Black Sparrow Capital Corp. ("Black Sparrow" or the "Company") (NEX BOARD:BLC.H)
is pleased to announce that it has entered into a definitive arm's length
transaction agreement (the "Agreement") dated July 31, 2014 with Pure Natures
Wellness Inc. carrying on business as Aphria ("Aphria") whereby Aphria will
amalgamate with a new and direct wholly-owned subsidiary of Black Sparrow
("Subco") to become a direct, wholly-owned subsidiary of Black Sparrow (the
"Business Combination"). Upon completion of the Business Combination, Black
Sparrow will remain as the resulting issuer (the "Resulting Issuer"). It is
proposed that the Business Combination will constitute the Qualifying
Transaction of Black Sparrow under the policies of the TSX Venture Exchange (the
"Exchange").
Black Sparrow and Aphria are also pleased to announce that Aphria has completed
an equity private placement (the "Private Placement") financing of 11,500,000
subscription receipts (the "Subscription Receipts") of Aphria at a price of
$1.10 per Subscription Receipt for gross proceeds of $12,650,000, pursuant to an
agency agreement (the "Agency Agreement") dated July 31, 2014, between Aphria,
Black Sparrow, Subco and Clarus Securities Inc. ("Clarus") and PI Financial
Corp. (together with Clarus, the "Agents"). This news release updates the terms
of the Private Placement that were previously announced in a news release of
Black Sparrow dated June 26, 2014.
Assuming completion of the Business Combination, it is expected that the
Resulting Issuer will satisfy the original listing requirements of the Exchange
for a Tier 1 Industrial Issuer and will combine its business with Aphria under
the new name "Aphria Inc." (the "Name Change").
Completion of the Qualifying Transaction is subject to certain conditions
including the approval of Black Sparrow's and Aphria's shareholders and is
expected to close in the fourth quarter of this year. Black Sparrow and Aphria
anticipate filing a joint management information circular (the "Circular")
detailing the Qualifying Transaction and related matters in the near future to
be mailed to their respective shareholders.
About the Parties
Aphria, a privately-owned company incorporated under the laws of the Province of
Ontario and based in Leamington, Ontario, is in the business of producing and
supplying medical marijuana pursuant to the Marihuana for Medical Purposes
Regulations (the "MMPR"). Under the MMPR, Health Canada is responsible for the
oversight of commercial medical marijuana growers such as Aphria. It is expected
that, prior to the closing of the Business Combination, Aphria will have
received its final license (the "License") from Health Canada designating Aphria
as a "licensed producer" pursuant to the MMPR.
Aphria began operations in 2013 with the intention of providing patients with
high quality medical marijuana at a cost that is accessible to all patients
under the MMPR. Under the MMPR and the previous regulatory regime, Aphria has
grown and harvested 12 crops of medical marijuana, and has acquired and tested
over 40 different strains in that time. Aphria's License is expected to cover a
30,000 square foot operating space, including 22,000 square feet of production
space across two greenhouses. Aphria's greenhouses are located within a larger
450,000 square foot greenhouse facility, located on a 40-acre parcel of land in
Leamington, Ontario. To date Aphria has only grown medical marijuana for the
purposes of testing and experimenting with different strains and techniques, but
once the License is received Aphria intends to sell its products to patients
under the MMPR as well as to explore the viability of selling seedlings, plant
materials and other related products to other "licensed producers".
Black Sparrow is a capital pool company listed on the NEX board of the Exchange
and the Proposed Transaction would constitute the Company's qualifying
transaction under Exchange Policy 2.4 - Capital Pool Companies. Trading in the
common shares of Black Sparrow (the "Black Sparrow Shares") were halted on June
26, 2014 and will remain halted until the resumption of trading is approved by
the Exchange.
Private Placement
Each Subscription Receipt issued under the Private Placement entitles the holder
thereof, upon deemed exercise following satisfaction of the Escrow Release
Conditions (as defined below) in accordance with the terms of a subscription
receipt agreement dated July 31, 2014 between Aphria, Clarus and Valiant Trust
Company, to receive one common share (a "Subscription Share") and one common
share purchase warrant (a "Subscription Warrant") of Aphria and, upon completion
of the Business Combination, the Resulting Issuer. Each Subscription Warrant
will entitle the holder thereof to purchase one Subscription Share at a price of
$1.50 for a period of 5 years following the satisfaction of the Escrow Release
Conditions.
The gross proceeds from the Private Placement, less the Agents' commission,
fees, and estimated costs and expenses in respect of the Private Placement, will
be held in escrow pending the satisfaction of: (i) all conditions precedent to
the Business Combination being satisfied or waived in accordance with the terms
of the Agreement; and (ii) the receipt of conditional approval from the Exchange
to list the Resulting Issuer Shares (as defined below) on the Exchange
(collectively, the "Escrow Release Conditions").
Upon satisfaction of the Escrow Release Conditions, the Subscription Receipts
will be deemed to be exercised, for no additional consideration, for the
Subscription Shares and Subscription Warrants of Aphria and, upon completion of
the Business Combination, the Resulting Issuer. In the event the Business
Combination does not occur on or before December 15, 2014, the gross proceeds of
the Private Placement shall be returned to the purchasers pro rata without any
deduction or interest and the Subscription Receipts shall be automatically
cancelled without any further action by the holders thereof.
Pursuant to the Agency Agreement, Aphria has paid to the Agents, along with the
reasonable expenses of the Agents, a cash commission equal to seven percent (7%)
of the gross proceeds raised in the Private Placement, excluding the proceeds
raised in connection with the sale of Subscription Receipts to certain
purchasers introduced to the Agents by Aphria (each a "President's List
Purchaser"). In addition, the Agents received compensation options
("Compensation Options") entitling them to subscribe for the number of
Subscription Shares and Subscription Warrants as is equal to seven percent (7%)
of the aggregate number of Subscription Receipts sold pursuant to the Private
Placement, excluding those Subscription Receipts sold to President's List
Purchasers. Each Compensation Option shall be exercisable at a price of $1.10
for a period of 24 months commencing upon satisfaction of the Escrow Release
Conditions.
The net proceeds raised pursuant to the Private Placement will be used by the
Resulting Issuer for future capital expenditures as set out in the strategic
plan of the Resulting Issuer and for general corporate and working capital
purposes upon completion of the Business Combination.
Business Combination
In connection with the Business Combination, Black Sparrow has formed Subco, a
new, direct, wholly-owned subsidiary of Black Sparrow incorporated under the
laws of Ontario. Subject to the terms of the Agreement, Subco will amalgamate
(the "Amalgamation") with Aphria and the amalgamated corporation ("Amalco") will
continue as under the name "Pure Natures Wellness Inc." in exchange for
50,981,855 common shares of the Resulting Issuer. Amalco will be a direct
wholly-owned subsidiary of the Resulting Issuer. All of the property and assets
of each of Subco and Aphria will become the property and assets of Amalco, and
Amalco will be liable for all of the liabilities and obligations of each of
Subco and Aphria. The transaction is not a Non-Arm's Length Qualifying
Transaction (as such term is defined by the Exchange) under the policies of the
Exchange.
As of the date hereof, (i) Black Sparrow has 5,000,000 Black Sparrow Shares
outstanding; and (ii) Aphria has 38,679,587 common shares (the "Aphria Shares"),
5,791,460 common share purchase warrants (the "Aphria Warrants") and 2,600,000
options (the "Aphria Options") outstanding. In addition, pursuant to the Private
Placement, Aphria will issue an additional 12,302,268 Aphria Shares and
12,302,268 Aphria Warrants, assuming the Agents exercise the Compensation
Options, immediately prior to the Amalgamation.
Pursuant to the terms of the Agreement, and based on the foregoing, Black
Sparrow will: (i) subject to the receipt of all regulatory approvals, including
the approval of its shareholders to certain items of special business and the
Exchange, reorganize its share structure such that it will have only 2,300,000
common shares issued and outstanding following the issuance of any finder's fee
compensation and immediately prior to the issuance of the Consideration Shares
(as defined below) (the "Consolidation"); (ii) combine with Aphria pursuant to
the Agreement such that all of the issued and outstanding securities of Aphria
will be acquired, and as consideration, Black Sparrow will issue, on a
one-for-one basis, approximately 50,981,855 Black Sparrow Shares (the
"Consideration Shares", in exchange for the then issued and outstanding Aphria
Shares (which for greater certainty includes the Aphria Shares to be issued
under the Private Placement and upon the exercise of the Compensation Options);
and (iii) issue convertible securities of Black Sparrow in exchange for the then
issued and outstanding convertible securities of Aphria with substantially the
same terms with appropriate adjustments (the "Replacement Convertible
Securities").
The table below outlines the number and terms of the Replacement Convertible
Securities of the Resulting Issuer:
----------------------------------------------------------------------------
Type of Security Number Conversion Price Expiration /
Description
----------------------------------------------------------------------------
Warrants
----------------------------------------------------------------------------
Aphria Warrants(1) 5,173,127 $1.20 June 3, 2016
----------------------------------------------------------------------------
Aphria Warrants 618,333 $0.60 June 3, 2019
----------------------------------------------------------------------------
Subscription 12,302,268 $1.50 Expire 5 years from
Warrants(2) the date of
issuance.
----------------------------------------------------------------------------
Options
----------------------------------------------------------------------------
Aphria Options 2,600,000 $0.60 June 2, 2019
----------------------------------------------------------------------------
(1) In the event that Aphria has not: (a) obtained the License on or prior
to November 30, 2014 and/or (b) the Resulting Issuer Shares are not
traded or otherwise approved for trading by applicable regulatory
authorities on the Exchange on or prior to January 1, 2015, Aphria
will be required to issue an aggregate of approximately 1,034,625
Aphria Shares and 517,312 Aphria Warrants to subscribers of a
previously completed equity private placement financing.
(2) Assumes that the Agents have exercised the Compensation Options.
Following the completion of the Business Combination there will be 53,281,855
(calculated on a non-diluted basis) and 73,975,583 (calculated on a
fully-diluted basis) common shares of the Resulting Issuer (the "Resulting
Issuer Shares").
It is expected that following completion of the Business Combination, and after
giving effect to the Private Placement, the current holders of Black Sparrow
Shares will hold approximately 4.3% of the outstanding Resulting Issuer Shares
and the then current holders of Aphria Shares will hold approximately 95.7% of
the Resulting Issuer Shares, each calculated on a non-diluted basis.
Summary Financial Information
The selected unaudited financial information for Aphria, reflecting the
financial information for the year ended April 30, 2013 and the 10 month period
ended February 28, 2014 is as follows:
----------------------------------------------------------------------------
Financial Information February 28, 2014 April 30, 2013
----------------------------------------------------------------------------
Assets 92,469 14,970
----------------------------------------------------------------------------
Liabilities 1,482,035 623,804
----------------------------------------------------------------------------
Operating expenses and net
loss 783,222 608,844
----------------------------------------------------------------------------
In June 2014, Aphria raised approximately $6.2 million through an equity private
placement financing. As at June 30, 2014, Aphria has incurred over $1.5 million
in capital expenditures in preparation for the final requirements for the
License.
Resulting Issuer
The following table sets forth the pro forma capitalization of the Resulting
Issuer after giving effect to the Business Combination:
Equity
Shares held by Aphria shareholders 38,679,587
Shares held by current Black Sparrow shareholders 2,300,000
Shares to be issued with respect to the Private Placement 12,302,268
Shares underlying options and warrants 20,693,728
Total (fully-diluted) 73,975,583
Board of Directors and Management
Subject to Exchange approval, on completion of the Business Combination, the
management team and the board of directors of the Resulting Issuer will include
the persons identified below. Prior to the Business Combination, Black Sparrow
and Aphria intend to identify an additional independent director who will serve
as a director of the Resulting Issuer.
Vic Neufeld - President, Chief Executive Officer and Director
Vic Neufeld is the President and Chief Executive Officer of Aphria. Vic is the
former CEO of Jamieson Laboratories ("Jamieson") Canada's largest manufacturer
and distributor of natural vitamins, minerals, concentrated food supplements,
herbs and botanical medicines. Vic brings 15 years of experience as a chartered
accountant and partner with Ernst & Young and 21 years as CEO of Jamieson.
During his tenure with Jamieson, the company went from $20 million in annual
sales to over $250 million and expanded the company's distribution network to
over 40 countries, building Jamieson to a globally recognized brand name. Vic, a
native of Leamington, Ontario, earned a Bachelor's degree from the University of
Windsor and MBA from the University of Windsor and is CPA.
John Cervini - Chief Agronomist Officer and Director
John Cervini, Aphria's co-Chair and founder, comes from fourth generation
growers in southwestern Ontario with hydroponic agricultural experience.
Together with his father and brother, John helped established Lakeside Produce,
one of North America's leading sales and marketing companies selling fresh
produce from Canada to multinational retailers throughout North America. John is
a leading innovator in greenhouse growing technology and has also overseen
greenhouse expansion to Carpinteria, California and Guadalajara, Mexico. John's
focus on improved efficiencies, healthier quality and the latest research
studies made him a driving force in creating an industry leading food safety
program before any sector wide standards or mandate. John understands the need
and importance of product safety, product traceability and standardized industry
procedures. John is the founding chair of the Ontario Greenhouse Marketing
Association remains involved in the industry as part of the Ontario Greenhouse
Vegetable Growers Association.
Cole Cacciavillani - Chief Operating Officer and Director
Cole Cacciavillani, Aphria's co-chair and founder, is an industrial engineer
with 35 years of experience in the agricultural and greenhouse industry. Cole
has accumulated expertise gained over generations of how to best utilize
nature's light and organic properties combined with proprietary growing
techniques and technologies produces a superior, safe and cost effective
product. Cole sits on a number of charitable and associative boards including
serving as: Chairman of the Board for Leamington Memorial District Hospital as
well as serving on the Hospital's Foundation Board. Cole is a part of The
Ontario Greenhouse Alliance; serves on the board of The Agricultural Institute
of Ontario, Police Services Board, F.V. Energy Co-op, and the Leamington
Economic Development Committee. Currently he serves as Co-Chair of Fundraising
for the Erie Shores Campus Hospice. Cole's dedication to his community has
received much recognition, including: the Queen Elizabeth II Diamond Jubilee
Medal, which is awarded to honour significant contributions and achievements by
Canadians. Ontario's greenhouse industry recognized Cole's leadership and vision
as the founding Chair of the industry organization with its first service award.
Recently Cole was awarded the St. Clair alumni distinction award based on the
success he pursued within the community.
Jonathan Leong - Chief Financial Officer
Jonathan Leong has been involved in a number of public and private market
transactions, including business acquisitions and reverse take-overs, for both
domestic and international entities. Mr. Leong is a Chartered Professional
Accountant, Chartered Accountant and Chartered Business Valuator with experience
working in a variety of financial reporting, audit, advisory, M&A and valuation
engagements. Mr. Leong articled with Grant Thornton LLP and obtained his Master
of Accounting from the University of Waterloo.
Gary Leong - Chief Scientific Officer
Gary Leong, Aphria's Chief Scientific Officer has a personal background with
quality assurance, quality control, quality system audits, international and
domestic regulatory affairs and product research and development. Gary currently
is the president of Neautrical Solutions Inc. located in Surrey, British
Columbia. Prior to that he was the Chief Scientific Officer at Jamieson. He
began at Jamieson in the year 2000 as the Vice President of Scientific and
Technical Affairs. He also held the position of Quality Control Manager at
Boehringer Ingelheim Consumer Products: Quest Vitamins, and Development Officer
at Atomic Energy of Canada: Radiochemical Company. Gary's educational background
began with a Bachelor's of Science in Chemistry and has taken him most recently
to an MBA in Quality Management from City University of Bellevue Washington.
Gary is currently affiliated with The Life Sciences Working Team of
Windsor-Essex Economic Development Corporation. In the past he was a member of
the Natural Health Products Directorate Program Advisory Committee and a board
member of the Ontario Ginseng Innovation and Research Consortium.
Dennis Staudt - Director
Dennis Staudt, Director, has over 35 years' experience providing business advice
to private companies in Southwestern Ontario, having spent most of his career
with PricewaterhouseCoopers LLP ("PwC"), including 22 years as a partner in the
Audit and Assurance Group. Prior to being admitted to partnership, Dennis spent
almost two years with PwC Germany in their Duesseldorf office. Following his
retirement from PwC in 2012, Dennis continues to provide business advisory
services to a number of private companies, primarily in the manufacturing and
greenhouse sectors. He is also Vice-President of Staudt Farms Limited, a family
owned farming operation in Leamington, Ontario. Dennis graduated from the
University of Windsor in 1977 with a Bachelor of Commerce Degree. He obtained
his Chartered Account (Ontario) designation in 1979 and his Certified Public
Accountant (Illinois) designation in 1998. Dennis is also Advisory Board Member
at the University of Windsor Centre for Executive and Professional Education.
Dennis is Past Chair of the Leamington District Memorial Hospital Foundation,
the Art Gallery of Windsor and the Art Gallery of Windsor Foundation. He also
previously served on the Board of Governors of the University of Windsor and
taught as a Sessional Lecturer in Accounting.
Significant Shareholders and Relationships
Messrs. Cacciavillani and Cervini have taken the initiative of founding and
organizing Aphria. Upon completion of the Business Combination, Messrs.
Cacciavillani and Cervini are expected to own or control directly or indirectly,
approximately 24.9% and 21.6%, respectively, of the outstanding Resulting Issuer
Shares. Messrs. Cacciavillani and Cervini are both residents of the Province of
Ontario.
Michael Galloro is a director of Black Sparrow and a principal of Aloe Financial
Inc. ("Aloe") which provides financial services to Aphria pursuant to a
financial management agreement. Neither Aloe nor Mr. Galloro have any interest
in the business or assets of Aphria. Delavaco Holdings Inc. ("Delavaco") and
Aphria are parties to an advisory services agreement whereby Delavaco provided
certain advisory services to Aphria. Delavaco has also provided Black Sparrow
certain advisory services and will receive Black Sparrow Shares as compensation
for such services prior to the completion of the Business Combination. Delavaco
will hold less than 5.6% of the issued and outstanding Resulting Issuer Shares
upon completion of the Business Combination.
Conditions of Completion
Completion of the Business Combination is subject to a number of conditions,
including, but not limited to, Exchange acceptance. Where applicable, the
Business Combination cannot close until the required shareholder approval is
obtained. There can be no assurance that the Proposed Transaction will be
completed as proposed, or at all.
Other conditions to completion of the Business Combination include, but are not
limited to:
-- Preparation and filing the Circular outlining the definitive terms of
the Business Combination in accordance with the rules of the Exchange;
-- The approval of Aphria shareholders of the Amalgamation, the approval of
Black Sparrow shareholders of the Name Change and the Consolidation, and
other matters to be more fully described in the Circular, and the
approval and acceptance of the Exchange;
-- The Resulting Issuer being in compliance with the initial listing
requirements of the Exchange; and
-- Receipt by Aphria of the License.
Sponsorship
Sponsorship of a Qualifying Transaction of a capital pool company is required by
the Exchange, unless an exemption from the sponsorship requirement is available.
On the basis of conducting a brokered concurrent financing in excess of $500,000
with the Agents, Black Sparrow intends to, with the support of Clarus, apply to
the Exchange for an exemption from the sponsorship requirement under section
3.4(a)(ii) of Exchange Policy 2.2 - Sponsorship and Sponsorship Requirements.
There is no assurance that the Company will be able to obtain such an exemption.
Further Information
Information contained herein pertaining to Aphria and the proposed members of
management and the board of directors of the Resulting Issuer has been furnished
to Black Sparrow by Aphria.
Further details about the Qualifying Transaction and the Resulting Issuer will
be provided in the disclosure document to be prepared and filed in respect of
the Business Combination.
Completion of the transaction is subject to a number of conditions, including
but not limited to, Exchange acceptance and if applicable pursuant to Exchange
Requirements, majority of the minority shareholder approval. Where applicable,
the transaction cannot close until the required shareholder approval is
obtained. There can be no assurance that the transaction will be completed as
proposed or at all.
Investors are cautioned that, except as disclosed in the management information
circular or filing statement to be prepared in connection with the transaction,
any information released or received with respect to the transaction may not be
accurate or complete and should not be relied upon. Trading in the securities of
a capital pool company should be considered highly speculative.
The Exchange has in no way passed upon the merits of the Business Combination
and has neither approved nor disapproved the contents of this press release.
Cautionary Statements
Certain statements contained in this press release constitute forward-looking
information. These statements relate to future events or future performance. The
use of any of the words "could", "intend", "expect", "believe", "will",
"projected", "estimated" and similar expressions and statements relating to
matters that are not historical facts are intended to identify forward-looking
information and are based on the Corporation's current belief or assumptions as
to the outcome and timing of such future events. Actual future results may
differ materially. In particular, this release contains forward-looking
information relating to the completion of the Business Combination, the number
of securities of Black Sparrow that may be issued in connection with the
Business Combination, the ownership of Black Sparrow following the Business
Combination, the Private Placement, shareholder approval and the parties'
ability to satisfy closing conditions and receive necessary approvals. Various
assumptions or factors are typically applied in drawing conclusions or making
the forecasts or projections set out in forward-looking information. Those
assumptions and factors are based on information currently available to the
Corporation. Although such statements are based on management's reasonable
assumptions, there can be no assurance that the Business Combination will occur,
or that if the Business Combination does occur, it will be completed on the
terms described above.
The forward-looking information contained in this release is made as of the date
hereof and neither the Company nor Aphria is not obligated to update or revise
any forward-looking information, whether as a result of new information, future
events or otherwise, except as required by applicable securities laws. Because
of the risks, uncertainties and assumptions contained herein, investors should
not place undue reliance on forward-looking information. The foregoing
statements expressly qualify any forward-looking information contained herein.
Neither the TSX Venture Exchange nor it Regulation Services Provider (as that
term is defined in the policies of the TSX Venture Exchange) accepts
responsibility for the adequacy or accuracy of this release.
FOR FURTHER INFORMATION PLEASE CONTACT:
Black Sparrow Capital Corp.
Michael Galloro
President, Chief Executive Officer, Chief Financial Officer
and Director
(416) 907.5644 ext. 105
Pure Natures Wellness Inc. c.o.b. as Aphria
Vic Neufeld
President and Chief Executive Officer
(844) 427-4742
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