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Home > Press > CAG Capital Inc. Announces Qualifying Transaction

Abstract:
CAG Capital Inc. (TSX-V: CAG.P) ("CAG" or the "Company"), a capital pool company pursuant to Policy 2.4 of the TSX Venture Exchange (the "TSX-V"), has entered into a letter of intent dated July 27, 2009 (the "LOI") with Stellar Biotechnologies, Inc. ("Stellar"), a private California company, to acquire 48.8% of Stellar with an option to acquire the remaining 51.2% (the "Transaction"). The Transaction will constitute CAG's "Qualifying Transaction" under the applicable policies of the TSX-V.

CAG Capital Inc. Announces Qualifying Transaction

VANCOUVER, BC, Canada | Posted on July 29th, 2009

About the Transaction

Pursuant to the terms of the LOI, CAG will acquire 48.8% of the issued and outstanding securities of Stellar for an investment of US$2,250,000 and will be granted a 30 month option to acquire the remaining 51.2% of Stellar from its existing shareholders by the issuance of a total of 10,000,000 shares of CAG. As a condition of exercising the option CAG is to have advanced a further US$3,750,000 to Stellar by way of shareholders' loans. The subsequent funding and exercise of the option to acquire the remaining 51.2% of Stellar will be solely at CAG's discretion, and Stellar will be restricted from merging, acquiring, pledging or accepting additional funding without CAG's approval.

CAG has also agreed to allot a further 10,000,000 common shares of CAG to the principals of Stellar, such shares to be earned out based on the achievement of certain milestones.

Under the terms of the LOI, and subject to Exchange acceptance, CAG is also to advance up to $125,000 to Stellar pending completion of the Transaction, to cover transactional expenses. $25,000 has been advanced without interest. The balance of the advance, if any, will bear interest at 6% per annum.

The Transaction is not a "non-arm's length transaction" as defined by TSX-V policies. Upon completion of the proposed Transaction, CAG will be listed on the TSX-V as a Tier 2 Technology Issuer under the name "Stellar Biotechnologies, Inc." or such other name as is acceptable to the board of directors of CAG and the TSX-V.

Financing and Qualifying Transaction

Subject to completion of the Transaction, CAG will be raising between CDN$2,950,000 and CDN$4,000,000 by way of Brokered and Non-Brokered placements of Units at $0.25 to $0.30 per Unit. Each unit will consist of one share and one ˝ warrant to acquire additional shares of the company at $0.40 per share for eighteen (18) months. US$2,250,000 of the proceeds of this financing will be applied to the purchase of the 48.8% interest in Stellar.

It is not currently intended that the Transaction will be subject to the approval of CAG shareholders.

No sponsor or lead underwriter has been selected as of this announcement, but Bolder Investment Partners has right of first refusal. Finders' fees and brokers' commissions will be paid in accordance with the policies of the TSX Venture Exchange.

It is anticipated that the Transaction will close on or about November 15, 2009 but in any event no later than February 28, 2010.

Significant Closing Conditions

In addition to those significant closing conditions detailed above, closing and final acceptance of the Transaction is subject to the satisfaction of certain conditions, including the, completion of satisfactory due diligence, the negotiation and execution of the definitive agreements, approval by the shareholders of Stellar and CAG (if required), completion of the Financing and approval by the TSX-V and all other regulatory bodies.

Board of Directors and Insiders following completion of the Transaction

Following completion of the Transaction, it is anticipated that Stellar's board of directors will be composed of three members.

Frank Oakes, President and Chief Executive Officer

Mr. Oakes will be appointed President & Chief Executive Officer of the post-merged company.

Frank R. Oakes, a Stellar founder, is currently a Director (Chairman), President and Chief Executive Officer of Stellar. Mr. Oakes has 30 years of management experience in aquaculture including a decade as CEO of The Abalone Farm, Inc., during which he led that company through the R&D, capitalization and commercialization phases of development to become the first profitable and largest abalone producer in the U.S., a distinction still held by the company today. Prior to the formation of Stellar, he was the inventor of the company's patented method for non-lethal extraction of hemolymph (the raw material for KLH) from Megathura crenulata (Keyhole Limpet). He is the Principal Investigator for the company's current Phase I/IB & II SBIR grant from the National Science Foundation and was also the Principal Investigator on the company's Phase I and II SBIR grants from the NIH's Center for Research Resources, a California Technology Investment Partnership (CalTIP) grant from the Department of Commerce. He has consulted and lectured for the aquaculture industry around the world. Frank received his Bachelor of Science degree from California State Polytechnic University, San Luis Obispo and is a graduate of the Los Angeles Regional Technology Alliance (LARTA) University's management-training program.

Daniel Morse, Ph.D., Director and Chairman of the Scientific Advisory Board (SAB)

Daniel E. Morse, Ph.D., is a current Director and Science Advisor of Stellar. He is Professor of Molecular Genetics and Biochemistry at the University of California, Santa Barbara, and Director of the UCSB-MIT-Caltech Institute of Collaborative Biotechnologies. Dr. Morse is an internationally recognized expert in protein chemistry, molecular biology, molluscan reproductive biology and aquaculture. Dr Morse's laboratory at the University of California, Santa Barbara is currently working under a seed grant from the Defense Advanced Research Projects Agency (DARPA) to begin investigations into the fundamental disassociation & assembly dynamics of the company's KLH subunit product.

Darrell Brookstein, Director

Darrell Brookstein is currently Managing Director of The Nanotech Company, LLC in San Diego and a director of CAG Capital, Inc. He has founded and led investment banking, private equity, hedge-fund and venture capital firms and is a recognized authority on investing in cutting-edge technology and natural resource shares. Mr. Brookstein authored Nanotech Fortunes and edited Small Fortunes in Junior Gold Shares, and produced The Prospector and Nanotech Insights newsletters among others. His insights have been reported in Business Week, The Wall Street Journal and Financial News Network, and he has been a leading U.S. financier in many Canadian securities since 1982. He is a graduate of Duke University.

Upon the closing of the proposed Transaction and Financing, it is not expected that there will be any new insiders of CAG other than proposed new directors and officers.

Sponsorship

Sponsorship of a qualifying transaction of a capital pool company is required by the TSX-V unless exempt in accordance with TSX-V policies. The Company is currently reviewing the requirements for sponsorship and may apply for exemption from sponsorship requirements on the basis of completing a brokered financing for a minimum of $500,000. There is no assurance CAG will ultimately obtain exemption from sponsorship.

About Stellar Biotechnologies, Inc.

Stellar Biotechnologies, Inc. is a closely held private California company the principal shareholders of which are John McMullen, Frank Oakes, Larry Steele and David Spaulding.

Stellar began its corporate life in 1999 as a biological product company specializing in production of KLH (keyhole limpet hemocyanin) protein, a potent immuno-stimulatory protein used in a class of medicines known as therapeutic vaccines, and in other high-value biomedical products that are being developed to treat cancer, hypertension, arthritis, drug addiction and other serious chronic diseases. KLH is primarily used as an essential carrier protein in these vaccines, commanding prices as high as $200,000 per gram for medical-grade material.

KLH is a natural marine product that is refined from the "blood" (hemocyanin) of the rare ocean mollusk, Megathura crenulata (the California giant keyhole limpet), the only source of KLH in the world. The complex KLH glycoprotein has not been made synthetically to date: it must be purified from the source animal, which is scarce and diminishing in population. Stellar's solution to this resource limitation is to apply cutting edge aquaculture technology developed internally by its founders to cultivate M. crenulata in sustainable commercial quantities and to extract and purify the protein without killing the animals.

Stellar has a history of successful implementation of Federal NIH and NSF grant funded research to advance its technology and commercialize its products. Using federal funds and commercial revenues the company has developed proprietary methods for Megathura reproduction, husbandry, and sustainable, environmentally sound KLH manufacturing using non-lethal hemolymph extraction from captive production colonies. Stellar's aquaculture technology includes proprietary methods for the reliable control of spawning, larval development, and grow-out and includes feeding regimens, seawater systems and cultivation habitats optimized for KLH production. Stellar has an active hatchery and cultivation program, funded in part by on-going grants from the National Science Foundation, that is capable of scalable production of commercial quantities of juvenile and adult Megathura crenulata to meet growing KLH demand.

Stellar's KLH products are manufactured under GMP (Good Manufacturing Practice) for bio-medical applications, and Stellar's aquaculture and extraction technologies are designed specifically to address the needs of vaccine developers for safe and sustainable supplies of KLH for commercial therapeutic products. The company's intellectual property includes trade secret methods for aquaculture production and KLH purification, an issued U.S. patent for its non-lethal hemolymph extraction method (the only method known for this animal), and a patent pending on a novel, highly efficient method for GMP purification of an important highly immunogenic KLH formulation.

At the close of the 2008 fiscal year, Stellar had total assets of about US$1M and total liabilities of approximately US$150,000. Total Revenues for fiscal year 2008 exceeded US $1M, and Stellar had a loss for the year of about US $100,000.

All information provided in this news release related to Stellar has been provided by management of Stellar and has not been independently verified by management of CAG.

####

About CAG Capital Inc.
The common shares of CAG will remain halted until such time as the TSX-V provides its permission to resume trading. Completion of the Transaction is subject to a number of conditions, including but not limited to, TSX-V acceptance and if required by TSX-V policies, 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 Qualifying 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.

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

On behalf of the Board of Directors,

“Darrell Brookstein”
Director

Copyright © CAG Capital Inc.

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