LEONOVUS ANNOUNCES SALE OF ASSETS AND DEBT SETTLEMENT

OTTAWA, ON, Jan. 31, 2024 /CNW/ - Leonovus Inc. (TSXV: LTV) (the "Company" or "Leonovus") announces that it has signed a non-binding Letter of Intent ("LOI") to sell substantially all its software and patent assets to Cylentium Research Ltd. ("CRL"), a Delaware corporation, for $2,500,000 in an all-cash transaction (the "Transaction").

The Company and CRL expect closing of the Transaction to be before the end of June 2024.  The Transaction is subject to the requirement that the Company and CRL enter into a definitive purchase and sale agreement (the "Definitive Agreement"). Upon execution of the Definitive Agreement, the Purchaser shall pay the Vendor a non-refundable deposit of CDN$125,000, representing 5% of the purchase price (the "Deposit"). Upon completion of the Transaction, the Deposit shall be applied to the purchase price.

Because the Company is selling substantially all its assets, the Transaction will require all necessary approvals including, but not limited to, approval by not less than 66 2/3% of the votes cast by the Company's shareholders in accordance with the Business Corporations Act (Ontario), and regulatory approvals including approval of the TSX Venture Exchange ("TSXV").  Closing of the Transaction will also be subject to customary conditions and third-party consents for the transfer of the assets subject to the Transaction, where applicable.

"Our historical quarterly Management Discussion and Analysis noted the Company's need to find a strategic solution such as merger, acquisition, or sale of assets. We are pleased that our technology has found a needed home to benefit individuals, companies and governments looking for better ways to protect and manage digital assets," said Michael Gaffney, Chair and CEO.

"The transaction will result in Leonovus having a significant amount of cash, a clean balance sheet, and a public listing, positioning the Company well to identify and complete an acquisition of assets or a reverse takeover," said Gaffney.

"Cylentium is an Access Control and Communication platform built on an enhanced version of the MACsec standard (802.1ae). Through this Cylentium can offer rapid deployment of Zero Trust Network Access (ZTNA) for all IT and IoT edge devices as it resides at Layer 2. Cylentium ensures privacy across all communications and authenticity of the data being sent. With the acquisition of Leonovus we will now be able to extend this privacy to our customers data storage needs," said Wayne Ronhaar, CEO of Cylentium.

The Transaction constitutes a Reviewable Disposition as defined in Policy 5.3 – Acquisitions and Dispositions of Non-Cash Assets ("Policy 5.3") of the TSXV and the Company will apply for approval of the Transaction, which approval will be a condition precedent in the Definitive Agreement. The trading of the Company's shares has been halted and shall remain halted pending receipt of satisfactory documentation by the TSXV.  Further updates will be announced on the status of the trading halt, the Definitive Agreement, and the Transaction, as appropriate, and further details of the Transaction, and the risks and procedures associated therewith, will be disclosed in greater detail in the information circular of the Company for the shareholder meeting held with respect to the Transaction (the "Meeting"). The Company and CRL are not "Non-Arm's Length Parties" within the meaning of applicable TSXV polices, and the purchase price for the Transactions were arrived at through arm's-length negotiations.

The Company expects that it will be subject to migration to the NEX Board of the TSXV following completion of the Transaction unless it can demonstrate to the TSXV that it will meet "Continued Listing Requirements" within the meaning of such term under applicable TSXV policies. While the Company currently plans to use the proceeds from the Transaction to acquire or develop a business that will meet Continued Listing Requirements, at this time the Company has not yet acquired or developed any such business and there can be no assurances that  it will be able to do so before its listing is migrated from Tier 2 to NEX, or at all.

Debt Settlement Transactions

The Company also announces that it proposes to settle $193,000 of debt (the "Debt"), including amounts accrued through services provided to the Company, by issuing 3,860,000 common shares in the capital of the Company (the "Common Shares") at a deemed price of $0.05 per Common Share (the "Debt Settlement"), or such other price acceptable to the TSXV.

Insiders of the Company will be participating in the Debt Settlement and are related parties of the Company pursuant to Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). Related party involvement in the Debt Settlement constitutes a "related party transaction". The Company expects to rely on the exemptions from the formal valuation and minority shareholder approval requirements of MI 61-101 pursuant to Sections 5.5(a) and 5.7(1)(a) respectively, as neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the Debt Settlement, insofar as it involves interested parties, exceeds 25 per cent of the Company's market capitalization.

All Common Shares issued in connection with the Debt Settlement are subject to a statutory hold period of four months plus a day from the date of issuance of the Debt Shares in accordance with applicable securities legislation and the policies of the TSXV.

The Company expects to complete the debt settlement following completion of the Transaction. Notwithstanding that the Company expects it will have cash on hand to pay the Debt, the Company proposes completing the Debt Settlement in order to preserve the cash that it expects to obtain in the Transaction.  The Debt Settlement is subject to TSXV approval. 

Amendment to Bridge Loan

The Company further announced that it has amended the terms of the loan agreement entered into with two directors of Leonovus (the "Lenders"), previously announced on February 3, 2023.  Pursuant to the amendments, the Lenders will receive a bonus of 2,000,000 common share purchase warrant instead of 2,500,000 under the previous agreement (the "Warrants"), and each Warrant will have an exercise price of $0.05 per common share.  The expiry date of the Warrants will be the maturity date of the loan, being August 3, 2024. The amendment is a related party transaction under MI 61-101.  The Company has relied on the exemption under 5.5(a) of MI 61-101 for the requirement to obtain a formal valuation for the Warrants issuable to the Insiders, and the exemption under Section 5.7(1)(a) of MI 61-101 for the requirement to obtain minority approval as the total value of the bridge loan, and the value of the Warrants, are not equal to or greater than 25% of the market capitalization of the Company, whether considered separately or together.  The amendment remains subject to TSXV approval.

CAUTIONARY AND FORWARD-LOOKING STATEMENTS

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

This news release does not constitute an offer to sell or a solicitation of an offer to buy any of the securities. The securities described herein have not been and will not be registered under the United States Securities Act of 1933, as amended, or the securities laws of any state and may not be offered or sold within the United States or to or for the benefit or account of U.S. persons, absent such registration or an applicable exemption from such registration requirements.

Completion of the Transaction is subject to a number of conditions, including execution of the Definitive Agreement, TSXV acceptance and shareholder approval. The Transaction cannot close until the required approvals are 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 to be prepared in connection with the Proposed 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 Leonovus should be considered highly speculative.

This news release contains forward-looking information and statements ("forward-looking information") within the meaning of applicable Canadian securities legislation, that are not based on historical fact, including, without limitation, statements using the words "believes", "anticipates", "plans", "intends", "will", "should", "expects", "continue", "estimate", "forecasts" and other similar expressions. Readers are cautioned not to place undue reliance on forward-looking information. Actual results and developments may differ materially from those contemplated by these statements depending on, among other things, the risks that the parties may not proceed with the LOI and the Transaction; that the ultimate terms of the LOI and the Transaction will differ from those that are currently contemplated; the LOI and the Transaction will not be successfully completed for any reason; and the Debt Settlement will not be approved or completed. The terms and conditions of the Transaction may change based on the Company's or CRL's due diligence. Although the Company believes that the expectations reflected in forward-looking information in this news release are reasonable, such forward looking information has been based on expectations, factors and assumptions concerning future events which may prove to be inaccurate and are subject to numerous risks and uncertainties, certain of which are beyond the Company's control. The forward-looking information contained in this news release are expressly qualified by this cautionary statement and are made as of the date hereof. The Company disclaims any intention had has no obligation or responsibility, except as required by law, to update or revise any forward–looking information, whether as a result of new information, future events or otherwise.

The TSX Venture Exchange has not reviewed and does not accept responsibility for the adequacy or accuracy of the content of this news release.

SOURCE Leonovus Inc.

Please contact: Michael Gaffney, Chief Executive Officer and Chair, at +1.613.797.6744, [email protected]