BYL Baylin Technologies Inc

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO THE UNITED STATES OF AMERICA OR TO ANY PERSON LOCATED OR RESIDENT IN THE UNITED STATES OF AMERICA, ITS TERRITORIES AND POSSESSIONS, ANY STATE OF THE UNITED STATES OR THE DISTRICT OF COLUMBIA.

Baylin Technologies Inc. (TSX:BYL) (the “Company” or “Baylin”) today announced that it has entered into a share purchase agreement (the “Share Purchase Agreement”) to acquire all of the issued and outstanding shares of Alga Microwave Inc. (“Alga”) for total consideration of $27 million, consisting of up-front cash consideration of $21 million, $4 million in Baylin shares and $2 million in deferred consideration, as well as a related agreement to purchase Alga’s operational facilities in Kirkland, Quebec (the “Acquisition”).

In connection with the Acquisition, Baylin has entered into an agreement on a “bought deal” basis with a syndicate of underwriters (the “Underwriters”) led by Raymond James Ltd. (“Raymond James”) for an offering of 6,451,613 subscription receipts (the “Subscription Receipts”) of the Company at a price of $3.10 per Subscription Receipt (the “Subscription Receipt Price”) for gross proceeds of $20 million and $15 million principal amount of 6.5% extendible convertible unsecured debentures (the “Debentures”) of the Company at a price of $1,000 per Debenture for aggregate gross proceeds of $35.0 million (together, the “Offering”).

“The addition of Alga is synergistic with our recent acquisition of Advantech, helping us to further expand our rapidly growing radio frequency and microwave components business. Alga’s new state-of-the-art facility, situated closely to Advantech, will set the stage for a robust platform for future growth” said Randy Dewey, Baylin’s President and CEO. “We look forward to working with the team at Alga to incorporate their top-of-the-line products into Baylin’s broad offering to provide the best experience for our customers” said Mr. Dewey.

“As a market leader in radio frequency and microwave, we are a natural fit in helping Baylin achieve its vision of becoming the frontrunner in data transmission. We are very excited to be able to bring our deep sector expertise and best-in-class product development capabilities to Baylin to help drive growth and profitability in the satellite connectivity segment. Alga will be able to leverage Baylin’s world-class sales force and relationships with tier-one customers to expand the reach of our products” said Michael Perelshtein, Alga’s CEO.

“This acquisition is a key strategic move that is expected to benefit both operations in a significant way. Alga's modern factory and precision machining capability will allow us to control more of the supply chain and provide for rapid product development. Additionally, Alga brings extensive high frequency passive microwave component capability expanding our addressable markets.  Bringing together both Advantech’s broad portfolio, sales and marketing channels along with Alga's manufacturing efficiencies, products and passive capabilities will allow us to address a wider more diversified market and provide our customers with broader networking solutions.” says John Restivo, President, Advantech.

The Acquisition

Baylin is to purchase all of the outstanding shares of Alga, through a newly incorporated subsidiary, for up-front consideration of $25.0 million (the “Share Purchase Price”), subject to customary adjustments. The Share Purchase Price will be satisfied by the payment of $21.0 million in cash and $4.0 million in common shares in the capital of the Company (“Common Shares”) at a price of $3.40 per share. The vendors may also receive up to an additional $2.0 million in earn-out payments if certain criteria are met over the two year period post-closing of the Acquisition.

Alga is a market leader in the engineering, design and development of radio frequency and microwave components, and a leading supplier of radio frequency and microwave solid state power amplifiers, pulsed amplifiers for radar applications, transmitter and transceiver products as well as radio frequency passive components and systems. Alga enjoys a fast development cycle for its products, which has been a key success factor. Alga’s product offering covers all major frequency standards.

Expected benefits of the Acquisition for Baylin include:

• Strategic acquisition expected to generate revenue and cost synergies
• Enhances one of Baylin’s faster growing segments, Satellite Connectivity Products○  The Acquisition represents a unique and strategic opportunity to expand its radio frequency and microwave components business, which the Company entered into with its acquisition of assets from Advantech Wireless Inc. (“Advantech”) in January 2018
• Expected to be accretive to 2018 earnings per share
• Immediate cost savings identified
• Alga’s principals to take on executive positions at Baylin, adding further depth and experience○  Michael Perelshtein, President and CEO of Alga to take on role of Chief Operating Officer of Alga, with oversight of both Advantech and Alga operations. Michael spent the majority of his career at Alga, and has previous work experience at Wavesat Telecom and C-Mac / Selectron. Michael holds countless relationships with OEMs and has significant business development experience.○  Frank Panarello, COO of Alga to take on role Vice President Operations of Alga, with oversight of both Advantech and Alga operations. Frank is an experienced operations and finance professional who has a decade of experience at Alga and previously worked at Nortel Networks.

In connection with the closing of the Acquisition, Baylin has also agreed to acquire the facility in which the operations of Alga are located in Kirkland, Quebec for a total purchase price of $6.2 million.

The closing of the Acquisition is subject to a number of closing conditions including the approval of the Toronto Stock Exchange (“TSX”) and is expected to close on or about July 16, 2018.

The Offering

Each Subscription Receipt will entitle the holder thereof to receive one Common Share, subject to adjustment in certain circumstances.

The Subscription Receipts will be issued pursuant to a subscription receipt agreement to be dated as of the Offering Closing Date (as defined herein), pursuant to which the gross proceeds of the Subscription Receipt Offering less the Underwriters’ expenses and 50% of the Underwriters’ commission payable in connection with the Subscription Receipt Offering (the “Escrowed Proceeds”), will be held in escrow in an interest bearing account pending the closing of the Acquisition. Upon satisfaction or waiver of the conditions to completion of the Acquisition in accordance with the terms of the Share Purchase Agreement, without amendment or waiver materially adverse to the Company (except for payment of the purchase price) (the “Escrow Release Condition”), the remaining 50% of the Underwriters’ commission (plus accrued interest) will be released to the Underwriters, the Escrowed Proceeds remaining thereafter will be released to the Company and each Subscription Receipt will be exchanged for one Common Share. If the Acquisition is not completed prior to 5:00 p.m. (EST) on the Initial Maturity Date (as defined herein), the Share Purchase Agreement is terminated at an earlier time or Baylin advises the subscription receipt agent and Raymond James Ltd., or announces to the public, that it does not intend to proceed with the Acquisition (the date on which each such event occurs, the “Termination Date”), holders of the Subscription Receipts will receive an amount per Subscription Receipt equal to the Subscription Receipt Price. To the extent that the Escrowed Proceeds (plus accrued interest) are not sufficient to redeem all of the Subscription Receipts for cancelation at the Subscription Receipt Price, the Company will contribute such amounts as are necessary to satisfy any shortfall.

The Debentures will be issued pursuant to a debenture indenture to be dated as of the Offering Closing Date.  The initial maturity date of the Debentures is August 15, 2018, which may be extended at the discretion of Baylin to September 12, 2018 (the “Initial Maturity Date”). If the Acquisition is completed prior to the Termination Date, the maturity date of the Debentures will be automatically be extended to the date that is five years following the Offering Closing Date (the “Final Maturity Date” and, together with the Initial Maturity Date, as the context requires, the “Maturity Date”). 

The Debentures will bear interest at a rate of 6.5% per annum payable semi-annually in arrears on June 30 and December 31 in each year. Each $1,000 principal amount of Debentures will be convertible into approximately 260 Common Shares at any time following the Acquisition and prior to the close of business on the last business day immediately preceding the Maturity Date, at the option of the holder, representing a conversion price of $3.85 per share (the “Conversion Price”).

Except in certain limited circumstances, the Debentures will not be redeemable before July 10, 2021.  Subject to automatic extension, on or after July 10, 2021 and prior to the Maturity Date, Baylin may, at its option, redeem the Debentures, in whole or in part, at par plus accrued and unpaid interest provided that the weighted average trading price of the Common Shares on the TSX for the 20 consecutive trading days ending five trading days prior to the applicable date (the “Current Market Price”) is not less than 125% of the Conversion Price. On redemption or on maturity, as applicable, the Company will repay the principal amount of the Debentures and any accrued and unpaid interest thereon either in cash or, at its option, subject to regulatory approval and certain conditions, the Company may elect to satisfy its obligation to pay the principal amount of Debentures by delivering that number of freely tradeable Common Shares obtained by dividing the principal amount of the Debentures being repaid by 95% of the Current Market Price on the date of redemption or maturity, as applicable.

The debenture indenture governing the Debentures will contain certain customary conditions, obligations, rights and entitlements.

The Company has agreed to grant the Underwriters an over-allotment option to purchase up to an additional 967,742 Subscription Receipts at the Subscription Receipt Price and up to an additional $2.25 million aggregate principal amount of Debentures (the “Over-Allotment Option”), exercisable in whole or in part at any time for a period ending 30 days from the Offering Closing Date. In the event the Over-Allotment Option is exercised in full, the aggregate gross proceeds of the Offering will be $40.25 million.

The Company intends to use the net proceeds of the Offering to finance the acquisition of the outstanding Alga shares and for working capital and general corporate purposes.

The Offering is being made pursuant to the Company’s base shelf prospectus dated November 16, 2017 and the terms of the Offering will be described in a prospectus supplement to be filed with securities regulators in each of the provinces of Canada.

The Offering is expected to close on or about July 10, 2018 (the “Offering Closing Date”) and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals, including the approval of the Toronto Stock Exchange.

The securities have not been, and will not be, registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”), or any U.S. state securities laws, and may not be offered or sold in the United States without registration under the U.S. Securities Act and all applicable state securities laws or compliance with the requirements of an applicable exemption therefrom. This press release shall not constitute an offer to sell or the solicitation of an offer to buy securities in the United States, nor shall there be any sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.

Advisors

Raymond James is acting as exclusive financial advisor and Aird & Berlis LLP is acting as legal counsel to Baylin on the Acquisition. Raymond James is also acting as bookrunner and lead underwriter in respect of the Offering.

Conference Call Information

Baylin will host a conference call on June 28, 2018, at 8:30 a.m. (ET) to discuss the Acquisition. The call will be hosted by Randy Dewey, President and Chief Executive Officer, and Michael Wolfe, Chief Financial Officer. All interested parties are invited to participate.

DATE:	June 28, 2018
TIME:	8:30 a.m. (ET)
DIAL IN NUMBER:	888-231-8191 or 647-427-7450
CONFERENCE ID#:	4261199
REPLAY NUMBER:	855-859-2056 or 403-451-9481
WEBCAST DETAILS:	https://event.on24.com/wcc/r/1788043/7F32FFC529F395D987F7597B9BE61F5D

About Baylin

Baylin is a diversified leading global wireless technology management company. Baylin focuses on research, design, development, manufacturing and sales of passive and active radio frequency products and services. Baylin aspires to meet customers' needs and anticipate the direction of the market.

For further information contact:Investor Relations:Kelly Myles, Marketing and Communications ManagerBaylin Technologies Inc.kelly.myles@baylintech.com

Forward-looking Information Cautionary Statement

Statements in this press release contain forward-looking information including, without limitation, the approval of the Toronto Stock Exchange, the timing and completion of the Acquisition, the Offering and the anticipated use of proceeds from the Offering by Baylin. The completion and timing of the Acquisition and Offering are based on a number of assumptions, including, that all approvals for the Acquisition and Offering will be received, no material adverse change will occur in Baylin’s operations nor will any events occur that would trigger termination rights under the underwriting agreement with the Underwriters. The intended use of the net proceeds of the Offering by Baylin might change if the board of directors of Baylin determines that it would be in the best interests of Baylin to deploy the proceeds for some other purpose. The words “will”, “expect”, “may” and similar expressions are intended to be among the statements that identify forward-looking statements. The forward-looking statements are founded on the basis of expectations and assumptions made by Baylin.

______________________________________i Based on consensus research estimates.