to approve the Arrangement and the Dissolution will be held in the second quarter of 2017 (the “Meeting”). The Arrangement is also conditional upon customary terms for transactions of this nature including the approval of the Ontario Superior Court of Justice (Commercial List) (the “Court”).
Further particulars of the Meeting, the Arrangement, the Dissolution and the Arrangement Agreement will be included in the information circular for the Meeting. If all approvals are obtained and other conditions met, it is expected that the Arrangement will be completed by the second quarter of 2017.
I2BF, Arbat as well as all the directors and officers of Nesscap have entered into Voting Agreements with Maxwell in support of the Arrangement, and Nesscap has agreed to use best efforts to obtain Voting Agreements from other key shareholders in advance of the Meeting. The Voting Agreement requires such shareholders, subject to termination rights, to, among other things, vote all of their Nesscap common shares in favor of the Arrangement.
As a market leader in innovative small cell format ultracapacitor products and technologies, Nesscap provides research, development and manufacturing of energy storage and power delivery solutions that complement Maxwell’s large cell format ultracapacitor product portfolio, with operations in Korea, Germany, and China. Maxwell expects to capitalize on synergies between the two companies that will accelerate top-line growth and earnings, increase the innovation rate, and create an expanded and strengthened product portfolio. With a strengthened sales channel, increased R&D capabilities, and improved manufacturing efficiencies, Maxwell will be able to deliver more products, faster into target markets thereby benefitting customers and other technology adopters. Key benefits of the Transaction include:
- Expanded and solidified opportunity in Wind, Automotive, and Industrial Markets – In wind pitch control, the Transaction creates a leading-edge product portfolio including a full range of competitive small cell and large cell offerings. With respect to the automotive market, the acquisition brings pre-existing design wins and revenue in back-up power and extends Maxwell’s reach in the market. Moreover, small cell-based product solutions also broaden opportunities in the rapidly growing industrials market. Nesscap already has a solid position in this market with a strong base in Europe, which adds revenue diversity and creates further opportunities for growth.
- Accelerated innovation and product time to market with an expanded portfolio – Emerging from strong customer traction and product launches by both companies in 2016, the combination increases scale and leverages R&D to deliver additional new, differentiated products faster. The enhanced R&D team, along with a strengthened global sales channel, accelerates product, technology, and cost innovations into key markets.
- Improved small-cell competitiveness through cost structure improvement – Margin expansion is anticipated from economy of scale and materials cost savings, a streamlined supply chain, and gains in operational efficiency from combined manufacturing.
- Accretive growth with positive financials and product/customer synergies – The transaction is expected to be immediately accretive to Maxwell’s non-GAAP earnings per share following close, which is anticipated to be in Q2 of 2017, and Maxwell expects the Nesscap business to deliver positive adjusted EBITDA in 2017.
“With the acquisition of the Nesscap business, Maxwell will be stronger and better equipped to help existing and new customers address the growing demand for advanced ultracapacitor solutions to improve energy efficiency and meet government mandates for reduced emissions,” said Dr. Franz Fink, Maxwell’s president and CEO. “Our highly complementary product portfolio and development pipeline will address these challenges and likewise enable our customers to continuously innovate and deliver in their key markets over the years to come.”
“Maxwell and Nesscap share the vision that ultracapacitor technology, with its clear advantages in power, lifetime, and temperature performance, will continue to advance and gain share in an increasing number of applications,” said Jim Zuidema, CEO of Nesscap. “This acquisition will enable us to accelerate fulfillment of that vision, combining two exceptional teams, and move faster to bring more breakthrough products to markets which are hungry for scalable and efficient energy solutions.”