Vancouver, British Columbia - TheNewswire - March 23, 2021 - A-Labs Capital II Corp. (the “Company”) (TSXV:ALAB.P) is pleased to announce that it has entered into a letter of intent (the “LOI”) dated March 23, 2021 with Dona Blanca Limited, an Australian public unlisted company (“Dona Blanca”). Pursuant to the LOI, the Company and Dona Blanca have agreed to a proposed acquisition (the “Transaction”) by the Company of 100% of the issued and outstanding securities of Dona Blanca in exchange for the issuance of securities of the Company. The Transaction is intended to constitute the Company’s Qualifying Transaction under Policy 2.4 – Capital Pool Companies of the TSXV Venture Exchange (the “Exchange”). On closing of the Transaction, the business of the Company will be the business of Dona Blanca.

About Dona Blanca

Dona Blanca is a psychoactive and non-psychoactive cannabis producer in Colombia with granted licenses for both cultivation and extraction by the Ministry of Justice and Ministry of Health, Colombia.  Through its wholly owned subsidiary Extractos Dona Blanca S.A.S. (“Extractos”), a corporation formed under the laws of Colombia, Dona Blanca cultivates high-quality cannabis under the World Health Organisation’s Good Agricultural and Collection Practice standards at its wholly owned Santa Rosa facility in Colombia, as well as via its 70% owned joint venture facility with Medcolcanna Organics Inc, a Canadian public listed medical cannabis company.  Dona Blanca has European off-take partners in place (subject to the entering into of definitive agreements) for its full spectrum cannabis oil products, as well as negotiations with other international partners including in Australia and UK.

Termination of Former Letter of Intent with RDARS Inc.

The Company’s previously announced letter of intent (“Former LOI”) with RDARS Inc. (“RDARS”) automatically terminated pursuant to its terms. Pursuant to the Former LOI, the parties were to complete a business combination intended to constitute the Qualifying Transaction of the Company under the policies of the Exchange.

Summary of Transaction Terms of LOI with Dona Blanca

Pursuant to the LOI with Dona Blanca, the parties will negotiate a definitive agreement (the “Definitive Agreement”) providing for the definitive terms of the Transaction. Other than certain provisions, including confidentiality and standstill provisions, the LOI is non-binding and is subject to the entering into of the Definitive Agreement. Unless the parties agree otherwise, the LOI will terminate if, among other things, the Definitive Agreement has not been entered into by April 30, 2021.

The parties intend to complete a business combination – the structure of which will be determined after receiving tax, legal and other advice – whereby the Company will acquire all of the ordinary shares of Dona Blanca (“Dona Blanca Shares”) that are issued and outstanding immediately prior to completion of the Transaction in exchange for the issuance of post-Consolidation (as defined below) common shares of the Company to Dona Blanca securityholders in accordance with an agreed upon exchange ratio taking into account the respective valuations of the parties (the “Exchange Ratio”).  Furthermore, the convertible securities of Dona Blanca outstanding immediately prior to closing will either automatically adjust in accordance with their terms or will be replaced with equivalent convertible securities of the Company, with necessary adjustment to number and price to account for the Exchange Ratio.

In connection with the Transaction, it is currently expected that the Company will issue, on a pre-Consolidation basis, approximately 122,522,475 common shares of the Company and 60,761,236 warrants of the Company in exchange for Dona Blanca Shares and warrants of Dona Blanca held by former securityholders of Dona Blanca immediately prior to closing of the Transaction, but without taking into account the additional securities of the Company to be issued at the Exchange Ratio in exchange for securities issued by Dona Blanca pursuant to the Concurrent Financing and to finders in connection with completion of such financings and the Transaction.

Proposed Loan Conversion and Financings

Prior to, and as a condition to, the closing of the Transaction, Dona Blanca proposes to complete:

1. (i) a conversion of existing convertible debt into approximately 47,522,471 Dona Blanca Shares and 23,761,236 warrants of Dona Blanca (the “Loan Conversion”);  

2. (ii) a pre-listing financing of up to 10,000,000 units of Dona Blanca at a price of A$0.10 per unit for gross proceeds of up to A$1,000,000, of which approximately 7,500,000 units have been issued to date for gross proceeds of approximately A$750,000. Each such unit consists of one (1) Dona Blanca Share and one-half (1/2) of one warrant, with each whole warrant entitling the holder to acquire for a period of 24 months following issuance one (1) additional Dona Blanca Share at an exercise price of A$0.25 per share (the “Pre-Listing Financing”); and 

3. (iii) a concurrent financing of up to CAD$3,000,000, the terms of which will be determined in the context of the market (the “Concurrent Financing”). Further terms regarding the Concurrent Financing will be announced in a subsequent press release and/or the filing statement.  

Furthermore, Dona Blanca expects to issue the following securities (collectively, the “Arranger Securities”) to an arm’s length advisor in connection with the closing of the Transaction: (a) such number of Dona Blanca Shares (“Arranger Shares”) equal to 5% of the Dona Blanca Shares outstanding immediately prior to closing of the Transaction, taking into account the Loan Conversion and Pre-Listing Financing but before taking into account the Concurrent Financing; and (b) warrants (“Arranger Warrants”) to purchase such number of Dona Blanca Shares equal to 5% of the consummated issued capital of the Company at listing, each such warrant exercisable for the purchase of one Dona Blanca Share at a price of A$0.30 per Dona Blanca Share with an expiry date of 3 years from the date of listing. In connection with the closing of the Transaction, the Arranger Shares will be exchanged for post-Consolidation common shares of the Company at the Exchange Ratio and the Arranger Warrants will either automatically adjust in accordance with their terms or will be replaced with equivalent convertible securities of the Company, with necessary adjustment to number and price to account for the Exchange Ratio.

Without taking into account the Concurrent Financing and the Arranger Securities to be issued, and assuming completion of the Loan Conversion and the Pre-Listing Financing, it is expected that Dona Blanca will have approximately 122,522,475 Dona Blanca Shares and 60,761,236 warrants to acquire Dona Blanca Shares issued and outstanding immediately prior to closing of the Transaction.

Proposed Consolidation and Name Change

The common shares of the Company are expected to be consolidated prior to closing of the Transaction at a ratio to be determined by the parties in the context of the Transaction (the “Consolidation”).  Upon completion of the Transaction, the Company will change its name to such name to be determined by Dona Blanca and acceptable to the Exchange. Additional information regarding the proposed Consolidation and name change will be provided at a later date.

Proposed Directors and Officers of the Resulting Issuer

In connection with closing of the Transaction, it is expected that the current directors and officers of the Company will resign from their respective positions and the board will be reconstituted with four directors, three of whom shall be nominated by Dona Blanca and one of whom shall be nominated by agreement between Dona Blanca and the Company. Information and biographies regarding the incoming directors and officers will be provided at a later date.

Sponsorship

The Company will seek a waiver from the Exchange to the requirement to engage a sponsor in connection with the Transaction. If a sponsor is required, the Company will identify a sponsor and pay the sponsorship fee in cash or common shares of the Company or a combination of cash and common shares of the Company. An agreement with a sponsor should not be construed as any assurance with respect to the merits of the Transaction or the likelihood of completion.

Trading Halt

In accordance with Exchange policies, the common shares of the Company are halted from trading and will remain so until certain documentation required by the Exchange for the Transaction can be provided to the Exchange. The common shares of the Company may resume trading following the Exchange's review of the required documentation or may remain halted until completion of the Transaction.

Conditions to Closing the Transaction with Dona Blanca

Closing of the Transaction is conditional upon, among other things, receipt of all required regulatory, corporate, and third party approvals, including Exchange approval, the negotiation and execution of the Definitive Agreement, satisfactory due diligence by both the Company and Dona Blanca, no material adverse change having occurred to the assets or share capital of either the Company or Dona Blanca, completion of the Loan Conversion, Pre-Listing Financing and Concurrent Financing, and, if required by the Exchange, filing of a sponsorship report with the Exchange. There can be no assurance that the Transaction will be completed on the terms proposed above or at all.

The Transaction is an Arm’s Length Qualifying Transaction, as defined in the policies of the Exchange, and is therefore not ordinarily subject to shareholder approval by the Company’s shareholders. The Company may seek shareholder approval for special matters in connection with the Transaction, to the extent required by applicable law or as deemed advisable by the parties.

Changes in Connection with Amendments to Exchange Policy 2.4

The Company is also pleased to announce that in connection with the changes in Policy 2.4 – Capital Pool Companies of the Exchange, which became effective on January 1st, 2021 (the “New Policy”), the Company intends to implement certain amendments to further align its policies with the New Policy.

Pursuant to the New Policy, the Company is permitted to make certain amendments after obtaining approval of the Exchange and requisite disinterested shareholder approval.

Subject to final acceptance by the Exchange, the Company is implementing the following amendments after having obtained the approval of requisite disinterested shareholders of the Company (“Disinterested Shareholder Approval”) present in person or by proxy at its annual general and special meeting of shareholders held on March 11, 2021 (the “Meeting”): (i) amendments to the Company’s current “rolling” stock option plan (the “Stock Option Plan”); (ii) removal of the potential consequences associated with the Company failing to complete a qualifying transaction (“Qualifying Transaction”) within 24 months after its listing date; and (iii) amendments to the Company’s Form 2F CPC escrow agreement dated December 17, 2018, by and between the Company, TSX Trust and certain registered shareholders (the “Escrow Agreement”). In addition, the Company will be making other amendments that do not require Disinterested Shareholder Approval.

The above amendments are described in further detail below. For additional information, refer to the management information circular of the Company in connection to the Meeting, dated February 9, 2021 and available under the Company’s SEDAR profile at www.sedar.com.

Amendments to the Current Stock Option Plan

The Company will amend and restate its Stock Option Plan in order to, among other things: (i) allow the Company to reserve a total option pool which represents ten percent (10%) of the common shares of the Company (the “Common Shares”) that are issued and outstanding as at the date of grant of the options (rather than as of the date of the initial public offering, as previously required under the Former Policy (as defined below)); (ii) approve that the number of issued and outstanding Common Shares as at the date of grant (rather than the date of the initial public offering) be used to determine any applicable limits on the overall percentage of the Common Share class which is reserved for issuance to any one of the directors, officers and/or technical consultants of the Company, individually or collectively; and (iii) establish that Options have a maximum expiry term of 12 months (rather than the later of 12 months and 90 days) after the participant ceases to be a director, officer, technical consultant or employee of the Company or of the Resulting Issuer (as such term is defined under the New Policy).

This resolution received Disinterested Shareholder Approval, which excluded the votes attached to the 2,400,000 Common Shares held by directors, officers, employees and/or consultants of the Company, being eligible participants under the amended and restated Stock Option Plan.

Removal of the Requirement to Complete a Qualifying Transaction within 24 Months of Listing and Associated Consequences

Under the Exchange Policy 2.4 – Capital Pool Companies as at June 14, 2010 (the “Former Policy”), the potential consequences to the Company of failing to complete a Qualifying Transaction within 24 months from its date of listing on the Exchange were either: (i) the de-listing or suspension of the Common Shares from trading on the Exchange; or (ii) subject to majority shareholder approval, the transfer and listing of the Common Shares to the NEX board of the Exchange and the cancellation of certain seed Common Shares held by Non-Arm’s Length Parties (as such term is defined under the New Policy) to the Company. The New Policy has eliminated the requirement for capital pool companies to complete a Qualifying Transaction within 24 months after listing on the Exchange and the associated consequences of not completing this requirement.

The Company believes that such removal will place the Company in a better position to adequately assess and continue the process for the current Qualifying Transaction or, if the current Qualifying Transaction is not successful, to find a suitable alternative target for a Qualifying Transaction. In either case, the Company believes this to be beneficial to the shareholders, the Company, and any resulting entity, by allowing increased flexibility to complete a Qualifying Transaction.

This resolution received Disinterested Shareholder Approval, which excluded the votes attached to the 3,100,000 Common Shares held by Non-Arm’s Length Parties who own seed shares and their associates and affiliates, being the current directors and officers of the Company and the holder of seed shares representing greater than ten (10%) percent of the outstanding Common Shares.

Amendments to the Escrow Agreement

Pursuant to the New Policy, the Company may amend its Escrow Agreement for the purpose of reducing the length of the term of the applicable escrow provisions to a term that is not less than 18 months, as detailed in the escrow release schedule of the New Policy. The Company intends to amend and restate its Escrow Agreement to allow the Company’s escrowed securities to be subject to an 18-month escrow release schedule, rather than the current 36-month escrow release schedule.

This resolution received Disinterested Shareholder Approval, which excluded the votes attached to the 3,700,000 Common Shares held by the parties to the Company’s Escrow Agreement, their associates and affiliates.

Other Changes

The New Policy allows the Company to adopt, without the need to obtain shareholder approval, certain sections and requirements of the New Policy rather than adhering to the former sections and requirements under the Former Policy.  

As a result, the Company has determined to adhere to the following sections and their requirements under the New Policy rather than the equivalent sections and requirements under the Former Policy:

(i)          section 7.1 and section 7.2 of the New Policy, which set out the permitted use of proceeds and prohibited payments, which no longer provides that no more than the lesser of 30% of the gross proceeds from the sale of securities issued by a capital pool company and $210,000 may be used for purposes other than identifying and evaluating assets or businesses and obtaining shareholder approval for a proposed Qualifying Transaction; and

(ii)         section 9.7(b) of the New Policy, which permits a capital pool company to issue new Agent’s Options in connection with a Private Placement (as such terms are defined in the New Policy).

The Company considers that it is in the best interest of its shareholders to implement the amendments detailed above to be in alignment with the New Policy and place the Company in a better position to complete a Qualifying Transaction with a suitable target.

For further information on the Company, please contact:

Doron Cohen, CEO and Director of the Company

Email: doron@alabs.co

Telephone number: 972-545-224-017

For further information on Dona Blanca, please contact:

Brendan de Kauwe

Email:  brendan@donablanca.com.au

NEITHER THE TSX VENTURE EXCHANGE INC. NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED IN THE POLICIES OF THE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR ACCURACY OF THIS RELEASE.

Completion of the Transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, 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 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 the securities of a capital pool company should be considered highly speculative.

The TSX Venture Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Information concerning Dona Blanca, including the proposed directors and officers, has been provided to the Company by Dona Blanca for inclusion in this press release. References to A$ are to Australian dollars.

Caution Regarding Forward-Looking Information

The information in this news release includes certain information and statements about management’s view of future events, expectations, plans and prospects that constitute forward-looking statements. These statements are based upon assumptions that are subject to significant risks and uncertainties. Forward looking statements in this news release include, but are not limited to, anticipated plans regarding the business of Dona Blanca, including proposed business operations, partners and related negotiations, the proposed terms and closing of the Loan Conversion, Pre-Listing Financing, Concurrent Financing and the Transaction, the anticipated benefits of the Transaction, including the proposed business of the Company after completion of the Transaction, the Company’s implementation of the proposed changes in connection with the New Policy. Because of these risks and uncertainties and as a result of a variety of factors, including with respect to the closing of the Transaction and related matters, including the expected timing for execution of a Definitive Agreement, the expected capitalization of the Company after completion of the Transaction, the proposed terms of financings, certain proposed directors and officers of the Company, the timing and receipt of all applicable regulatory, corporate, shareholder and third party approvals, the anticipated benefits from the Transaction and the satisfaction of other conditions to Closing, the actual results, expectations, achievements or performance may differ materially from those anticipated and indicated by these forward looking statements. Although the Company or Dona Blanca, as the case may be, believes that the expectations reflected in forward-looking statements are reasonable, it can give no assurances that the expectations of any forward-looking statement will prove to be correct. Except as required by law, the Company disclaims any intention and assumes no obligation to update or revise any forward-looking statements to reflect actual results, whether as a result of new information, future events, changes in assumptions, changes in factors affecting such forward-looking statements or otherwise.

NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR FOR DISSEMINATION IN THE UNITED STATES