Xylitol Canada Inc.
TSX VENTURE : XYL

Xylitol Canada Inc.

July 29, 2016 18:51 ET

Xylitol Canada Inc. Issues $423,000 Secured Convertible Debentures to Fountain Asset Corp. and Other Subscribers and Material Insider Participation

TORONTO, ONTARIO--(Marketwired - July 29, 2016) - Xylitol Canada Inc. (TSX VENTURE:XYL) ("Xylitol") is pleased to announce the completion of a secured convertible debenture financing (the "Secured Financing") in the principal amount of $423,000 to certain insiders of Xylitol (the "Subscribers"). Fountain Asset Corp. ("Fountain") and Roger Daher, a director of Xylitol, are each participating in the Secured Financing at $175,000 and $150,000, respectively, as repayment of their short-term loans to Xylitol of July 18, 2016 (the "Loans"). The subscriptions of Fountain and Mr. Daher will cancel the Loans in their entirety. Other Subscribers for the Secured Financing are Dundee Corporation, participating indirectly through an affiliated entity ("Dundee"), for $88,000 and Muneeb Yusuf, director of Xylitol, for $10,000. The net proceeds of the Financing shall be used as working capital for Xylitol to increase their product sales within the North American natural foods market.

The Financing included the issuance of debentures (the "Debentures") maturing four years from the effective closing date of July 29, 2016, and bearing interest at a rate equal to the greater of (a) an annual interest rate of 15% payable per annum (b) a pro rata royalty equal to 3% of net sales per annum, subject to an annualized combined effective interest of a maximum of 24%. The Debentures are convertible into common shares of Xylitol at a price per share equal to the lesser of (i) $0.10, and (ii) if converted within 12 months from the date issuance of the Debentures, the price set by Xylitol, on a per share basis, of an offering of equity securities on or after the date the Debentures are issued. Xylitol may redeem the Debentures at any time by repaying the principal amount of the Debenture then outstanding plus all accrued but unpaid interest thereon. The Financing also included the issuance of 4,230,000 common share purchase warrants (the "Warrants"), each such Warrant being exercisable for one common share of Xylitol for a period of 2 years and an exercise price of $0.08 per share. All Debentures and Warrants will be subject to a four month hold period from the date of issuance.

In addition to closing the Secured Financing, Xylitol is also pleased to announce amendments to the terms of the secured convertible debenture financing in the principal amount of $960,000 which occurred on April 16, 2016 (the "April Secured Financing"). The debentures issued pursuant to the April Secured Financing (the "April Debentures") have been amended to mirror the interest and conversion terms of the Debentures described above.

As noted above, Fountain purchased a $175,000 secured Debenture and has been issued 1,750,000 Warrants pursuant to the Secured Financing (the "Fountain Participation"). Following the Fountain Participation, Fountain has acquired convertible securities exercisable for 3,500,000 common shares, bringing Fountain's percentage shareholdings of Xylitol, on conversion of all convertible securities held by Fountain, to approximately 18%. The Fountain Participation was completed for investment purposes, and Fountain has a long-term view of their investment in Xylitol and may acquire additional securities either on the open market or through private acquisitions or sell the securities they hold either on the open market or through private dispositions in the future depending on market conditions, reformulation of plans and/or other relevant factors.

Dundee purchased an $88,000 secured Debenture and been issued 880,000 Warrants pursuant to the Secured Financing (the "Dundee Participation"). Immediately prior to closing of the Secured Financing Dundee held 25,651,901 common shares of Xylitol, being approximately 27% of Xylitol's issued and outstanding common shares on a non-diluted basis. Following the Dundee Participation, Dundee has acquired convertible securities exercisable for an additional 1,760,000 common shares, bringing Dundee's percentage shareholdings of Xylitol, on conversion of all convertible securities held by Dundee, to approximately 32%. The Dundee Participation was completed for investment purposes, and Dundee has a long-term view of their investment in Xylitol and may acquire additional securities either on the open market or through private acquisitions or sell the securities they hold either on the open market or through private dispositions in the future depending on market conditions, reformulation of plans and/or other relevant factors.

This press release is issued in accordance with National Instrument 62-103 - The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, which also requires a report to be filed with regulatory authorities in each of the jurisdictions in which Xylitol is a reporting issuer containing information with respect to the foregoing matters (the "Early Warning Report"). A copy of each of the aforementioned Early Warning Reports will appear with Xylitol's documents on the System for Electronic Document Analysis and Retrieval and may also be obtained by contacting Xylitol at the number noted below.

The Subscribers may be considered "related parties" of Xylitol. The participation in the Secured Financing by such "related parties" constitutes a "related party transaction" as defined under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). The issuance however is exempt from the formal valuation and the minority shareholder approval requirements of MI 61-101, as neither the fair market value of securities being issued to the related parties nor the consideration being paid by related parties will exceed 25% of Xylitol's market capitalization.

About Xylitol Canada Inc.

Xylitol Canada operates two business units that address the growing xylose and xylitol markets. Xylitol Canada's consumer packaged goods division is based in Denver, Colorado, and has grown from under $500,000 in revenue in 2010, to over $8,600,000 in 2014. Xylitol Canada operates a 50,000 square foot xylitol facility where it produces and packages a full catalog of natural sugar free products, most notably its natural sugar alternatives. Through this Denver based facility, the Company services major retail customers such as Loblaws, Whole Foods, Costco, Sprouts, and many others.

Xylitol Canada markets xylitol and xylitol based-products and is focused on becoming a major low-cost manufacturer of xylitol and related products, serving the global market from operations in North America. Xylitol Canada's business strategy is to leverage novel proprietary technology and processes to become North America's premier manufacturer of low cost, high quality xylitol from readily available environmentally-sustainable biomass. Xylitol is a natural sweetener which is marketed globally including Canada and the United States and is accepted by the American Food and Drug Administration, the World Health Organization and the American Dental Association. Xylitol contains 75% less carbohydrates and 40% less calories than sugar, has a myriad of oral health benefits including the prevention of tooth decay and is safe for diabetics. To date, wider spread use of xylitol has been limited by the lack of a reliable, low cost, high quality supplier.

Neither TSX Venture Exchange Inc. 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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