14 August 2012

Lignol announces private placement of up to CAD$2.4 million and acquisition of 11% equity stake in Australian Renewable Fuels

Difference Capital Funding Inc., a growth-oriented Canadian merchant bank, is lead investor in the Private Placement

Lignol Energy Corporation (TSXV: LEC) (“Lignol”, “LEC” or “the Company”), a leading technology company in the advanced biofuels and renewable chemicals sector, today announced a non-brokered private placement of up to 30 million common shares of the Company at CAD$0.08 per common share to raise up to CAD$2.4 million (the “Private Placement”), together with the execution of a Share Purchase Agreement to acquire from Wasabi Energy Limited (ASX/AIM: WAS) (“Wasabi” or “WAS”), 275,000,000 ordinary shares of Australian Renewable Fuels Limited (ASX: ARW) (“ARW”), for a total purchase price of CAD$4,265,770 (the “Share Acquisition”).

ARW is the largest biodiesel producer in Australia, owning three plants with a total nameplate capacity of 150 million litres per annum, which were built at an aggregate cost of approximately A$150 million. ARW has made significant changes in recent years to become a cost effective producer of high quality biodiesel to address growing biofuel demand in the Australian market. ARW has recently reported two consecutive quarters ending June 30, 2012 with estimated total receipts from customers of A$43.5 million and net operating cash flows of A$4.3 million, compared to estimated total receipts from customers of A$4.1 million and negative operating cash flows of A$3.9 million in the comparable six- month period in 2011. More information on ARW can be found at their website; www.arfuels.com.au.

The lead investor in the Private Placement is Difference Capital Funding Inc. (TSXV: DCF) (“DCF”), a growth-oriented Canadian merchant bank, who is making a CAD$1 million direct investment in LEC. “We recognize the inherent upside potential value in each of these two companies and especially with Lignol’s value now diversified and underpinned with a meaningful stake in ARW”, said DCF’s Chief Executive Officer, Michael Wekerle. “To the extent ARW is successful executing on its business plan and ARW chooses to pay dividends or the value of the ARW shares increases, Lignol stands to benefit with access to cash to commercialize its patented technology.”

On the closing of the Share Acquisition, Wasabi will hold approximately 19.2% of the issued and outstanding common shares of LEC (approximately 29.1% after giving effect to the conversion of the Debenture (defined below), with interest on the Debenture paid in cash, and the exercise of all currently existing outstanding stock options). Wasabi is listed on the Australian Securities Exchange and the AIM market in London. Wasabi is an emerging power producer based on the Kalina Cycle® technology which utilizes low grade, waste heat from industrial facilities or geothermal sources to produce electricity. Stephen Morris, an executive director of Wasabi since 2006, will resign from the Wasabi board of directors and join the board of Lignol.

“Lignol has an impressive technology backed by an advanced pilot plant, a strong intellectual property portfolio and capable management team that we feel positions the Company to become a transformative participant in the emerging renewable fuels and chemicals industry,” stated WAS Chairman, John Byrne. “We are excited to become a major shareholder in a company with such significant potential”.

“The diversification of the asset base of Lignol, combined with the confidence of a new group of investors to strengthen our balance sheet, is a very positive development for Lignol shareholders,” said Ross MacLachlan, Lignol’s CEO. “This transaction will provide Lignol with cash and balance sheet assets with which to leverage new government funding in completing the remaining pilot plant in support of commercializing our technology”.

Consideration for the Share Acquisition of ARW shares from Wasabi will be comprised of CAD$500,000 in cash, 19 million LEC common shares issued at CAD$0.08 per share for CAD$1,520,000 and a 10-month secured convertible debenture for CAD$2,245,770 (the “Debenture”) convertible into LEC common shares at CAD$0.15 per share. The provisions of the Debenture will include: (i) forced conversion should LEC’s common shares trade at or above CAD$0.20 per share for 7 or more consecutive trading days; (ii) an interest rate of 7%, payable in cash or LEC common shares at the market price on the date of payment; (iii) a provision that if the Debenture is converted and such conversion results in Wasabi beneficially holding or controlling over 19.99% of the common shares of LEC, Wasabi will not be entitled to vote those common shares in excess of 19.99% until approval from the shareholders of LEC permitting the voting of such shares is obtained; and (iv) as the sole recourse of Wasabi in the event of a default under the Debenture by the Company, the Company will grant a first ranking security interest in 144,777,333 of the ARW shares purchased by the Company as part of the Share Acquisition (subject to the right for LEC to sell such ARW shares to repay the Debenture after six months).

Other investors joining Difference Capital Funding Inc. in the Private Placement include Lignol management and Jace Ltd., a company headed by Stephen Morris. The Private Placement and the Share Acquisition are expected to close the week of August 20, 2012.

About Lignol
Lignol (TSXV: LEC) is a Canadian company undertaking the development of biorefining technologies for the production of advanced biofuels, including fuel- grade ethanol, and other renewable chemicals from non-food cellulosic biomass feedstocks. Lignol’s modified solvent based pre-treatment technology facilitates the rapid, high-yield conversion of cellulose to ethanol and the production of value-added biochemical co-products, including high purity HP-LTM lignins. HP- LTM lignin represents a new class of high purity lignin extractives (and their subsequent derivatives) which can be engineered to meet the chemical properties and functional requirements of a range of industrial applications that until now has not been possible with traditional lignin by-products generated from other processes. Lignol is executing on its development plan through strategic partnerships to further develop and integrate its core technologies on a commercial scale. Lignol also intends to invest in, or otherwise obtain, equity interests in energy related projects which have synergies with its biorefining technology.

Source: Lignol Energy Corporation"[www.lignol.ca], press release, 2012-08-14.


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