Vancouver, British Columbia--(Newsfile Corp. - February 3, 2025) - Burcon NutraScience Corporation (TSX: BU) (OTCQB: BRCNF) ("Burcon" or the "Company"), a global technology leader in the development of plant-based proteins for foods and beverages, is pleased to announce that it has entered into an agreement with its alliance partner, RE ProMan, LLC ("ProMan"), for the purchase and operation of a protein production facility in North America.
Burcon and ProMan, a company led by Mr. John Vassallo, a director and shareholder of the Company, have entered into a binding term sheet setting out the key terms of a contract manufacturing arrangement between the parties. These terms form a part of a definitive agreement between the parties with respect to the manufacture of Burcon's protein products and subsequent lease of a production facility (collectively, the "Manufacturing Agreement"), which definitive agreement will be entered into in due course.
"We are excited to join forces with Burcon to deliver their groundbreaking plant-based protein solutions to market," said Mr. John Vassallo, Burcon's director. "This partnership reflects our strong belief in the future of sustainable, plant-based nutrition and Burcon's ability to lead in the fast-growing, multi-billion-dollar protein ingredients industry."
"This partnership marks a pivotal step in Burcon's evolution toward the company we aspire to be," said Kip Underwood, Burcon's chief executive officer. "By pairing a strategic real estate investment with a proven go-to-market approach in food technology, we are seizing the best opportunity in our history to establish a direct route to market for our innovative protein technologies."
Key Terms of Manufacturing Agreement:
ProMan will purchase a protein production facility and grant Burcon exclusive access to 100% of manufacturing capacity for production of Burcon's plant protein portfolio;
Burcon to use ProMan as its exclusive manufacturer of Burcon's protein products;
Burcon to produce and sell its entire portfolio of plant proteins;
Seven-year term Manufacturing Agreement, after which the Manufacturing Agreement transitions to a ten-year lease agreement pursuant to which Burcon will lease the production facility from ProMan;
Burcon to pay ProMan an annual production fee during the initial seven-year term and a lease fee at market rates during the subsequent ten years; and
ProMan has granted Burcon a right of first refusal to purchase the facility in the event ProMan desires to sell the facility.
(Additional details outlined below under Manufacturing Agreement Terms and Conditions)
As announced in Burcon's news release dated January 31, 2025, ProMan has entered into an agreement to acquire the production facility. Closing of the acquisition of the facility is subject to satisfaction of certain conditions. The production facility will have the infrastructure and processing capabilities to produce all of Burcon's proteins, with an option for modular production expansion. The facility will process locally sourced, North American raw materials.
Following the acquisition of the production facility by ProMan and the commencement of the term of the Manufacturing Agreement, Burcon expects to complete installation of propriety unit operations and begin commercial scale production of its protein products. First-year sales are projected to be in the range of $1 - 3 million, with double digit revenue expected in year two. Gross margins are expected to improve quarterly, targeting over 50% as capacity utilization increases. The Company anticipates profitability and positive cash flow in 2026.
Manufacturing Agreement Terms and Conditions
Exclusivity and Term Under the Manufacturing Agreement, Burcon's portfolio of plant proteins (the "Products") will be manufactured by ProMan at a production facility (the "Production Facility") located in North America and purchased by Burcon. The term (the "Term") of the Manufacturing Agreement is seven years, after which the parties will enter into a ten-year lease agreement, during which Burcon expects to pay market lease rates for use of the Production Facility (the "Property Lease Term"). The parties have mutually agreed that, subject to certain conditions, Burcon will use ProMan as its exclusive manufacturer of the Products and ProMan will use the Production Facility exclusively to manufacture the Products for Burcon.
Responsibilities Burcon will be responsible for all costs relating to the acquisition and delivery to ProMan of all raw materials and ingredients for the manufacture of the Products, utilities for operation of the Production Facility and for all routine maintenance costs of the equipment at the Production Facility. ProMan will be responsible for all costs related to the operation of the Production Facility, including ProMan's expenses for labor and personnel, permitting, licensing, insurance, overhead and property taxes.
Annual Production Fee In consideration for the acquisition of the Products from ProMan under the Manufacturing Agreement and for making the Production Facility available for the production of Products, Burcon will pay ProMan an annual fee (the "Annual Production Fee") during the Term based on a formula comprising of a fixed fee and a variable amount consisting of total operating expenses, which includes the aggregate production labour, production overhead, insurance premiums and property taxes payable by ProMan in respect of the Production Facility and the production of the Products therein. During the seven-year Term of the Manufacturing Agreement, the fixed fee portion of the Annual Production Fee Burcon will pay ProMan will be US$19.8 million in the aggregate. The variable portion of the Annual Production Fee will fluctuate depending on the operating expenses incurred at the Production Facility, which expenses will be approved by Burcon. The variable portion of the Annual Production Fee only applies to revenue generated from the sale of Products produced at the Production Facility and does not apply to other revenue streams, such as contract research or licensing fees from the license of its protein technologies.
Pursuant to the TSX Company Manual (the "Manual"), ProMan is considered an insider of Burcon since a director of Burcon, Mr. John Vassallo, controls ProMan. The aggregate Annual Production Fee payable to ProMan under the Manufacturing Agreement represents more than 10% of Burcon's current market capitalization. While the actual amount of the variable portion of the Annual Production Fee cannot be determined at this time, since it will fluctuate based on volumes produced, for purposes of Section 501(c) of the Manual, the table below sets out illustrative only examples of the aggregate Annual Production Fee that may be payable by Burcon to ProMan under the Manufacturing Agreement, and the percentage of Burcon's market capitalization as of the date of execution of the term sheet that such aggregate fees would represent. On January 24, 2025, ProMan also extended Burcon a US$150,000 loan (the "January 2025 Loan") for a period of one month at a 15% interest rate. Pursuant to Section 501(c) of the Manual, the US$1,875 of interest payable to ProMan under the loan is aggregated with the Annual Production Fee payable under the Manufacturing Agreement as these are transactions with insiders during a six-month period. The addition of the interest payable to ProMan under the loan has no impact to the calculations noted above.
Section 501(c) Illustrative Table
Scenario
Aggregate over the 7-year term of the Fixed Portion of the Annual Production Fee
Aggregate over the 7-year term of the Variable Portion of the Annual Production Fee
Aggregate over the 7-year term of the fixed and variable portions of the Annual Production Fee
Consideration Payable to ProMan under the January 2025 Loan
Aggregate Consideration Payable to ProMan in accordance with Section 501(c)(1)
Percentage of Burcon's Market Capitalization for Purposes of Section 501(c) of TSX Manual(2)
(a)
(b)
((a)+(b))
(d)
((a)+(b)+(d))
Scenario #1
US$19.8 million
US$10 million
US$29.8 million
US$1,875
US$29.802 million
318%
Scenario #2
US$19.8 million
US$20 million
US$39.8 million
US$1,875
US$39.802 million
425%
Scenario #3
US$19.8 million
US$30 million
US$49.8 million
US$1,875
US$49.802 million
532%
Scenario #4
US$19.8 million
US$50 million
US$69.8 million
US$1,875
US$69.802 million
746%
Note: This table is provided for illustrative purposes only in order to present shareholders with a conceptual understanding of the value that may be payable to ProMan under the Manufacturing Agreement. Actual amounts payable to ProMan under the variable portion of the Annual Production Fee may be higher or lower, depending on the actual amount of operating expenses incurred in respect of the Production Facility. The above disclosure should not be considered a financial outlook, forecast or guidance.
(1) This does not include the amounts payable for the ten-year lease portion, which amount will be based on market lease rates at the commencement of the ten-year lease term. (2) Based on a US dollar to Canadian dollar exchange rate of 1.4484 as of January 31, 2025 as reported by the Bank of Canada and the market capitalization of Burcon as of market close on January 31, 2025.
As a result, pursuant to Section 501(c) of the Manual, Burcon will be required to obtain disinterested shareholder approval for the payment of the Annual Production Fee and lease fee to ProMan under the Manufacturing Agreement and subsequent lease. Burcon intends to seek disinterested shareholder approval of the Manufacturing Agreement (including the lease) by way of consent resolution in accordance with Section 501(c) of the Manual, rather than by holding a shareholder meeting. For purposes of obtaining disinterested shareholder approval under Section 501(c) of the Manual, the 8,270,056 common shares of Burcon which ProMan, together with its affiliates, exercises direction and control over, which represent 5.8% of Burcon's current issued and outstanding shares, will be excluded from the approval.
Right of First Refusal During the Term and the Property Lease Term, ProMan has granted Burcon a right of first refusal to purchase the Production Facility in the event ProMan desires to sell the Production Facility or otherwise receives a bona fide offer to buy the Production Facility from an arms-length third party.
Representations and Warranties The parties have made certain representations and warranties under the term sheet and will make representations and warranties in the Manufacturing Agreement customary for a transaction of its nature.
Termination The term sheet and Manufacturing Agreement may be terminated at any time by mutual written agreement of the parties, by a party if the other party is in material breach of its obligations under the Manufacturing Agreement and such breach is not remedied within 180 days or if the other party suffers an insolvency event, as well as certain other termination rights customary for a transaction of this nature.
Conditionality of Manufacturing Agreement The obligations of the parties under the term sheet and the Manufacturing Agreement are subject to receipt by Burcon of all required regulatory approval, including approval of the TSX and Burcon's shareholders in accordance with Section 501(c) of the Manual, ProMan completing the acquisition of the Production Facility on or before April 30, 2025 and Burcon completing a minimum financing (including through the rights offering announced on November 20, 2024) of at least CAD$7 million.
Related Party Transaction
Mr. John Vassallo is a related party of Burcon for purposes of Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101") as he is a director of Burcon. The Manufacturing Agreement between Burcon and ProMan is considered a "related party transaction" pursuant to MI 61-101. Burcon is relying on the exemption available under Section 5.5(d) of MI 61-101 from the formal valuation requirements and Section 5.7(1)(c) of MI 61-101 from the minority shareholder approval requirements in respect of the Manufacturing Agreement. The term sheet was approved by the independent members of the board of directors of Burcon, with Mr. John Vassallo abstaining from the vote. Burcon will file a material change report containing the prescribed disclosure under MI 61-101 on or before February 13, 2025.
About Burcon NutraScience Corporation
Burcon is a global technology leader in the development of plant-based proteins for foods and beverages. Our proteins exhibit superior functionality, taste and nutrition, making them ideal ingredients for food formulators. With over two decades of experience, Burcon has amassed an extensive patent portfolio covering its novel plant-based proteins derived from pea, canola, soy, hemp and sunflower seeds, among other plant sources. Burcon is committed to delivering next-generation, best-in-class protein solutions, positioning itself as a key player in the rapidly expanding plant-based market. Supporting the growing trend towards a plant-based diet, Burcon offers sustainable protein ingredients that we believe are better for you and better for the planet. For more information, visit www.burcon.ca.
Forward-Looking Information Cautionary Statement The TSX has not reviewed and does not accept responsibility for the adequacy of the content of the information contained herein. This press release contains forward-looking statements or forward-looking information within the meaning of the U.S. Private Securities Litigation Reform Act of 1995 and applicable Canadian securities legislation. Forward-looking statements or forward-looking information involve risks, uncertainties and other factors that could cause actual results, performances, prospects and opportunities to differ materially from those expressed or implied by such forward-looking statements. Forward-looking statements or forward-looking information can be identified by words such as "anticipate," "aim", "intend," "plan," "goal," "project," "estimate," "expect," "believe," "future," "likely," "may," "should," "could," "will" and similar references to future periods. All statements included in this release, other than statements of historical fact, are forward-looking statements. There can be no assurance that such statements will prove to be accurate, and actual results and future events could differ materially from those anticipated in such statements or information. Forward-looking statements in this press release, include, among other, statements about satisfaction of the conditions to the term sheet, including receipt of TSX and shareholder approval of the Manufacturing Agreement and completion of the acquisition of the Production Facility by ProMan. Important factors that could cause actual results to differ materially from Burcon's plans and expectations include the implementation of our business model and growth strategies; trends and competition in our industry our future business development, financial condition and results of operations and our ability to obtain financing cost-effectively; potential changes of government regulations; inability of ProMan to complete the purchase of the Production Facility, and other risks and factors detailed herein and from time to time in the filings made by Burcon with securities regulators and stock exchanges, including in the section entitled "Risk Factors" in Burcon's annual information form for the year ended March 31, 2024 and its other public filings with Canadian securities regulators on SEDAR+ at www.sedarplus.ca. This list is not exhaustive of the factors that may affect any of the Company's forward-looking statements or information. Any forward-looking statement or information speaks only as of the date on which it was made, and, except as may be required by applicable securities laws, Burcon disclaims any intent or obligation to update any forward-looking statement, whether as a result of new information, future events or otherwise. Although Burcon believes the assumptions inherent in the forward-looking statements are reasonable, forward-looking statements are not guarantees of future performance, and, accordingly, investors should not rely on such statements.
Industry and Investor Contact Paul Lam Director, Investor Relations and Communications Burcon NutraScience Corporation Tel (604) 733-0896, Toll-free (888) 408-7960 plam@burcon.cawww.burcon.ca
Media Contact: Steve Campbell, APR President Campbell & Company Public Relations Tel (604) 888-5267 TECH@CCOM-PR.COM
