THIS PRESS RELEASE IS NOT FOR DISTRIBUTION IN THE UNITED STATES OR TO U.S. NEWS AGENCIES
VANCOUVER, BC / ACCESSWIRE / May 11, 2021 / Karsten Energy Corp. ("Karsten" or the "Company") is pleased to announced today that it has entered into a cooperation and investment agreement (the "Investment Agreement"), with Final Bell Holdings, LLC ("Final Bell") which provides for:
- an investment by Karsten in Final Bell in the form of a secured convertible note of Final Bell (the "Final Bell Note");
- the parties to mutually cooperate to jointly develop and expand their cannabis business;
- the parties to work to negotiate a definitive business combination either by merger, arrangement, purchase of securities or otherwise (the "Business Combination"); and
- a license agreement (the "License Agreement"), whereby Final Bell granted the Company a 10-year license to produce and distribute cannabis products for certain leading cannabis brands in Canada.
In connection with its investment in the Final Bell Note, the Company completed a private offering and issuance of subordinated unsecured convertible notes (the "Karsten Convertible Notes").
The Investment Agreement
Pursuant to the Investment Agreement, the parties will cooperate in good faith to advance and further each other's cannabis business in their respective geographical areas. Such cooperation will include sharing expertise, know-how, processes, contacts, market data, executives, employees and other services as mutually agreed.
Further, the parties will, in good faith, review, consider and work towards a Business Combination between Karsten and Final Bell. The details of such business combination are still to be settled by the parties and there can be no assurance that the parties will reach a definitive agreement or that a Business Combination will be completed.
Additionally, Karsten has the right for 60 days to subscribe for additional Final Bell Notes in an amount of up to US$15.0 million (the "Further Subscription Right").
The Final Bell Note
Pursuant to the Investment Agreement, Karsten subscribed for and acquired a Final Bell Note in the principal amount of US$6.25 million. The Final Bell Note matures in 2023 and bears interest at 6.125% per annum, with interest payable semi-annually and, at the option of Final Bell, in additional Final Bell Notes. Final Bell used the proceeds of the issuance of the Final Bell Note to expand its existing operations and pursue strategic growth opportunities.
Amounts payable under the Final Bell Note are secured by a general charge over all of the assets of Final Bell. Such note also provides Karsten with a right of first refusal to provide any and all additional capital that Final Bell may require during its term.
The Final Bell Note is convertible into shares of Final Bell at a price equal to a 20% discount to the offering price if Final Bell conducts a financing that is greater than US$50.0 million.
The License Agreement
Pursuant to the License Agreement, Final Bell granted a 10-year license to the Company to produce a cannabis products for leading cannabis brands in Canada. The license provides that Karsten will pay to Final Bell a 2% gross royalty on sales payable annually in arrears.
About Final Bell
Final Bell is a privately held California domestic limited liability company, which provides end-to-end services, products and expertise to third party cannabis brands, covering device and packaging design and new product development to finished good packing and sale to distributors. Final Bell is a leading global player in cannabis hardware and packaging with strategic plant-touching manufacturing assets in California and Canada.
Final Bell provides end-to-end services, products and expertise to third party cannabis brands, covering everything from device and packaging design and new product development to finished good packing and sale to distributors.
Final Bell has brand partner relationships and is the designer, hardware and packaging supplier and/or manufacturing partner for many of the leading brands in North America, including Kiva, Heavy Hitters, Kolab, Pacific Stone, Ace Valley, Dosist and Select.
In the 12 months ended March 31, 2021, Final Bell had pro forma total revenues in excess of US$50 million.
Through its subsidiary 14th Round, Final Bell provides bespoke cannabis hardware and packaging with owned manufacturing, providing top cannabis brands with innovative designs and technologies. The California and Canada licensed manufacturing facilities formulate and co-pack products and, in the case of the Canadian facility, provides oil-extraction and device-filling services.
Karsten Convertible Notes
In connection with the foregoing transactions, Karsten has completed an initial issuance of approximately $9.2 million of Karsten Convertible Notes primarily to invest in and acquire the Final Bell Note.
The Karsten Convertible Notes were issued pursuant to the terms of a trust indenture with an institutional trustee (the "Indenture") and will mature on January 31, 2024 (the "Maturity Date").
The Karsten Convertible Notes bear interest at 4% per annum from the date of issue and will be payable semi-annually in either cash or common shares of Karsten, at the discretion of the Company. The principal amount of the Karsten Convertible Notes is convertible, at the option of the holder, into Karsten shares at any time prior to 4:00 p.m. (Vancouver time) on the Maturity Date, at a conversion price of $1.65 per Karsten share (the "Conversion Price"), being a conversion rate of approximately 606 Karsten shares per $1,000 principal amount of Karsten Convertible Notes so converted, subject to customary adjustments pursuant to the terms of the Indenture.
In the event that the Company completes the Business Combination and issues shares to raise new equity capital of an aggregate value of $15 million or more (a "QCT"), the Karsten Convertible Notes will mandatorily and automatically convert into Karsten shares, provided that: (i) if the issue price per Karsten share (the "Issue Price") for the QCT is $2.00 or more, the Karsten Convertible Notes shall be converted into Karsten shares at the Conversion Price; or (b) if the Issue Price for the QCT is between $0.80 and $2.00 per Karsten share, the Karsten Convertible Notes shall be converted into Karsten shares at the Issue Price minus 20%. If the Issue Price for the QCT is less than $0.80 per Karsten share, the Karsten Convertible Notes shall not be automatically converted.
The Karsten Convertible Notes are redeemable at par at the option of the Company on thirty days prior written notice after March 15, 2023. The Karsten Convertible Notes are subordinated to the senior indebtedness of the Company but rank pari passu with other issues of Karsten Convertible Notes and, subject to statutory preferred exceptions, with all other present and future unsecured indebtedness of the Company.
In connection with the Further Subscription Right, Karsten intends to effect a further private offering of Karsten Notes in an amount of up to $10.8 million to increase its investment in Final Bell and for general working capital of which it has already received additional subscriptions for approximately $6.4 million.
All Karsten Convertible Notes are subject to statutory hold periods expiring four months and one day from the date of issuance, pursuant to applicable Canadian securities laws.
About Karsten Energy Corp.
The Company's shares were voluntarily delisted from the NEX Board of the TSX-V on April 30, 2021. Prior to entering into the Investment Agreement, the Company was inactive and seeking to acquire or otherwise transact with a new business or company.
This press release does not constitute an offer to sell or a solicitation of an offer to buy nor shall there be any sale of any of the securities in any jurisdiction in which such offer, solicitation or sale would be unlawful, including any of the securities in the United States of America. The securities have not been and will not be registered under the U.S. Securities Act or any state securities laws and may not be offered or sold within the United States or to, or for account or benefit of, U.S. Persons (as defined in Regulation S under the U.S. Securities Act) unless registered under the U.S. Securities Act and applicable state securities laws, or an exemption from such registration requirements is available.
Investors are cautioned that, except as disclosed in any disclosure document, including a filing statement or management information circular, to be prepared in connection with the proposed transactions, any information released or received with respect to the transactions may not be accurate or complete and should not be relied upon. Trading in the securities of the Company should be considered highly speculative.
For further information please contact:
Kay Jessel
Chief Executive Officer
604.365.6099
karstenenergycorp@gmail.com
All information contained in this press release with respect to the Company and Final Bell was supplied by the parties, respectively, for inclusion herein, and the Company and its directors and officers have relied on Final Bell for any information concerning such party.
Forward-Looking Information
This press release contains certain "forward-looking information" within the meaning of applicable securities law. Forward looking information is frequently characterized by words such as "plan", "expect", "project", "intend", "believe", "anticipate", "estimate", "may", "will", "would", "potential", "proposed" and other similar words, or statements that certain events or conditions "may" or "will" occur and in this press release include statements respecting the transactions provided for in the Investment Agreement, the proposed additional financing by Karsten, the future plans and objectives of the Company and Final Bell and the parties' ability to negotiate and execute definitive agreements respecting such transactions and/or satisfy closing conditions and receive necessary approvals. These statements are only predictions and should not be read as guarantees of future performance or results. Forward-looking information is based on the opinions, estimates and reasonable assumptions of management at the date the information is provided, and is subject to a variety of risks and uncertainties and other factors that could cause actual events or results to differ materially from those projected in the forward-looking information. There can be no assurance that the transactions contemplated in the Investment Agreement or any additional financing will occur or that, if the any do occur, they will be completed on the terms described above. The Company undertakes no obligation to update forward-looking information if circumstances or management's estimates, opinions or assumptions should change, unless required by law. The reader is cautioned not to place undue reliance on forward-looking information.
SOURCE: Karsten Energy Corp.
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