Liberty Provides Update on Merger with DrawDown and Announces Lifting of Trading Halt
Vancouver, BC and Atlanta, GA – Liberty Defense Holdings Ltd. (“Liberty” or the “Company”) (TSXV: SCAN, FRANKFURT: LD2, OTCQB: LDDFF), a leading concealed weapons detection company, wishes to provide an update on its proposed reverse-takeover by DrawDown Detection Inc. (“DrawDown”) previously announced on January 28, 2020 and announce that Liberty’s common shares will resume trading on the TSX Venture Exchange (the “Exchange”) on June 24, 2020.
On April 2, 2020 the Company entered into a binding amalgamation agreement with DrawDown, pursuant to which the Company will acquire all of the issued and outstanding securities of DrawDown (the “Transaction”), on terms more particularly described in the Company’s press release dated April 7, 2020, and as updated below. Pursuant to the policies of the Exchange, Liberty’s common shares were halted from trading on January 16, 2020, prior to the parties’ announcement of the Transaction. Liberty’s common shares will resume trading on the Exchange on June 24, 2020 in order to establish the terms of the Concurrent Financing (defined below).
Upon completion, the Transaction will constitute an arm’s length reverse takeover of the Company by DrawDown in accordance with Policy 5.2 of the Exchange. The resulting company (the “Resulting Issuer”) is expected to resume trading on the Exchange under the name “Liberty Defense Holdings, Ltd.” or such other name as the parties may reasonably agree upon and as is acceptable to the Exchange and the corporate registrar.
Prior to the completion of the Transaction:
• Liberty will complete a consolidation (the “Liberty Consolidation”) of the outstanding common shares of Liberty and all of the outstanding securities convertible in common shares of Liberty on a 6.2:1 basis; and
• DrawDown will complete a consolidation (the “DrawDown Consolidation”) of the outstanding common shares of DrawDown and all of the outstanding securities convertible in common shares of DrawDown on a 2:1 basis.
Liberty and and DrawDown are currently addressing further comments received from the Exchange regarding the filing statement required under Exchange policies to be delivered to Liberty shareholders in connection with obtaining their approval of the Transaction. Liberty and DrawDown do not anticipate any issues in addressing these further comments. The filing statement must be approved by the Exchange before it is delivered to Liberty shareholders.
Prior to the completion of the Transaction, DrawDown will arrange for the completion of a concurrent financing of Liberty subscription receipts (the “Subscription Receipts”) at an expected price of $0.30 per Subscription Receipt (on a post-Liberty Consolidation basis; equal to a price of approximately $0.048 per Subscription Receipt on a pre-Liberty Consolidation basis) for minimum gross proceeds of $2,500,000 (the “Concurrent Financing”).
Upon satisfaction of certain escrow release conditions and closing of the Transaction, it is expected that each Subscription Receipt will be automatically exchanged, without payment of any additional consideration, for one common share of the Resulting Issuer and one-half of one warrant of the Resulting Issuer. Each whole warrant will entitle the holder thereof to purchase one Resulting Issuer common share at a price of $0.50 per share for a period of two (2) years from the date of issuance.The Concurrent Financing is expected to result in the additional issuance of approximately 8,333,333 Resulting Issuer common shares and 4,166,666 Resulting Issuer warrants for the aggregate amount of the Subscription Receipts.
The proceeds from the Concurrent Financing shall be used to fund the costs of the Transaction and for working capital and general corporate purposes for the Resulting Issuer.
The final terms of the Concurrent Financing remain subject to change. Additional information in connection with the Concurrent Financing will be provided in subsequent press releases. There is no assurance that the Concurrent Financing will be completed as proposed or at all.
On March 5, 2020, DrawDown closed the first tranche of its financing (the “Bridge Financing”) of 10% convertible debentures (the “DrawDown Convertible Debentures”) in the principal amount of $954,750. As part of the completion of the Transaction: (i) all outstanding DrawDown Convertible Debentures issued pursuant to the first tranche of the Bridge Financing will be converted into DrawDown units (the “DrawDown Units”) at $0.24 per DrawDown Unit, with each DrawDown Unit consisting of one DrawDown common share and one-half of one DrawDown warrant; (ii) the DrawDown common shares issued upon conversion of the DrawDown Units will be exchanged for Resulting Issuer common shares on a one for one basis, resulting in the additional issuance of up to 3,978,125 Resulting Issuer common shares for the principal amount of the Drawdown Convertible Debentures; and (iii) the 1,989,062 DrawDown warrants issued upon conversion of the DrawDown Units and the Finder’s Warrants will cease to represent a right to acquire DrawDown common shares and will instead provide the right to acquire Resulting Issuer common shares on the same terms and conditions. In connection with the first tranche of the Bridge Financing, DrawDown paid cash finder’s fees equal to $73,980 and issued 246,600 finder’s warrants (the “Finder’s Warrants”) to certain finders, with each Finder’s Warrant entitling the holder to acquire one DrawDown common share at a price of $0.20 per share for a period of two years from the date of issuance.
On May 29, 2020, DrawDown closed the second tranche of the Bridge Financing of DrawDown Convertible Debentures in the principal amount of $909,400. As part of the completion of the Transaction: (i) all outstanding DrawDown Convertible Debentures issued pursuant to the second tranche of the Bridge Financing will be converted into DrawDown Units at $0.24 per DrawDown Unit, with each DrawDown Unit consisting of one DrawDown common share and one-half of one DrawDown warrant (ii) the DrawDown common shares issued upon conversion of the DrawDown Units will be exchanged for Resulting Issuer common shares on a one for one basis, resulting in the additional issuance of up to 3,789,166 Resulting Issuer common shares for the principal amount of the Drawdown Convertible Debentures; and (iii) the 1,894,583 DrawDown warrants issued upon conversion of the DrawDown Units and the Finder’s Warrants will cease to represent a right to acquire DrawDown common shares and will instead provide the right to acquire Resulting Issuer common shares on the same terms and conditions. In connection with the second tranche of the Bridge Financing, DrawDown paid cash finder’s fees equal to $50,992 and issued 169,972 Finder’s Warrants to certain finders, with each Finder’s Warrant entitling the holder to acquire one DrawDown common share at a price of $0.20 per share for a period of two years from the date of issuance.
On completion of the Transaction, 111the former DrawDown shareholders will hold approximately 52.17% of the outstanding common shares of the Resulting Issuer, the former Liberty shareholders will hold approximately 26.11% of the common shares of the Resulting Issuer and the purchasers of the Subscription Receipts will hold approximately 20.27% of the common shares of the Resulting Issuer, on a non-diluted basis.
The following table sets out the expected fully diluted share capital of the Resulting Issuer after giving effect to the Transaction:
(1) Calculated on a post-Liberty Consolidation basis.
(2) Calculated on a post-DrawDown Consolidation basis.
(3) Calculated on the assumption that 8,333,333 common shares will be issued pursuant to the Concurrent Financing.
(4) Includes the 596,326 common shares to be issued to Laurentian upon completion of the Transaction.
(5) Includes: (i) the 3,182,751 Liberty warrants; (ii) the 4,091,931 DrawDown warrants that, upon closing, will cease to represent a right to acquire DrawDown common shares and shall instead provide the right to acquire Resulting Issuer common shares as a result of the Transaction; and (iii) the 4,166,666 Resulting Issuer warrants expected to be issued pursuant to the Concurrent Financing.
(6) Includes the 128,391 Liberty unit warrants.
(7) Includes: (i) the 670,376 Liberty options; and (ii) the 437,500 DrawDown options that, upon closing, will cease to represent a right to acquire DrawDown common shares and shall instead provide the right to acquire Resulting Issuer common shares as a result of the Transaction.
(8) Includes the 200,000 restricted share units expected to be granted to Bill Riker, current CEO of Liberty, upon his execution of a severance agreement.
(9) The 8,773,000 DrawDown warrants (the “CM Performance Warrants”) to be granted prior to the completion of the Transaction to certain directors, officers and consultants of DrawDown, subject to the achievement of certain performance milestones, with each CM Performance Warrant being exercisable for one DrawDown share for no additional consideration (nominal exercise of $0.0001) for a period of five years from the issue date.
(10) The 2,000,000 DrawDown warrants (the “Operational Performance Warrants”) to be granted prior to the completion of the Transaction to a certain senior officer of DrawDown, subject to the achievement of certain performance milestones, with each Operational Performance Warrant being exercisable for one DrawDown share for no additional consideration (nominal exercise of $0.0001) for a period of five years from the issue date.
Financial Information Concerning DrawDown
The following table sets forth selected audited financial information for DrawDown for the period of incorporation on October 26, 2018 until December 31, 2019. DrawDown’s financial statements were prepared on the basis of IFRS and are expressed in U.S. dollars.
The audited financial statements of DrawDown, together with other required financial information, will be included in the Company’s filing statement prepared in connection with the Transaction.
Additional information in connection with the Transaction will be provided in subsequent press releases.
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.
DrawDown is authorized to issue an unlimited number of common shares. As of the date hereof, there are 27,361,670 DrawDown common shares outstanding. In addition, DrawDown has 875,000 stock options, 416,572 warrants and $1,864,150 principal amount of DrawDown Convertible Debentures outstanding. Upon completion of the DrawDown Consolidation, DrawDown will have 13,680,835 common shares, 208,286 warrants and 437,500 options 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
On June 5, 2019, Liberty engaged Laurentian as its exclusive financial advisor.
As of the date hereof, Liberty has 66,549,721 common shares issued and outstanding. Further, as of the date hereof, Liberty has 19,733,055 warrants, 796,022 units (the “Liberty Units”) and 4,156,333 options outstanding. Each Liberty Unit is exercisable into one Liberty common share and one Liberty warrant. Upon completion of the Consolidation, Liberty will have 10,733,826 common shares, 3,182,751 warrants, 128,391 Liberty Units and 670,376 options outstanding.
 – On a post-DrawDown Consolidation basis; equal to $0.12 per DrawDown Unit on a pre-DrawDown Consolidation basis.
 – Equal to $0.40 per share on a post-DrawDown Consolidation basis.
 – On a post-DrawDown Consolidation basis; equal to $0.12 per DrawDown Unit on a pre-DrawDown Consolidation basis.
 – Equal to $0.40 per share on a post-DrawDown Consolidation basis.
 – Based on 41,111,608 Resulting Issuer common shares outstanding immediately after giving effect to the Transaction, the Bridge Financing, the Concurrent Financing and the issuance of 596,323 Resulting Issuer common shares to Laurentian Bank Securities Inc (“Laurentian”).
 – Consisting of the 208,286 Finder’s Warrants outstanding immediately post-DrawDown Consolidation, as well as the 3,883,645 DrawDown warrants to be issued upon conversion of the DrawDown Units in connection with the Bridge Financing.
 – Consisting of the 416,572 Finder’s Warrants.
 – Consisting of the 208,286 Finder’s Warrants.
On Behalf of Liberty Defense
Interim CEO & Director
More About Liberty Defense Holdings Ltd.
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Cautionary Notes about the Transaction
Completion of the Transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable, disinterested shareholder 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 any 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.
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
Certain statements included in this news release constitute forward-looking information or statements (collectively, “forward-looking statements”), including those identified by the expressions “anticipate”, “believe”, “plan”, “estimate”, “expect”, “intend”, “may”, “should” and similar expressions to the extent they relate to the Company or its management. The forward-looking statements are not historical facts but reflect current expectations regarding future results or events. This news release contains forward looking statements. These forward-looking statements are based on current expectations and various estimates, factors and assumptions and involve known and unknown risks, uncertainties and other factors. Any statements about DrawDown’s business plans, closing of the Transaction, expected terms of the Transaction, the number of securities of the Company that may be issued in connection with the Transaction, the ownership and the directors of the Company, the requirement to obtain shareholder approval, the parties’ ability to satisfy any and all other closing conditions including but not limited to completion of the Liberty Consolidation, completion of the DrawDown Consolidation and completion of the Concurrent Financing, and the parties’ ability to receive necessary regulatory and Exchange approvals in connection therewith and the terms associated therewith and any additional reorganizational transactions are all forward-looking information. Forward-looking statements are not guarantees of future performance and involve risks, uncertainties and assumptions which are difficult to predict. Such statements and information are based on numerous assumptions regarding present and future business strategies and the environment in which the Company will operate in the future, including, anticipated costs, and the ability to achieve its goals.
Factors that could cause the actual results to differ materially from those in the forward-looking statements include, failure to obtain regulatory approval, the continued availability of capital and financing, and general economic, market or business conditions, changes in legislation and regulations, increase in operating costs, equipment failures, failure of counterparties to perform their contractual obligations, litigation, the loss of key directors, employees, advisors or consultants and fees charged by service providers. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement. These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. Although such statements are based on management’s reasonable assumptions, there can be no assurance that the Transaction will occur or that, if the Transaction does occur, it will be completed on the terms described above, nor can there be any assurance that the listing of the common shares of the Company upon completion of the Transaction will occur. The Company assumes no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law. Readers should not place undue reliance on the Company’s forward-looking statements.
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.