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AFL Capital Ventures Inc. Announces the Completion of a Qualifying Transaction with Equity Transfer Services Inc.

TORONTO -- AFL Capital Ventures Inc. (TSX VENTURE:AFL.p)("AFL") is pleased to announce it has completed its qualifying transaction ("Qualifying Transaction") through the purchase of all of the issued and outstanding shares of JAR Capital Inc. ("JAR") and 1069316 Ontario Limited ("Ontario Limited") pursuant to a share purchase agreement dated October 19, 2004 (the "Acquisition Agreement"). JAR and Ontario Limited are privately held corporations that own all of the issued and outstanding shares of Equity Transfer Services Inc. ("Equity"). Following the Qualifying Transaction, JAR and Ontario Limited were amalgamated with Equity such that the only legal entities remaining are AFL and its wholly owned subsidiary, Equity.

The Acquisition Agreement provides for consideration in the amount of $6,000,000, which consideration was paid to the vendors as follows: (i) $4,500,000 in cash at the time of closing, (ii) $900,000 by way of convertible secured notes issued in the names of the vendors, which notes have a term of three (3) years from the date of closing, and (iii) $600,000 by issuance to the vendors of 400,000 units, each unit consisting of one common share of AFL and one warrant entitling the holder to purchase one common share of AFL during the twenty-four (24) months following the date of the issuance of the warrant at an exercise price of $1.75 per common share (the "Unit"). The convertible secured notes issued to the vendors may be converted in whole or in part, at the option of the holder at any time and from time to time during the term of the notes into common shares of AFL at a conversion price of $1.50 per common share, subject to adjustment in certain events; provided that the notes may not be converted into common shares before the date that is the first anniversary date of the Qualifying Transaction. Certain of the notes (in the aggregate amount of $600,000) will be held in escrow for a period of three (3) years from the date of the Qualifying Transaction in order to guarantee the truthfulness and/or performance of the representations, warranties and covenants of the note-holder contained in the Acquisition Agreement.

Concurrent with the closing of the Qualifying Transaction, AFL completed a non-brokered private placement of 599,994 Units at a subscription price of $1.50 per Unit for aggregate gross proceeds of $900,001 (the "Private Placement"). Including those issued pursuant to the Acquisition Agreement and the Private Placement, the number of common shares of AFL issued and outstanding after the closing of the Qualifying Transaction is 2,999,994 common shares. In addition, there are 333,333 options and 999,994 warrants outstanding as of this date, which if exercised would increase the amount of common shares outstanding by an equal amount. In addition to the convertible notes in escrow, certain of the common shares of AFL issued pursuant to the Private Placement and the Acquisition Agreement have been placed in escrow (the "Tier 1 Exchange Escrow") pursuant to TSX Venture Exchange ("Exchange") policy. On a fully diluted basis, 1,053,666 securities of AFL are subject to Tier 1 Exchange Escrow. In addition, each of the common shares issued pursuant to the Private Placement, and the common shares issuable on the exercise of the Private Placement warrants, are subject to a hold period of four months from the date of distribution of the Units, pursuant to Exchange policies and to Multilateral Instrument 45-102 - Resale of Securities.

Three related parties of AFL purchased Units in the Private Placement at the subscription price of $1.50 per Unit. Mr. Kevin Reed purchased 45,000 Units. Mr. Reed beneficially owns, directly or indirectly, or exercises control or direction over 199,000 common shares of AFL. On the completion of the Qualifying Transaction, his holding will represent approximately 6.63% of the outstanding common shares of AFL. Mr. Paul G. Smith purchased 113,333 Units. Mr. Smith beneficially owns, directly or indirectly, or exercises control or direction over 113,333 common shares of AFL. On the completion of the Qualifying Transaction, his holding will represent approximately 3.78% of the outstanding common shares of AFL. Blue Quartz Enterprises Ltd., a corporation controlled by Mr. Stephen Headford, purchased 16,666 Units. Mr. Headford beneficially owns, directly or indirectly, or exercises control or direction over 184,999 common shares of AFL. On the completion of the Qualifying Transaction, his holding will represent approximately 6.17% of the outstanding common shares of AFL. The securities purchased by Messrs. Reed, Smith and Headford pursuant to the Private Placement are all subject to Tier 1 Exchange Escrow.

In addition to the sale of Units described above, AFL has obtained financing for the Qualifying Transaction by entering into an agreement with Roynat Capital Inc. and B.E.S.T Total Return Fund Inc. (collectively, "Roynat") wherein AFL issued convertible subordinated debentures in the amount of $1,350,000 (the "Roynat Debenture") to Roynat. The Roynat Debenture has a term of six (6) years and may be converted in whole or in part, at the option of the holder at any time and from time to time during the term of the debenture into common shares of AFL at a conversion price of $1.50 per common share. The conversion price may be adjusted downward in certain circumstances; however, such downward adjustment shall not result in a conversion price of less than $1.00 per common share.

AFL and Equity have also entered into an agreement with Return on Innovation Fund Inc. ("ROI Fund") wherein ROI Fund will provide subordinated debt in the amount of $2,500,000 as a portion of the financing of the Acquisition Agreement (the "ROI Loan"). The ROI Loan has a term of six (6) years. In conjunction with the ROI Loan, Equity has also entered into a profit participation agreement with ROI Fund.

AFL is currently pursuing other acquisition targets, which would complement its acquisition of Equity. AFL has engaged Dundee Securities Inc. to provide financial advisory services for a four-month term.

Further details regarding the Qualifying Transaction may be found in the documents filed by AFL on SEDAR at www.sedar.com.

About Equity Transfer Services Inc.

www.equitytransfer.com

Equity is incorporated pursuant to the laws of the Province of Ontario, with its head office located at 120 Adelaide Street West, Suite 420, Toronto, Ontario, M5H 4C3. It offers a full suite of cost-effective transfer agent and related services developed specifically for small and mid-cap clients, including: transfer and registrar services, corporate action services, small shareholder buyback programs, subscription agent, escrow agent and disbursement agent services. Equity is an accepted transfer and escrow agent for companies listed on the Toronto Stock Exchange and the Exchange. It is registered as a transfer agency with the United States Securities and Exchange Commission and it serves over 400 publicly traded companies across North America listed on the Toronto Stock Exchange, the Exchange, CNQ and NEX as well as NASDAQ and other American exchanges.

About AFL Capital Ventures Inc.

Incorporated under the Business Corporations Act (Yukon) in September, 2001, AFL is amongst the first resident companies in Ontario to have availed themselves of the Exchange's capital pool company program. Its common shares are listed on the Exchange under the symbol AFL.p.

Certain information included in this press release is forward-looking and may involve risks and uncertainties. The results or events predicted in these statements may differ materially from actual results or events. Factors that might cause a difference include, but are not limited to, competitive developments, risks associated with AFL's growth, the state of the financial markets, regulatory risks and other factors. Unless otherwise required by applicable securities laws, AFL disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. More detailed information about potential factors that could affect AFL's financial and business results is included in public documents AFL files from time to time with Canadian securities regulatory authorities.

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

AFL Capital Ventures Inc. (TSX VENTURE:AFL.p)
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Publication:Business Wire
Geographic Code:1CANA
Date:Dec 3, 2004
Words:1380
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