American Biofuels Inc. Announces Proposed Reverse Takeover By Paragon Processing, LLC and Arrangement of Financing for up to $20 Million
Vancouver, British Columbia--(Newsfile Corp. - July 30, 2019) - American Biofuels Inc. (TSXV: ABS.H) ("ABS" or the "Company") and Paragon Processing, LLC ("Paragon"), a Colorado limited liability company engaged in the business of manufacturing and distributing industrial hemp products (the "Paragon Business"), announces that ABS and Paragon have entered into a business combination agreement (the "Combination Agreement"), which contemplates a reverse takeover of ABS by the members of Paragon (the "Proposed Transaction"). As presently contemplated, the Proposed Transaction will be completed by way of a series of transactions, including an amalgamation under the Business Corporations Act (British Columbia) and a statutory share exchange under the Nevada Revised Statute. The Proposed Transaction also contemplates that on closing of the Proposed Transaction ("Closing"), the common shares of ABS will be de-listed from the TSX Venture Exchange (the "TSX-V") and re-listed on the Canadian Securities Exchange (the "CSE"). The Combination Agreement was negotiated between ABS and Paragon at arm's length.
Details of the Proposed Transaction
Pursuant to the terms of the Combination Agreement, ABS will create a new class of proportionate voting shares (the "Proportionate Voting Shares") and alter the identifying name of its common shares to be subordinate voting shares (the "Subordinate Voting Shares"). The dual class structure is intended to permit ABS to maintain its "foreign private issuer" status (as such term is defined in Rule 405 of Regulation C under the U.S. Securities Act of 1933, as amended (the "U.S. Securities Act")). Proportionate Voting Shares will be convertible into Subordinate Voting Shares at a ratio of 100 Subordinate Voting Shares for each Proportionate Voting Share, subject to certain limitations to maintain ABS's "foreign private issuer" status, and each Proportionate Voting Share will entitle the holder to vote on shareholder matters on an as converted basis (being 100 votes per Proportionate Voting Share).
The Combination Agreement contemplates that ABS will acquire all of the Paragon membership interests from the existing Paragon members in consideration for a number of Proportionate Voting Shares equal to 82.5% of the equity securities of ABS following the closing of the Proposed Transaction and the Non-Brokered Financing (defined below). Paragon will become a wholly-owned subsidiary of ABS and will continue to operate the Paragon business.
The Combination Agreement provides that Simco Services Inc. will be issued a fee, payable at closing in Proportionate Voting Shares equal to 7.5% of the number of Proportionate Voting Shares issued to the Paragon members in connection with the Proposed Transaction.
The Non-Brokered Financing
In connection with the Proposed Transaction, a special purpose vehicle ("Finco") will raise up to C$20 million in a non-brokered private placement in one or more tranches (the "Non-Brokered Financing") of convertible debentures units (the "Convertible Debenture Units"). Each Convertible Debenture Unit is comprised of one 8% per annum convertible secured debenture in the principal amount of $1,000 with a maturity of three years from the date of issuance (a "Convertible Debenture") and 125 share purchase warrants of Finco ("Finco Warrants"). The Convertible Debentures are convertible into 250 common shares of Finco ("Finco Common Shares"). The Finco Common Shares and the Finco Warrants will be exchanged for Subordinate Voting Shares and warrants of the Company ("ABS Warrants"), respectively, on a one-for-one basis upon closing (the "Closing") of the Proposed Transaction.
The Finco Warrants will be assumed by ABS following Closing (becoming the ABS Warrants) and will entitle the holder thereof to purchase one Subordinate Voting Share at a price of C$6.00 per share at any time up to 12 months following the Closing, provided that if the closing price of the Subordinate Voting Shares following Closing on the CSE is at a price greater than C$9.00 per share for a period of 20 non-consecutive trading days, the expiry of the ABS Warrants shall automatically accelerate to the date that is 30 days after the date that notice of such acceleration is provided by ABS to holders of the ABS Warrants by way of a press release.
Prior to the Closing, Finco has agreed to loan to Paragon (from the proceeds of the Non-Brokered Financing) a first priority secured loan of up to US$15,000,000, secured by the assets of Paragon, US$3,000,000 will be advanced within 10 business days of execution of the Combination Agreement.
Completion of the Proposed Transaction is subject to a number of conditions, including completion of the Non-Brokered Financing with a minimum of US$15,000,000 raised, receipt of all necessary shareholder and regulatory approvals, the execution of related transaction documents, the delisting of the common shares of ABS from the TSV-V, and receipt of the conditional approval of the CSE for the listing of the Subordinate Voting Shares following completion of the Proposed Transaction.
Further details of the Proposed Transaction will be included in subsequent news releases and disclosure documents (which will include business and financial information in respect of Paragon) to be filed by the Company in connection with the Proposed Transaction. It is anticipated that a special shareholders' meeting of the Company to approve, among other matters, any necessary matters in connection with the Proposed Transaction and closing of the Proposed Transaction will take place in the fourth calendar quarter of 2019.
The common shares of the Company will remain halted until all necessary filings have been accepted by applicable regulatory authorities.
None of the securities of the Company or securities issued under the Non-Brokered Financing have been or will be registered under the U.S. Securities Act or any state securities laws. None of the securities of the Company or securities issued under the Non-Brokered Financing may be offered or sold within the United States or to U.S. Persons (as defined in Rule 902(k) of Regulation S under the U.S. Securities Act), unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available. This news release does not constitute an offer to sell, or a solicitation of an offer to buy, any securities of the Company or securities issued under the Non-Brokered Financing in the United States.
On Behalf of the Board of Directors of American Biofuels Inc.
Chief Executive Officer
For more information please contact:
Keturah Nathe - CEO
(604) 718-2800 ext. 312
About Paragon Processing, LLC ("Paragon")
Paragon has a 250,000 square foot processing facility located in Pueblo, Colorado.
All information contained in this news release with respect to Paragon was supplied by Paragon for inclusion herein and the Company has relied on the accuracy of such information without independent verification.
As noted above, completion of the Proposed Transaction is subject to a number of conditions, including but not limited to the voluntary delisting of the common shares of ABS from the TSX-V and listing of the Subordinate Voting Shares on the CSE. There can be no assurance that the Proposed Transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the management information circular or listing statement of the Company to be prepared in connection with the Proposed Transaction, any information released or received with respect to the Proposed Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of the Company should be considered highly speculative.
Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) has in any way passed upon the merits of the Proposed Transaction nor accepts responsibility for the adequacy or accuracy of this news release. www.paragonprocessors.com
Forward-Looking Information and Statements
This press release contains certain "forward-looking information" within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute "forward-looking statements" within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company's beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company's control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or may contain statements that certain actions, events or results "may", "could", "would", "might" or "will be taken", "will continue", "will occur" or "will be achieved". The forward-looking information and forward-looking statements contained herein may include, but are not limited to, information concerning the Proposed Transaction and the Non-Brokered Financing, expectations regarding whether the Proposed Transaction will be consummated, including whether conditions to the consummation of the Proposed Transaction will be satisfied, the timing for holding the special meeting of shareholders of the Company and the timing for completing the Proposed Transaction, expectations for the effects of the Proposed Transaction or the ability of the combined company to successfully achieve business objectives, expectations regarding whether the Non-Brokered Financing will be consummated, and expectations for other economic, business, and/or competitive factors.
By identifying such information and statements in this manner, the Company is alerting the reader that such information and statements are subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such information and statements. In addition, in connection with the forward-looking information and forward-looking statements contained in this press release, the Company has made certain assumptions. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking information and statements are the following: the ability of the parties to consummate the Proposed Transaction and the Non-Brokered Financing; the ability of the Company to obtain requisite regulatory and security holder approvals and the satisfaction of other conditions to the consummation of the Proposed Transaction on the proposed terms and schedule; the parties' ability to satisfy the conditions to the consummation of the Non-Brokered Financing or to the conversion of the ABS Convertible Debenture Units; the potential impact of the announcement or consummation of the Proposed Transaction on relationships, including with regulatory bodies, employees, suppliers, customers and competitors; changes in general economic, business and political conditions, including changes in the financial markets; changes in applicable laws; compliance with extensive government regulation; and the diversion of management time on the Proposed Transaction and the Non-Brokered Financing. Should one or more of these risks, uncertainties or other factors materialize, or should assumptions underlying the forward-looking information or statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected.
Although the Company believes that the assumptions and factors used in preparing, and the expectations contained in, the forward-looking information and statements are reasonable, undue reliance should not be placed on such information and statements, and no assurance or guarantee can be given that such forward-looking information and statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information and statements. The forward-looking information and forward-looking statements contained in this press release are made as of the date of this press release, and the Company does not undertake to update any forward-looking information and/or forward-looking statements that are contained or referenced herein, except in accordance with applicable securities laws. All subsequent written and oral forward-looking information and statements attributable to the Company or persons acting on its behalf is expressly qualified in its entirety by this notice.
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