Vancouver, British Columbia — Aug. 31, 2018 — /D.M.O. Newswire/ – Auxly Cannabis Group Inc. (TSXV:XLY) (OTC:CBWTF) (“Auxly” or the “Company“) is pleased to announce that, further to its press release issued on August 21, 2018, it has completed its previously announced acquisition of all of the outstanding shares of KGK Science Inc. (“KGK”).
KGK is a leading health and wellness focused private contract research organization based in London, Ontario, having provided a variety of clinical services to many of North America’s leading nutraceutical, natural health product and consumer packaged goods companies. The Company expects to leverage KGK’s expertise and research abilities to further the Company’s cannabinoid-based product development efforts through collaboration with the Company’s wholly owned subsidiary, Dosecann Inc.
The total purchase price for the acquisition was approximately $12.3 million, of which $5 million was paid through the issuance of 4,132,231 common shares of the Company (“Auxly Shares”) at a price per Auxly Share of $1.21, with the remaining $7.3 million paid in cash, a portion of which was used to repay certain indebtedness of KGK on closing.
The share-based payment is subject to a conditional combined lock-up and make whole payment. The former shareholders of KGK have entered into lock-up agreements in favour of the Company restricting their ability to transfer their Auxly Shares until 6 months (the “Lock-up Period”) from the closing date of the acquisition (the “Closing Date”). If no former shareholder of KGK sells any of the Auxly Shares during the Lock-up Period, the former KGK shareholders may be eligible for a payment equal to the difference between the market price of the Auxly Shares on the date that is 6 months from the Closing Date and $5,000,000 (up to a maximum of $2.66 million). The make-whole payment will only be made if the share price of the Company is below $1.21 on the date that is 6 months following the Closing Date.
The Auxly Shares are also subject to a statutory hold period expiring 4 months and 1 day after the Closing Date.
As a result of Jeffrey Tung, the Chief Financial Officer of Auxly, being a director of KGK, the acquisition constitutes a related party transaction under Canadian Multilateral Instrument 61-101 (“MI 61-101“) but is otherwise exempt from the formal valuation and minority approval requirements of MI 61-101. Mr. Tung held a de minimis equity ownership interest in KGK of less than 2%.
Issuance of Warrants
Pursuant to the terms of the exclusive data licensing agreement with a prominent Canadian cannabis testing, analysis and rating company (the “Licensor”), the Licensor has completed 4,000 tests on Canadian cannabis samples, triggering the issuance of 100,000 common share purchase warrants of the Company (the “Milestone Warrants”). The Milestone Warrants will be exercisable at the greater of: (i) the closing market price on the day of issuance plus 10%; and (ii) $1.00. The issuance of the Milestone Warrants remains subject to approval by the TSX Venture Exchange.
ON BEHALF OF THE BOARD
“Chuck Rifici” Chairman & CEO
About Auxly Cannabis Group Inc. (TSX.V: XLY)
Auxly Cannabis Group is a collective of entrepreneurs with a passion for the cannabis industry past, present and future. Our mandate is to facilitate growth for our partners by providing them with financial support and sharing our collective industry experience. Our partners all have different visions, voices and brand values, and all share a common goal—to build a world-class industry based on ethics, diversity, quality and innovation.
About KGK Science Inc.
KGK Science is the leading contract research organization offering clinical trial services and regulatory consulting for the cannabis, dietary supplement, functional food, beverage, ingredient and cosmetic industry. For over 21 years, KGK Science has been designing and conducting clinical trials to support clients with product development, claims substantiation and product marketing. Along with offering a full suite of services that includes research strategy, regulatory support, clinical trials and clinical trial management, KGK Science operates a clinical trial unit with experience in over 250 completed clinical trials in Canada, North America and Europe. KGK Science maintains an active database in Southwestern Ontario of over 14,000 participants including 2,500 recreational and medicinal cannabis users. KGK Science’s major areas of expertise include, but are not limited to: digestive health, cognition, sport nutrition/performance, weight management, skin and hair, bioavailability, cardiovascular health, infant nutrition and immune health.
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Notice Regarding Forward Looking Information:
This news release contains certain “forward-looking information” within the meaning of applicable Canadian securities law. Forward-looking information is frequently characterized by words such as “plan”, “continue”, “expect”, “project”, “intend”, “believe”, “anticipate”, “estimate”, “may”, “will”, “potential”, “proposed” and other similar words, or information that certain events or conditions “may” or “will” occur. This information is only a prediction. Various assumptions were used in drawing the conclusions or making the projections contained in the forward-looking information throughout this news release. Forward-looking information includes but is not limited to: the timing of proposed research and clinical trials, the timing and outcomes of regulatory or intellectual property decisions, political change, future legislative and regulatory developments involving cannabis, competition and other risks affecting the Company in particular and the cannabis industry generally.
A number of factors could cause actual results to differ materially from a conclusion, forecast or projection contained in the forward-looking information in this release including, but not limited to, whether: the Acquisition can be completed; the Company is able to successfully manage the integration of KGK’s operations with its own, the counterparties to the Share Purchase Agreement and related transaction agreements comply with their respective obligations under the Share Purchase Agreement and related transaction agreements, and general economic, financial market, regulatory and political conditions in which the Company and KGK operate will remain the same. Additional risk factors are disclosed in the revised annual information form of the Company for the financial year ended December 31, 2017 dated May 24, 2018.
New factors emerge from time to time, and it is not possible for management to predict all of those factors or to assess in advance the impact of each such factor on the Company’s business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking information. The forward-looking information in this release is based on information currently available and what management believes are reasonable assumptions. Forward-looking information speaks only to such assumptions as of the date of this release. In addition, this release may contain forward-looking information attributed to third party industry sources, the accuracy of which has not been verified by the Company. The purpose of forward-looking information is to provide the reader with a description of management’s expectations, and such forward-looking information may not be appropriate for any other purpose. Readers should not place undue reliance on forward-looking information contained in this release.
The forward-looking information contained in this release is expressly qualified by the foregoing cautionary statements and is made as of the date of this release. Except as may be required by applicable securities laws, the Company does not undertake any obligation to publicly update or revise any forward-looking information to reflect events or circumstances after the date of this release or to reflect the occurrence of unanticipated events, whether as a result of new information, future events or results, or otherwise.
Neither TSX Venture Exchange nor its 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.
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