Exceptional Technologies Fund 5 (VCC) Inc.
TSX VENTURE : XF

June 20, 2005 13:48 ET

ExFund 5 to Restructure and Carry Out Acquisition of Paradigm Environmental Technologies Inc.

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - June 20, 2005) - Exceptional Technologies Fund 5 (VCC) Inc. ("ExFund 5" or the "Company") (TSX VENTURE:XF) is pleased to announce that it intends to restructure and has entered into an Acquisition Agreement with Paradigm Environmental Technologies Inc. ("Paradigm") whereby ExFund 5 has agreed to carry out its restructuring and to acquire all of the issued shares of Paradigm in exchange for shares of ExFund 5. The restructuring of ExFund 5 and the acquisition of Paradigm, which are intended to complete concurrently, are subject to all necessary shareholder and regulatory approvals and satisfaction of other conditions precedent, as described below.

The restructuring of ExFund 5 (the "Restructuring"), as more particularly outlined below, will involve the distribution of certain assets of ExFund 5 to its shareholders, the sale of certain assets of ExFund 5 in exchange for securities that will be distributed to the shareholders of ExFund 5, and the decertification of ExFund 5 as a venture capital corporation under the Small Business Venture Capital Act (British Columbia) ("SBVCA").

Paradigm is an environmental technology company based in Vancouver, British Columbia that has developed a patented technology called MicroSludge™ for wastewater treatment plants that significantly enhances the anaerobic digestion process, thereby reducing operating costs and increasing plant capacity. Current shareholders of ExFund 5 will hold a maximum of 3.7% of the issued shares of the issuer resulting from the completion of the Acquisition, as explained below in the description of the terms of the Acquisition.

"The Restructuring is intended to provide shareholders of ExFund 5 with the accelerated liquidation of current portfolio assets that they have been seeking and, in particular, realizable values which we expect to be in excess of the recent market price of ExFund 5 shares. The proposed acquisition of Paradigm will also provide an opportunity for additional upside potential as Paradigm completes its going public process through ExFund 5," said Harry Jaako, President of ExFund 5. "Paradigm is well positioned with its patented technology in major world markets, support from a multi-national strategic partner and financing in place to continue customer trials of its product."

Overview of Restructuring

The Restructuring, which is subject to receipt of all regulatory and shareholder approval and other conditions precedent, will involve the following:

1. The assets of ExFund 5 that are no longer restricted by the SBVCA, primarily the shares of TIR Systems Ltd., will be distributed to the shareholders of ExFund 5 on a pro-rata basis, except those shares which will be sold to fund the Restructuring costs.

2. The SBVCA-restricted and/or illiquid shares of Idelix Software Inc., Tantalus Systems Corp. and Vigil Health Solutions Inc. held by ExFund 5 will be sold to British Columbia Discovery Fund (VCC) Inc. ("BCDF") in consideration of the issuance of Class B shares of BCDF, which in turn will be distributed pro-rata to ExFund 5 shareholders. The Class B shares of BCDF will have the same rights and restrictions attaching to the common shares (to be designated Class A shares) of BCDF, including redemption rights after five years from date of issuance, except that no investment tax credits will be issued in respect of the Class B shares. BCDF is a venture capital corporation that offers its shares by prospectus on a continuous basis and has raised over $27.0 million to date. BCDF is managed by ExFund 5's manager, a subsidiary of Discovery Capital Corporation.

3. The management agreement between ExFund 5 and Discovery Capital Corporation will be terminated, with no termination fee payable to Discovery Capital.

4. ExFund 5's obligations and tax liabilities under the SBVCA through July 2008 will be transferred to BCDF and ExFund 5 will decertify as a venture capital corporation.

On completion of the Restructuring, ExFund 5 will acquire all of the issued shares of Paradigm (by way of a plan of arrangement, amalgamation or share purchase) in consideration of the issuance of common shares of ExFund 5 (the "Acquisition"). ExFund 5 will remain an investment issuer until the completion of the Restructuring. The Acquisition in conjunction with the completion of the Restructuring would constitute a "reverse takeover" of ExFund 5 by Paradigm under the policies of the Exchange, with the shares of ExFund 5 (the "Resulting Issuer") continuing to be listed for trading on the TSX Venture Exchange (the "Exchange") following completion of the Acquisition.

The following table illustrates the value of the components of the proposed Restructuring and Acquisition to the shareholders of Ex Fund 5, based on the 5,949,011 shares of ExFund 5 currently issued and outstanding, and the other assumptions noted under the table. This information is provided for illustration purposes only. There is no assurance that these values will be realized as indicated in the table, or at all, as the Restructuring and Acquisition are subject to the conditions precedent and terms outlined below under "Terms of the Paradigm Acquisition" which must be satisfied in order for the Restructuring to complete. In addition, as the Acquisition and Restructuring may occur at a considerably later date, the values to be realized may, and likely will, change considerably from those indicated below.



---------------------------------------------------------------
ExFund 5 Restructuring component Range of value
(per ExFund 5 share)
---------------------------------------------------------------
Distribution of shares of TIR Systems $0.27 to $1.28 (1)
---------------------------------------------------------------
Sale of illiquid portfolio shares to BCDF $0.23 to $0.44 (2)
---------------------------------------------------------------
Residual value (3) $0.084
---------------------------------------------------------------
Total $0.584 to $1.804
---------------------------------------------------------------

Notes:
(1) Based on the 52 week high and low trading prices for the shares
of TIR Systems, being $6.42 and $1.51.
(2) Includes the current estimated fair values of the shares of
Idelix Software, Tantalus Systems, and Vigil Health Solutions.
The shares of Vigil Health Solutions have been valued based on
their 52 week high and low trading prices, being $0.41 and $0.06.
Class B shares of BCDF issued in exchange for these assets will
have redemption rights after five years from date of issuance
based on the net asset value per share of BCDF.
(3) Based on an assigned value of $500,000 to ExFund 5 for purposes
of the Acquisition, as discussed below, whereby up to $250,000 of
eligible costs incurred to complete the Acquisition are to be
funded by ExFund 5 through sales of its liquid assets.


Overview of Paradigm

Paradigm is a private company incorporated in British Columbia on August 11, 1999 with its head office at 200 - 1600 West 6th Avenue, Vancouver, British Columbia, V6J 1R3.

Paradigm is at the pre-commercialization stage, concentrating its efforts on the placement of commercial MicroSludge units with initial reference customers serving large urban areas. MicroSludge is affordable and modular, and can be easily deployed at existing or new wastewater treatment plant facilities. With the addition of MicroSludge, the volume of residual biosolids that must be disposed of by a wastewater treatment plant can typically be reduced by 60% or more. MicroSludge enables anaerobic digesters to generate substantially increased volumes of methane, which can be readily converted to electricity and heat, giving wastewater treatment plants the ability to be energy self-sufficient.

Development of Business

Paradigm has carried out a $5 million, five-year research and development program that has shown MicroSludge to be effective at destroying waste activated sludge. With technical and financial support from Canada's National Research Council, a pilot plant was operated at Greater Vancouver Regional District's Lulu Island wastewater treatment plant from January 2001 to March 2003. A commercial scale MicroSludge prototype plant at the Chilliwack wastewater treatment plant, near Vancouver, was tested from February to October 2004. Performance data from this MicroSludge plant have been validated by internationally recognized experts from CH2M HILL, a leading provider of wastewater treatment engineering services in North America.

With the completion of the commercial scale MicroSludge testing and demonstration program at Chilliwack, a number of leading wastewater treatment plants have expressed interest in installing a MicroSludge unit at their facilities for evaluation. The first such MicroSludge unit will be installed in July 2005 at North America's third largest wastewater treatment plant, the Joint Water Pollution Control Plant in Los Angeles County, California.

On June 1, 2005, Paradigm completed a $3.95 million financing arrangement whereby it received cash of $2 million on closing to continue its pre-commercialization developmental activities. BCDF invested $1.5 million and APV North America, Inc. ("APV"), a subsidiary of UK-based Invensys plc, agreed to invest $2.2 million by way of cash and the delivery of certain key components of the MicroSludge system, as well as related parts, to be ordered by Paradigm. An additional $660,000 has been subscribed for under this round of financing by other Paradigm shareholders, bringing the total financing to more than $4.5 million. After all shares are issued pursuant to this round of financing, Paradigm will have raised over $8.8 million in equity capital, and may raise additional equity capital prior to or coincident with the closing of the Acquisition.

Market Opportunity

Municipal wastewater treatment plants create huge volumes of residual biosolids. In North America, every million people served by a wastewater treatment plant typically generate approximately 100,000 tonnes of residual biosolids annually as a by-product of secondary treatment. This results in large costs for their management and disposal.

The various options for disposal include agricultural land application, land fill and incineration. The costs of these options are expected to rise with increased transportation distances in response to odour complaints, general unease regarding air borne emissions from incineration and tightening restrictions on landfills.

Paradigm's targeted key markets are the United States, Canada and Western Europe. The market potential for MicroSludge for wastewater treatment plants in these markets alone exceeds US$3 billion. Markets elsewhere in the world also offer considerable potential, particularly those with large populations such as Japan, Mexico, China, India and Brazil.

Paradigm expects to apply MicroSludge technology in other market applications that are potentially much larger, including the processing of animal, agricultural and industrial waste.

Major shareholders

Except as disclosed below, to the knowledge of the directors and executive officers of Paradigm, no person beneficially owns, directly or indirectly, or controls or directs securities carrying 10% or more of the voting rights attached to the voting shares of Paradigm:



-------------------------------------------------------------
Name No. of voting shares Approximate percentage of
owned or controlled outstanding
(Note 1) voting shares (Note 1)
-------------------------------------------------------------
APV 681,115 18%
-------------------------------------------------------------
BCDF 464,396 12%
-------------------------------------------------------------
Erik A.
Rehtlane 418,084 11%
-------------------------------------------------------------

Note 1: Calculated on the basis that APV delivers an additional
$250,000 of cash and $1,700,000 of components and related parts
to complete its obligation to purchase shares of Paradigm having
a value of $2,200,000.


Based on the current undiluted share capitalization of ExFund 5 and Paradigm and not taking into account any additional equity capital raised to fund the business of Paradigm prior to or concurrent with the closing of the Acquisition, these shareholders would also hold 10% or more of the common shares of the Resulting Issuer upon the completion of the Acquisition.

Terms of the Paradigm Acquisition

Overview

The Agreement provides that ExFund 5 will carry out the Restructuring and acquire all of the issued shares of Paradigm in exchange for the issuance of common shares of ExFund 5 to the shareholders of Paradigm. The legal process for the share exchange has not yet been finalized.

The respective values assigned to ExFund 5 and Paradigm under the Agreement, whereby ExFund 5 is assigned a value of $500,000, will result in the current shareholders of ExFund 5 holding up to 3.7% of the issued shares of the Resulting Issuer on completion of the Acquisition. The final percentage owned by the current shareholders of ExFund 5 will depend on how much additional equity capital is raised by Paradigm prior to the closing of the Acquisition and/or by ExFund 5 concurrently with the closing of the Acquisition.

ExFund 5 has undertaken to have a meeting of its shareholders with a view to approving the Restructuring and the Acquisition by October 31, 2005 or such later date as the parties may agree upon and Paradigm has undertaken to have a meeting of its shareholders to approve the Acquisition within 90 days of approval by the shareholders of ExFund 5.

The Acquisition is intended to be completed by June 30, 2006 at the latest.

Conditions precedent

The parties' obligations to complete the Acquisition are subject to satisfaction of usual conditions precedent, including:

(a) ExFund 5 having completed the Restructuring;

(b) all necessary approvals of the Exchange and all other regulatory authorities and third parties to the Acquisition shall have been obtained;

(c) the Resulting Issuer being qualified as a Tier 1 issuer in accordance with the requirements of the Exchange;

(d) all necessary approvals of the respective directors and shareholders of ExFund 5 and Paradigm shall have been obtained;

(e) no adverse material change shall have occurred in the business, affairs, financial condition or operations of ExFund 5 or Paradigm prior to completion of the Acquisition; and

(f) ExFund 5 and Paradigm shall be satisfied with the results of their respective due diligence reviews in connection with the Acquisition.

Change of name

ExFund 5 intends to change its name to "Paradigm Environmental Technologies Ltd." or a similar name effective upon the closing of the Acquisition.

Additional terms

ExFund 5 has agreed to fund up to $250,000 of the eligible Acquisition costs and, if the Acquisition should fail to complete as a result of a failure or breach on the part of Paradigm, all eligible Acquisition costs would be to the account of Paradigm.

In addition, the parties have agreed that ExFund 5 will assist Paradigm to complete a financing concurrently with the closing of the Acquisition.

The parties also intend to complete a consolidation of the common shares of the Resulting Issuer concurrently with the closing of the Acquisition such that the value of a common share of the Resulting Issuer is equal to the value of a common share of Paradigm immediately prior to the closing.

Directors and Officers of the Resulting Issuer

On closing of the Acquisition, the directors and senior officers of ExFund 5 are anticipated to be as follows:

- Dennis Morin, President, Chief Executive Officer and Director

- Don Calder, Non-Executive Chairman

- Harry Jaako, Director (nominee of BCDF)

- Haluk Durudogan, Director (nominee of APV)

- Len Williams, Director

- Jim Fletcher, Director

- Gordon Skene, Executive Vice President and Chief Financial Officer

- Robert Stephenson, Chief Technical Officer

Disclosure of interests

Discovery Capital Corporation currently owns approximately 15% of the issued and outstanding shares of ExFund 5 and its subsidiary is the manager of ExFund 5.

Harry Jaako and John McEwen, directors and officers of ExFund 5, are also directors and officers of Discovery Capital and each of them holds, directly or indirectly, or has control or direction over, approximately 14% of the issued and outstanding shares of Discovery Capital.

Jim Fletcher, a director of ExFund 5, is also a director of Discovery Capital and holds approximately 1% of its issued and outstanding shares. Mr. Fletcher also holds less than 1% of the currently issued and outstanding shares of Paradigm.

Discovery Capital's subsidiary is also the manager of BCDF, which is a principal shareholder of Paradigm. Harry Jaako and John McEwen are directors and officers of BCDF. Discovery Capital, Harry Jaako and John McEwen each own less than 1% of the issued and outstanding shares of BCDF.

Sponsorship

The Acquisition in conjunction with the completion of the Restructuring would be considered to result in a "reverse takeover" under the policies of the Exchange and, accordingly, ExFund 5 would require a sponsor under the policies of the Exchange to carry out the Acquisition, unless ExFund 5 qualifies for an exemption or is granted a waiver from this requirement.

General

Completion of the Acquisition is subject to a number of conditions, including but not limited to, Exchange acceptance and a majority of the minority shareholders approval. 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 a management information circular to be prepared in connection with this 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 ExFund 5 should be considered highly speculative.

The information in this press release concerning Paradigm has been provided by management of Paradigm.

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved or disapproved the contents of this news release.

For more information, about ExFund 5 or Discovery Capital, please visit www.discoverycapital.com.

Harry Jaako, Director

John McEwen, Director

This news release may include statements about expected future events and/or financial results that are forward-looking in nature and subject to risks and uncertainties. The Company cautions that actual performance will be affected by a number of factors, many of which are beyond its control. Future events and results may vary substantially from what the Company currently foresees.


The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of the content of this news release.

Contact Information

  • Exceptional Technologies Fund 5 (VCC) Inc.
    Harry Jaako
    Co-CEO of Discovery Capital Corporation
    (604) 683-3000 ext. 105
    or
    Exceptional Technologies Fund 5 (VCC) Inc.
    John McEwen
    Co-CEO of Discovery Capital Corporation
    (604) 683-3000 ext. 106
    or
    Exceptional Technologies Fund 5 (VCC) Inc.
    Charles Cook
    CFO of Discovery Capital Corporation
    (604) 683-3000 ext. 102
    (604) 662-3457 (FAX)
    info@discoverycapital.com
    www.discoverycapital.com