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Liberty Defense Enters into Letter of Intent with Drawdown Detection for a Proposed Merger Transaction

NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES NOR FOR DISSEMINATION IN THE UNITED STATES.

Vancouver, BC and Atlanta, GA – January 28, 2020 – Liberty Defense Holdings Ltd. (“Liberty” or the “Company”) (TSXV: SCAN; FRANKFURT: LD2; OTCQB:LDDFF), a leading concealed weapons detection company, announces that it has entered into a letter of intent (the “LOI”) effective January 27, 2020, with DrawDown Detection Inc. (“DrawDown”), an arm’s length privately-held corporation, to acquire a 100% interest in DrawDown via a business combination transaction that would constitute a reverse take-over of Liberty under TSX Venture Exchange (“TSXV”) policies (the “Transaction”). The final structure of the Transaction will be determined by DrawDown and Liberty to accommodate tax considerations, accounting treatment, and applicable legal and regulatory requirements. Upon completion of the Transaction, it is expected that the common shares of the resulting entity (the “Resulting Issuer”) will resume trading on the TSXV. DrawDown is not a Non-Arm’s Length Party (as such term is defined in the policies of TSXV) to Liberty.

The closing of the Transaction is subject to Liberty and DrawDown negotiating and executing definitive documentation, the satisfactory completion of due diligence by the parties, the completion of the Consolidation (as defined herein), the completion of the Bridge Financing (as defined herein), TSXV approval and the receipt of all other necessary regulatory, shareholder and third-party consents and approvals. Laurentian Bank Securities Inc. is acting as exclusive financial advisor to Liberty.

Bill Frain, CEO and Director of DrawDown Detection states, “We are very excited to be adding the HEXWAVE product to our security portfolio. The engineering team at Liberty Defense has made great progress over the past 14 months since obtaining the exclusive license from MIT Lincoln Labs. Our strategy moving forward is to improve upon the developments already made and to aggressively pursue compatible technologies from national laboratories and universities.

Between our team of engineers and the expertise of our Chief Technology Officer, Michael Lanzaro, who was instrumental in developing ProVision for L3Harris Technologies, Inc. (NYSE:LHX) (“L3 SDS”) (which can be found in every major airport around the world), we plan to enhance the performance of this product to meet global market demands for frictionless weapon scanning / screening. A new management team will be put in place that has significant security industry relationships, capital market expertise and experience working with the development of security related technologies, specifically radio frequency imaging applications which encompass HEXWAVE. Our new team successfully developed and commercialized multiple products on a global basis to meet market demand while at L3 SDS. The goal for these combined entities is to have HEXWAVE in Beta testing in the first quarter 2021 with product sales commencing in H2 2021.”

Liberty Defense has already taken cost-cutting actions, but additional reductions will be necessary during the transition period to right size the business without materially impacting the engineering development schedule.

About DrawDown Detection Inc.

DrawDown Detection Inc. is a privately-held corporation incorporated on October 26, 2018 under the Business Corporations Act (British Columbia), and is a weapons detection technology company that commercializes intellectual property for use in the public safety market. The Company is in the development stage of a handheld device to detect smokeless gunpowder (the “Gunpowder Detection Sensor”). The Company’s business plan is to develop and sell its patented Gunpowder Detection Sensor to law enforcement agencies and critical infrastructure providers, including but not limited to schools, sporting venues, hotels, places of worship and private business markets globally. The Gunpowder Detection Sensor technology is being developed in the United States. DrawDown is widely held and does not have any controlling shareholders.

Chief Executive Officer of DrawDown, Bill Frain, has 25 years of management experience and was the former Senior Vice President for L-3 Security & Detection Systems (NYSE – LHX), the world’s leading supplier of security inspection systems. In this role Bill led global sales, business development and key account management. Prior to this, Bill was the CFO at Vivid Technologies before the acquisition by PerkinElmer which led to the eventual sale of the security and detection systems division to L-3 Technologies.

Chief Technology Officer of DrawDown, Michael Lanzaro, has more than 25 years of management experience in leading large high-tech organizations with product development, research and development, marketing, and profit and loss responsibilities. Mr. Lanzaro was Vice President, Engineering, for L3 SDS. As Vice President of Engineering, Mr. Lanzaro oversaw all the technology, research and development, and engineering development for the Security and Detection Systems business. One of the key product developments during Mr. Lanzaro’s tenure at L3 SDS, was the ProVision Millimeter Wave Body Scanner resulting in 100% market share for US airports in addition to global application.

Daryl Rebeck, a Director of DrawDown, has over 20 years of capital market experience in retail investment, corporate finance and public company management. Mr. Rebeck was a Vice President and Senior Investment Advisor with Canada’s largest independent investment bank, Canaccord Genuity, raising significant risk capital for growth companies. From there he has founded, funded and grown many rapid-growth public companies.

Director of DrawDown, Jay Adelaar, has over 10 years of capital market experience. Jay has been involved in many aspects of public markets and has been instrumental in taking companies from start-up through to eventual acquisition. Mr. Adelaar was a key member in the sale of a $200M transaction to an NYSE-listed company and has raised millions of dollars of capital for public companies.

Director of DrawDown, Howard Sidman, is the founder and President of DKL International Inc. Mr. Sidman, a 1973 graduate of the United States Naval Academy, has held a variety of senior posts in the United States Navy, culminating in senior executive positions from 1986 to 1995 in Departments of State and Defense during the Reagan, Bush and Clinton administrations.

DrawDown is authorized to issue an unlimited number of common shares (the “DrawDown Shares”). As of the date hereof, there are 41,666,670 DrawDown Shares outstanding. In addition, DrawDown has 3,000,000 stock options and 3,500,000 DrawDown Share purchase warrants outstanding.

About Liberty Defense Holdings Ltd.

Liberty provides security solutions for concealed weapon detection in high volume foot traffic areas and has secured an exclusive license from Massachusetts Institute of Technology (MIT), as well as a technology transfer agreement, for patents related to active 3D radar imaging technology that are packaged into the HEXWAVE product. The system is designed to provide discrete, modular and scalable protection to provide layered, stand-off detection capability. This is intended to provide a means to proactively counter evolving urban threats. The sensors with active 3D radar imaging and Artificial Intelligence (AI)-enhanced automatic detection are designed to detect metal and non-metal firearms, knives, explosives and other threats. Liberty is committed to protecting communities and preserving peace of mind through superior security detection solutions. Learn more: LibertyDefense.com

As of the date hereof, Liberty has 66,549,721 common shares (the “Liberty Shares”) issued and outstanding. Further, as of the date hereof, Liberty has 19,733,055 warrants (the “Liberty Warrants”) and 796,022 units (the “Liberty Units”) outstanding. Each Liberty Unit is exercisable into one Liberty Share and one Liberty Warrant.

Proposed Transaction and Trading Halt

The LOI includes a typical mutual non-solicitation and exclusivity provision. The LOI expires on the earlier of: (i) March 31, 2020; (ii) the date on which Liberty and DrawDown enter into a definitive agreement; or (iii) the date of agreed-upon termination of the LOI. Each party to the LOI is responsible for its costs and expenses incurred with respect to the Transaction.

The LOI further contemplates, among other things, the following in connection with the Transaction:

  • Liberty will consolidate (the “Consolidation”) the outstanding Liberty Shares, Liberty Warrants, Liberty Units and Liberty stock options on a 3.1:1 basis (the “Liberty Post-Consolidation Shares”);
  • Liberty Post-Consolidation Shares will be issued to the holders of DrawDown Shares (the “DrawDown Shareholders”) in exchange for all of the issued and outstanding DrawDown Shares held by such holders, on the basis of one (1) Liberty Post-Consolidation Share for each one (1) DrawDown Share, resulting in the DrawDown Shareholders owning approximately 70% of the Resulting Issuer at the completion of the Transaction on a non-diluted basis;
  • prior to the completion of the Transaction, DrawDown will complete a private placement financing of DrawDown Shares (the “Bridge Financing”);
  • concurrent with the completion of the Transaction, DrawDown will complete an additional financing of DrawDown Shares;
  • DrawDown will make a secured loan to Liberty in the aggregate amount of USD$2,000,000 (the “Loan”) to fund Liberty’s working capital requirements. The Loan will be made in advances as follows:
  • a first advance of USD$700,000 will occur as soon as practicable following the date hereof;
  • a second advance of USD$300,000 will occur on March 2, 2020; and
  • subsequent advances will occur on an as-needed and as-available basis in order to fund the working capital requirements of Liberty prior to the completion of the Transaction;
  • until the earlier of the termination of the LOI or the completion of the Transaction, certain of Liberty’s expenses must be approved by a designated appointee of DrawDown;</li
  • until the parties enter into a definitive agreement, there is a standard fiduciary out clause in favour of Liberty (the “Fiduciary Out”);
  • if Liberty terminates the LOI pursuant to the Fiduciary Out, Liberty will pay to DrawDown a termination fee of USD$1,500,000, and all amounts owed to DrawDown by Liberty pursuant to the Loan will immediately become due and payable;
  • the restructuring of the board of directors of the Resulting Issuer to consist of up to six directors, with DrawDown selecting at least four directors; and
  • the senior management team of the Resulting Issuer will consist of those officers appointed by the new board of directors of the Resulting Issuer.

Liberty and DrawDown will provide further details in respect of the Transaction, including a summary of final agreed-upon material terms and conditions, once a definitive agreement has been fully negotiated and entered into by the parties.

Trading in the Liberty Shares has been halted pursuant to the policies of the TSXV, and Liberty expects that trading will remain halted pending the earlier of the completion of the Transaction and termination of the LOI.

Full details about the Transaction and the Resulting Issuer, including financial information and information of the proposed board and management, will be provided in a further comprehensive press release if and when the parties enter into a definitive agreement in respect of the Transaction, which is presently targeted to occur on or before March 31, 2020.

Completion of the Transaction is subject to a number of conditions, including but not limited to, TSXV acceptance and if applicable, disinterested shareholder approval. Where applicable, the Transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the definitive documentation will be successfully negotiated and signed or 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 securities of Liberty should be considered highly speculative.

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

On Behalf of Liberty Defense

Bill Riker
CEO & Director
Telephone: 604-336-9820

More About DrawDown Detection Inc.

For further information on DrawDown, please contact:

DrawDown Investor Relations:

Email: info@drawdowndetection.com
or visit www.drawdowndetection.com

More About Liberty Defense Holdings Ltd.

For further information on Liberty, please contact:

Liberty Investor Relations:

Telephone: 604-336-9820 x1
Email: info@libertydefense.com

Cautionary Notes

More details about the Transaction and the Resulting Issuer will be provided in a detailed press release if and when the parties enter into a definitive agreement in respect of the Transaction, which is presently targeted to occur on or before March 31, 2020.

Investors are cautioned that, except as disclosed in any management information circular or filing statement to be prepared in connection with the Transaction, any information released or received with respect to the LOI or the Transaction may not be accurate or complete and should not be relied upon. Any and all information detailed within this press release regarding the Transaction, DrawDown, or Liberty may not be complete and should not be relied upon.

All information contained in this press release with respect to DrawDown, its business and operations was supplied by DrawDown for inclusion herein. Liberty has not conducted due diligence on the information provided and does not assume any responsibility for the accuracy or completeness of such information.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) has in any way passed on the merits of the Transaction, and neither has in any way approved or disapproved of the contents of this press release.

Forward-Looking Information Disclaimer

This press release contains certain forward-looking information and statements that reflect the current view and/or expectations of management of each of the parties to the Transaction based on information currently available to the parties with respect to performance, business and future events, including, but not limited to, express or implied statements and assumptions regarding the parties’ mutual intention to negotiate a definitive agreement or complete the Transaction and regarding the terms and conditions relating thereto. The use of any of the words “may”, “could”, “would”, “might”, “intend”, “plan”, “expect”, “believe”, “contemplate”, “anticipate”, “will”, “projected”, “estimated” and similar expressions and statements relating to matters that are not historical facts are intended to identify forward-looking information and statements and are based on the then-current expectations, beliefs, assumptions, estimates and forecasts about the business and the industry and markets in which each party operates, and as to the outcome and timing of any such future events. Forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors which are difficult to predict, such that actual future results and outcomes may differ materially therefrom. In particular, there is no guarantee that the parties will successfully negotiate and enter into a definitive agreement on mutually acceptable terms or complete the Transaction in the manner contemplated herein, if at all, or that the due diligence of either party will be satisfactory, or that the availability of financing to either party will be sufficient to achieve their respective business objectives, or that the parties will obtain any required board, shareholder, third-party and/or regulatory or other governmental approvals, if any. Accordingly, the reader should not place undue reliance on forward-looking statements and information in this press release, which are qualified in their entirety by this cautionary statement. Liberty disclaims any intention or obligation to update or revise any forward-looking information or statements herein, whether as a result of new information, future events or otherwise, other than as required by applicable securities laws.

This press release does not constitute an offer to sell or a solicitation of an offer to buy any securities in the United States. The securities described herein have not been and will not be registered under the United States Securities Act of 1933, as amended (the “U.S. Securities Act”) or any state securities laws, and may not be offered or sold within the United States or to U.S. Persons unless registered under the U.S. Securities Act and applicable state securities laws or an exemption from such registration is available. This press release is not for distribution to U.S. newswire services nor for dissemination in the United States. Any failure to comply with this restriction may constitute a violation of U.S. securities laws.

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