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Telehop Communications Gains Wireless Spectrum, International Presence with Acquisition of G3 Telecom

Telehop Communications Inc. (“Telehop” or the “Company”) (TSX-V:HOP) today announced its entry into the wireless telecommunications industry with the completion of the previously-announced agreement (the “Agreement”) to acquire shares and assets of G3 Telecom Corp. and its group of affiliated companies (“G3 Telecom”).

In accordance with the terms of the Agreement (see news release dated February 21st, 2014), Telehop acquired G3 Telecom's wireless telecommunications licences for Huntsville, Ont., and Dawson Creek, B.C., as well as its telecommunications businesses in the U.S. and the Philippines. G3 Telecom is a facilities-based reseller of telecommunication services in Canada, and is registered with the Canadian Radio-television Telecommunications Commission (CRTC) and the Federal Communications Commission (FCC) in the United States.

“The closing of this transaction is a significant step forward in Telehop’s efforts to expand its industry presence and broaden its product offering to customers,” said Telehop CEO Rajiv Jagota. “Telehop has transformed itself into an international telecommunications and wireless business with the acquisition of G3 Telecom. In addition to our existing products, we now have a platform in the dynamic wireless sector that can be leveraged to take advantage of growth opportunities at home and abroad.”

“The synergies between our two companies make this transaction extremely attractive for customers and shareholders,” added Rajan Arora, CEO of G3 Telecom. “More products mean greater customer appeal, and a rationalized cost structure and enhanced access to capital open up new opportunities to create greater value for all of our shareholders.”

The aggregate purchase price of the acquisition was $4.3 million, payable $2.0 million in cash on the date of closing, $1.5 million over 24 months from the date of closing by way of a secured promissory note with interest at five (5) per cent per annum and the issuance of eight million common shares of the Company at a deemed value of 10 cents per common share. The Agreement provides for a price reduction of $1.0-million should Industry Canada not approve the transfer consents of two wireless spectrum licences to Telehop's control within 90 days from the date of closing. This reduction will be offset against the $1.5 million outstanding secured promissory note over 24 months after closing. The Agreement also provides for the cancellation of five million common shares issued to the vendors in the event that the FCC fails to approve the transfer consents of G3 Telecom's U.S. subsidiary to Telehop's control within 90 days from closing. The Company does not anticipate any issues with respect to obtaining the regulatory consents and transfers.

In connection with the transaction, Telehop completed a concurrent private placement of $3.0 million of unsecured, five-year debentures. This offering facilitated the acquisition costs, along with the closing and integration costs of G3 Telecom's business with Telehop. The debentures will mature five years from the date of closing of the offering and will bear interest at a rate of 10 per cent per annum, payable semi-annually in cash on June 30 and December 31 in each year, commencing on June 30, 2014, with the final payment due on the maturity date. Each debenture was priced at a two (2) per-cent discount, namely at $980 per $1,000 of the principal amount thereof. The debentures may be redeemed at the option of the Company provided that the debentures are not redeemable before June 30, 2016. On and after June 30, 2016, and at any time prior to the maturity date, the debentures are redeemable at the option of the Company at a price equal to $1,000 per debenture plus accrued and unpaid interest thereon up to but excluding the date of redemption. The Company engaged Jones, Gable & Company Ltd. (“Jones Gable”) to act as finder in connection with the offering and paid Jones Gable a $195,000 fee equal to 6.5 per cent of the gross proceeds raised from the sale of the debentures. The debentures issued pursuant to the offering will be subject to a statutory four-month-and-one-day hold period.

With the completion of the transaction, Mr. Arora and Mr. Jagota were appointed to the Telehop board of directors, along with Robert Stikeman a Toronto lawyer who is also counsel to Telehop. These directors replace Michael Boyd, Mitchell Blum and Theo Luykenaar who resigned to accommodate these appointments. The board wishes to thank the outgoing directors for their valuable contributions.

The acquisition of G3 Telecom constitutes a fundamental acquisition as such term is defined in the policies of the TSX-Venture Exchange. A business acquisition report in respect of the purchase of G3 Telecom will be prepared in compliance with National Instrument 51-102 Continuous Disclosure obligations and filed after completion of the acquisition.

A summary of the financial effect of the G3 Telecom business acquisition is as follows:

G3 Telecom is a privately owned telephone services reseller operating in Canada which operates a prepaid long distance service with a Philippine call center. It receives deposits from customers and applies them to services as and when later used. G3 Telecom currently has approximately $790,000 on deposit which passed to Telehop on closing. In the last completed calendar year the combined financial results of the G3 Telecom business (normalized and excluding related party transactions) were as follows and are compared to 9 months as reported by Telehop to September 30 2013 (note that the information below is unaudited):


G3 Group


Telehop 9
months to
Sept 30

Consolidated Sales $ 10,714,789 $ 6,313,837
Cost of Sales   ($7,148,082)   ($3,620,095)
Gross Profit $ 3,566,707 $ 2,693,742
Other Income $ 36,562 -
Total Income $ 3,603,269 $ 2,693,742
Third Party Expenses $ 3,096,296 $ 2,559,968
EBITDA $ 506,973 $ 133,774

(1) Note: These amounts were prepared on private company accounting standard for private enterprises (ASPE).

By combining the businesses, management believes that significant operating expenses can be reduced to improve the EBITDA of the combined businesses in the upcoming year and beyond. As well, the wireless spectrum assets can be activated and used to open new roaming opportunities for Telehop customers in the United States and overseas markets. The addition of working capital will allow Telehop to consider additional acquisitions and expansion of the new cellular opportunities. No commitments have been made with respect to any such acquisition transactions.

The Company also announces that effective February 26, 2014 the Board of Directors approved the grant of incentive stock options in the amount of 200,000 incentive options issued to the CEO Rajiv Jagota, 100,000 incentive options to the CFO Robert Cosman and 100,000 incentive options to the Chairman Lawrence Cyna. Each stock option has certain vesting terms as outlined in the stock option plan, and each option allows the holder to acquire common shares for a period up to five years. Each stock option represents the right to purchase one (1) common share of the Company, to be exercisable at $0.12 per share which is the closing price on February 26, 2014. The total number of options that are being granted is 400,000.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

Certain statements contained in this news release constitute forward-looking statements. These statements relate to future events. All statements other than statements of historical fact are forward-looking statements. The use of the words “may”, “expected”, “believes” and other words of a similar nature are intended to identify forward-looking statements. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although Telehop believes these statements to be reasonable, no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this news release should not be unduly relied upon. Such statements include, but are not limited to, statements with respect to the future of Telehop’s business on a post-transaction basis and the transfer of the wireless spectrum licenses and regulatory consents. Actual results could differ materially from those anticipated in these forward-looking statements as a result of prevailing economic conditions, receipt of requisite regulatory approvals, and other factors, many of which are beyond the control of Telehop. The forward-looking statements contained in this news release represent Telehop’s expectations as of the date hereof, and are subject to change after such date. Telehop disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable securities regulations.

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