Essex Angel Capital Inc.
TSX VENTURE : EXC.P

May 02, 2011 18:06 ET

Essex Angel Capital Inc. Announces Proposed Qualifying Transaction

TORONTO, ONTARIO--(Marketwire - May 2, 2011) - Essex Angel Capital Inc. (the "Corporation") (TSX VENTURE:EXC.P) is pleased to announce that it entered into the following:

(i) A term sheet dated April 30, 2011 with Wellness Indicators, Inc. ("Wellness") pursuant to which the Corporation has committed to purchase $1,000,000 aggregate amount of 6.0% subordinated secured convertible debentures (the "Debentures") of Wellness (the "Wellness Investment"). The Debentures will mature on the date that is 48 months from the closing date of the Wellness Investment. The Corporation may convert, at any time, the outstanding principal amount of the Debentures, in part or in whole, into common shares of Wellness (the "Wellness Shares") at a rate of $3.25 per share. In addition, the Corporation shall receive warrants (the "Wellness Warrants") entitling the holder thereof to acquire, for 10 years following the closing date of the Wellness Investment, 153,846 Wellness Shares at a price of $3.25 per share. If all of the Debentures are converted and all of the Wellness Warrants are exercised (assuming no other convertible securities of Wellness were exercised or converted, as the case may be) the Corporation would beneficially hold approximately 20.8% of the outstanding Wellness Shares on a partially diluted basis on the date hereof. The Debentures will be subordinated to any senior operating facilities with a Canadian or U.S. Chartered Bank in the event that it is obtained. Wellness must obtain prior qualified written consent of the Corporation before obtaining specified senior operating facilities pursuant to the terms and conditions of executed binding agreements. The Corporation shall have the right to attend, in an observer status, all Board of Director meetings of Wellness.

(ii) A term sheet (the "Gyros Term Sheet") dated April 30, 2011 with 3 Gyros Inc. ("3Gyros" and together with Wellness, the "Target Companies"), pursuant to which the Corporation has committed to purchase $500,000 (the "Total Funded Amount") aggregate amount of 2.0% secured debentures (the "3Gyros Debentures") of 3Gyros (the "3Gyros Investment"). In addition, the Corporation shall receive warrants (the "Warrants") entitling the holder thereof to acquire, for nominal consideration, for eight years following the closing date of the 3Gyros Investment (the "Closing Date") an aggregate amount of common shares of 3Gyros (the "3Gyros Shares") equal to 37% of the fully diluted 3Gyros Shares on the Closing Date. Furthermore, the Corporation shall have the right to appoint two of five directors of 3Gyros and shall have the right to approve, upon consultation with 3Gyros, another director of 3Gyros. The remaining two directors shall be appointed by 3Gyros' management.

50% of the 3Gyros Debentures will mature on the date that is 36 months from the Closing Date. The remaining 3Gyros Debentures will mature on the date that is 48 months from the Closing Date. The 3Gyros Debentures will mature prior to the applicable maturity date in the event of (a) default, or (b) a change of control, of 3Gyros. The 3Gyros Debentures shall accrue interest at the rate of 2.0% per annum payable annually commencing the Closing Date. The 3Gyros Debentures may be repaid by 3Gyros at any time following the Closing Date at a rate of 1.05 times par and in minimum increments of $100,000. 3Gyros will be permitted to obtain a senior operating facility (the "Senior Operating Facility") in the amount of up to $150,000 with a Canadian Chartered bank for as long as the 3Gyros Debentures remain outstanding, in whole or in part. The Debentures will be subordinated to the Senior Operating Facility in the event that it is obtained.

A fee equal to 5% (the "Commitment Fee") of the Total Funded Amount shall be paid on the Closing Date to the Corporation. Should 3Gyros not proceed with this proposed transaction as described in the 3Gyros Term Sheet and the Corporation is otherwise prepared to provide the Total Funded Amount under the terms of the 3Gyros Term Sheet and having received all the necessary approvals, including approval from the TSX Venture Exchange (the "TSX-V"), 3Gyros irrevocably commits to promptly pay the Corporation the Commitment Fee.

Taken together, and subject to TSX-V approval and satisfaction of the conditions precedent below, the 3Gyros Investment and the Wellness Investment (collectively, the "Transaction") will constitute the Corporation's Qualifying Transaction as such term is defined in policy 2.4 of the TSX-V (the "Policy"). The Transaction will not be a Non-Arm's Length Qualifying Transaction (as that term is defined in the Policy) and shareholder approval of the Transaction is not required. Upon completion of the Transaction, the Corporation will be listed as a Tier 2 Investment Issuer on the TSX-V. It is anticipated that the composition of management of the Corporation will remain unchanged upon completion of the Transaction.

Pursuant to its initial public offering (the "IPO") which closed on December 7, 2010, the Corporation issued 26,300,000 common shares (the "Common Shares") for gross proceeds of $2,630,000. Prior to the IPO, the Corporation issued 3,400,000 Common Shares to its seed shareholders for gross proceeds of $170,000. As at February 28, 2011, the end of its most recent financial quarter, the Corporation had working capital of $2,370,703.

Pursuant to its Investment Policy, the Corporation will be focused on investing in companies that are post revenue and/or offer products, services or technologies that are highly scalable and/or hold protected intellectual property. The Corporation will seek to invest in the early stages of a target company's development or in technologies that are developed and validated but may be in the early stage of commercialization. Such strategy will allow the Corporation to invest in enterprises that are commercially viable and have visibility toward high growth. The Corporation intends to create a diversified portfolio of investments consisting of equity and/or debt investments. The composition of the investment portfolio will depend, in part, on available capital and investment opportunities available to the Corporation and will vary over time depending on an array of factors, including the state of financial markets.

SPONSORSHIP OF TRANSACTION

PI Financial Corp. (the "Sponsor"), subject to completion of satisfactory due diligence, has agreed to act as sponsor in connection with the Transaction. An agreement to sponsor should not be construed as any assurance with respect to the merits of the Transaction or the likelihood of completion.

CONDITIONS PRECEDENT

Completion of the Transaction is subject to the following conditions:

  1. completion of due diligence by the Corporation relating to 3Gyros and Wellness Indicators;
  2. completion of definitive documents relating to the Transaction with each of the Target companies;
  3. completion of satisfactory due diligence by the Sponsor; and
  4. approval by the TSX-V.

TRADING HALT

In accordance with TSX-V policies, the Corporation's common shares are currently halted from trading and will remain so until such time as the TSX-V determines otherwise, which may not occur until the completion of the Transaction.

ABOUT THE TARGET COMPANIES

Wellness Indicators, Inc. is a privately-held company headquartered in Rochester Hills, Michigan. Wellness is a developer and manufacturer of urine tests designed to serve as a primary screening tool to assess the health status of individuals. The test results are intended to be used by insurers and employers to better manage their prevention and intervention programs, thereby minimizing risk and containing costs of healthcare and health insurance. To that end, the investment will enable Wellness Indicators to conduct planned field trials in July of 2011 with a large North American insurer. The test results can also be used to augment weight loss, fitness, athletic and military training regimens. Wellness holds an IP portfolio based on umbrella patents interlocked with technical patents on multiple components.

3Gyros is a privately-held company headquartered in Tecumseh, Ontario and is a maker of zero calorie, zero fat and gluten-free health conscious salad dressings and condiments, with distribution in Walmart, Sobeys and other notable food retailers across Canada. All of 3Gyros Shares are currently held by the Chief Executive Officer of 3Gyros, Thanos Zikantas.

ABOUT THE CORPORATION

The Corporation is a Capital Pool Company within the meaning of the policies of TSX-V. The Corporation commenced operations on December 8, 2010 when it completed its initial public offering of common shares but it presently has no assets other than cash. Since the date of listing of the Corporation's shares on the TSX-V, the Corporation has identified and evaluated numerous businesses and assets with a view to completing a "Qualifying Transaction" under the TSX-V policies.

This press release contains certain forward-looking statements about the Corporation's future plans and intentions. Wherever possible, words such as "may", "will", "should", "could", "expect", "plan", "intend", "anticipate", "believe", "estimate", "predict" or "potential" or the negative or other variations of these words, or similar words or phrases, have been used to identify these forward-looking statements. These statements reflect Management's current beliefs and are based on information currently available to management as at the date hereof. Forward-looking statements included or incorporated by reference in this press release include statements with respect to: (i) certain terms of the Wellness Investment and the 3Gyros Investment; (ii) the Corporation's proposed investment strategy; (iii) the closing of the Transaction; (iv) the length of the trading halt in the Common Shares; and (v) the Corporation's status post-closing of the Transaction.

Forward-looking statements involve significant risk, uncertainties and assumptions. Many factors could cause actual results, performance or achievements to differ materially from the results discussed or implied in the forward-looking statements, including, but not limited to, the Corporation's and the Sponsor's satisfactory due diligence investigations of the Target Companies and the ability of the Corporation to obtain the necessary regulatory approvals. These factors should be considered carefully and readers should not place undue reliance on the forward-looking statements. Although the forward-looking statements contained in this press release are based upon what management believes to be reasonable assumptions, the Corporation cannot assure readers that actual results will be consistent with these forward-looking statements. These forward-looking statements are made as of the date of this press release, and the Corporation assumes no obligation to update or revise them to reflect new events or circumstances, except as required by law.

Completion of the Transaction is subject to a number of conditions, including but not limited to, TSX-V acceptance. 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 TSX-V has in no way passed upon the merits of the proposed Transaction and has neither approved nor disapproved the contents of this press release. Neither TSX-V nor its Regulation Services Provider (as that term is defined in the policies of the TSX-V) accepts responsibility for the adequacy or accuracy of this release.

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