USG sells $400 million in convertibles; Gottschalks in strategic deal; Contec sells units; Escalon wraps sale

By Kenneth Lim

Boston, Nov. 21 - USG Corp. led PIPE offerings on Friday with a $400 million sale of convertibles to Berkshire Hathaway Inc. and Fairfax Financial Holdings Ltd.

Gottschalks Inc. will receive up to $30 million through a placement of common shares and loan with Everbright Development Overseas Ltd. as part of a new business partnership.

Contec Innovations Inc. plans to sell up to C$1.6 million of units in a non-brokered deal to help roll out its services in Asia and Africa.

Escalon Medical Corp. completed a $1.1 million stock placement in a deal that the company described as a "prudent" move to secure capital amid rising financing costs.

USG to raise $400 million

USG plan to place $400 million of 10% convertible senior notes due 2018 to Berkshire Hathaway and Fairfax Financial.

Berkshire will take $300 million of the notes offered, while Fairfax will buy $100 million.

On shareholder approval, the notes will be initially convertible into USG common stock at $11.40 per share. USG shares (NYSE: USG) rose 24.91% or $1.41 to close at $7.07 on Friday.

Proceeds will be used for general corporate purposes.

USG is a Chicago-based building products company.

"We are gratified by the expression of confidence in USG Corp. by two premier financial institutions," said USG chairman and chief executive William C. Foote in a statement. "We consider these substantial investments by Berkshire Hathaway and Fairfax as validation of our business strategy and the company's long-term prospects. This transaction provides USG with long-term capital that significantly improves our financial flexibility as we manage through the steep recession in our primary markets."

"We have taken numerous actions over the last 2.5 years to stay ahead of a declining market and optimize both our operations and our finances," he added.

"We know that one of the keys to future success is maintaining sufficient financial flexibility to manage through this downturn. The proceeds of the sale of the convertible notes significantly strengthen our capital position and greatly enhance our ability to navigate through this recession and position the company for an eventual market rebound."

Gottschalks in Everbright deal

Gottschalks negotiated a $30 million investment from Everbright Development as part of a business partnership.

Gottschalks will issue 40 million common shares at $1.80 apiece for $15 million to Everbright. Everbright will also offer a $15 million capital call to Gottschalks in the form of a capital contribution or a loan to fund a credit facility.

Everbright also will receive warrants for 60 million shares, which are exercisable at $2 for three years, provided the company's shares trade at or above $8 over a two-month period and the company achieves performance thresholds.

Everbright will receive additional warrants for 30 million shares, exercisable at $20 for four years.

Gottschalks common stock (OTCBB: GOTT) closed at $0.22 on Friday, lower by 71.43% or $0.55.

Gottschalks is a Fresno, Calif.-based regional department store chain.

The placement was part of an agreement between the two companies to form a partnership in the areas of direct sourcing, consignment sales, wholesale trading and a consumer membership program.

"We are very pleased to have reached this definitive agreement with Everbright," Gottschalks chairman and chief executive Jim Famalette said in a press release.

"At the closing of the transaction, the new investment will serve to strengthen our financial position.

"This strategic business partnership will enable us to leverage Everbright's international sourcing network to enhance our operations and also provide our customers with new quality products at very attractive price points. In addition, we would be able to launch and test an expanded merchandise assortment with very limited risk as select manufacturers utilize our stores to provide consignment products.

"Further, we expect this agreement will allow us to diversify our traditional business model with more direct business to business, and direct to consumer product sales from the network through our relationship with Everbright. Taken together, we anticipate our partnership with Everbright will support our long-term growth initiatives, allow the company to diversify its business model, and have a positive impact on our results over time."

Contec to raise C$1.6 million

Contec Innovations plans to place up to C$1.6 million of stock and warrant units in a non-brokered deal.

The company plans to sell up to 32 million units of one share and one non-transferable warrant at C$0.05 per unit. Each warrant will be exercisable at C$0.05 for three years. Contec common stock (TSX: BUZ) closed unchanged at C$0.035 on Friday.

Proceeds will be used for continued commercial roll-out of the companhy's BUZmob mobile services in China, Southeast Asia and Africa, sales and marketing, for the development of new services and for general working capital purposes.

Vancouver, B.C.-based Contec sells a publishing service for mobile content providers.

Insiders, existing significant shareholders and new investors who are familiar with the mobile industry are leading the financing, the company said in a statement.

"We have made tremendous progress in rolling out BUZmob commercial services and are seeing good uptake of our mobile sports services in key markets," Contec president and chief executive Don Lay said in the statement. "Live sports information is in demand everywhere on the planet and immediate access to the sports team of your choice on a mobile phone has built-in demand from consumers, advertisers and media companies worldwide. Contec's BUZmob meets that demand."

"In this difficult stock market environment it is gratifying to see the confidence of knowledgeable industry investors who, by investing in our offering, recognize not only that the mobile phone represents the new device of choice for accessing the internet but also that Contec is a leader in the fast-growing global market for mobile information delivery," he added.

Escalon takes $1.1 million

Escalon Medical said it placed $1.1 million of common stock in a private offering.

The company sold 1 million shares at $1.10 each. Investors also received warrants for 150,000 shares, which are exercisable at $1.21.

Escalon common stock (Nasdaq: ESMC) closed at $1.12 on Friday, up by 5.64% or $0.06.

Based in Wayne, Pa., Escalon develops markets and distributes ophthalmic diagnostic, surgical and pharmaceutical products as well as vascular access devices.

"As the world is captivated by the magnitude of the unfolding economic crisis, which led to a dramatic increase in the cost of capital; we thought it prudent to secure private equity financing at this time," Escalon chairman and chief executive Richard J. DePiano said in a statement. "We believe that the new funding will enable us to strengthen our balance sheet and provide additional working capital for general corporate purposes during this trying economic environment."

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