Fortress Global provides update on S2G Biochemicals acquisition

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Fortress Global provides update on S2G Biochemicals acquisition

March 20, 2018 - 02:28

VANCOUVER, BC, March 19, 2018 (CNW) -Fortress Global Enterprises Inc. ("Fortress Global") is pleased to provide an update to its previously announced acquisition of S2G Biochemicals Inc. ("S2G"). Fortress has prepared an investor presentation related to this transaction. The presentation is available under the "Investor Relations" section at www.fortressge.com or by sending a request to info@fortressge.com.

Please find below an updated overview of the S2G acquisition originally announced on March 15, 2018:

Fortress Global has signed a share purchase agreement (the "SPA") with S2G and its shareholders, whereby Fortress Global will acquire all of the issued and outstanding common shares of S2G for a purchase price of $2,500,000, payable by the issuance of 666,652 common shares of Fortress Global at a deemed price of $3.75 per Fortress Global share.

Upon completion of the transaction, Fortress Global, through a newly formed special purpose company, intends to commission the construction of a demonstration plant to produce xylitol at its Fortress Specialty Cellulose ("FSC") Mill, utilizing proprietary process technologies, know-how and expertise developed by S2G and Mondelēz International, Inc. (NASDAQ: MDLZ), one of the world's largest snacking companies. The demonstration plant will use C5 sugars extracted from hemicellulose, which is a byproduct from the FSC Mill, to produce xylitol. The extraction and conversion of this byproduct will also further debottleneck the FSC Mill and increase its annual production capacity of dissolving pulp. The demonstration plant is expected to commence operation in 2020 and have a production capacity of up to 2,000 tonnes per year of xylitol. The FSC Mill is expected to produce sufficient C5 sugars annually to provide the feedstock for up to an additional 20,000 tonnes per year of xylitol production which Fortress intends to utilize by constructing an approximately $150 million full-scale plant following successful completion of the demonstration plant. When complete, the full-scale plant would be expected to generate up to $40 million of EBITDA annually.

Xylitol is a naturally occurring sugar polyol that has a sweetening property matching that of cane sugar but with 40% fewer calories. In addition, based on third-party research, Fortress Global believes that xylitol is currently the best nutritive sugar substitute with respect to the prevention of dental cavities. Xylitol is used extensively in a variety of confectionary products such as gums and candies with estimated annual global xylitol sales volumes in 2017 of approximately 200,000 tonnes and an expected annual growth rate of 6.5% through 2024. Current spot prices for xylitol vary by region and are in the US$3,500 – US$4,500/tonne range.

Fortress Global believes that the majority of xylitol is currently produced in China using corn cobs as the feedstock. Fortress Global will use FSC's low cost, high quality, non-GMO feedstock derived from Canada's sustainable forests and the high conversion efficiencies of the S2G process to improve the cost structure, improve efficiency and reduce environmental impact. Fortress Global believes that a full-scale plant at the FSC Mill will be one of the lowest cost producers of xylitol globally.

S2G is the exclusive global licensee of the xylitol process technology that S2G and Mondelēz International have jointly developed. In connection with the acquisition of S2G, Fortress Global and S2G have entered into a non-binding term sheet (the "Term Sheet") with Mondelēz International which sets out a framework to modify certain terms of the license and to provide for certain commitments from Mondelēz International with respect to the output of the demonstration plant and any future full scale plant.

The construction, commissioning and optimization of the demonstration plant is budgeted at approximately $33 million. It is anticipated that Fortress Global will provide $5.0 million in funding for the special purpose company in cash or in-kind. Fortress Global is in the process of securing the balance of the required funding through various non-dilutive sources, including federal and provincial grants, other non-recourse financing and consortium partners.

Chadwick Wasilenkoff, President and Chief Executive Officer of Fortress Global, commented: "The acquisition of S2G and the expansion of our dissolving pulp operation into the sugar substitutes business is in line with our corporate strategy of pursuing innovative and value enhancing opportunities. We believe that the production of xylitol will further optimize the utilization of our wood fibre and also provide us with the added benefit of offloading the recovery boiler which will provide a separate measurable economic benefit. With the expertise and know-how of the S2G team, who have dedicated over eight years to the development of this technology in conjunction with Mondelēz International, Fortress Global is well positioned to become a global low-cost producer of a product with an attractive growth profile. We are pleased with the positive feedback and funding opportunities provided by the federal and provincial funding agencies and look forward to finalizing all necessary arrangements in a timely manner."

Mark Kirby, President and Chief Executive Officer of S2G, commented: "We are very excited to become part of the Fortress team. It is the perfect partnership to commercialize the proprietary xylitol process technology which we have developed with Mondelēz International. Fortress brings proven operational capabilities, strong Canadian and Quebec government relationships, and a large and stable source of hemicellulose sugars that our research has shown are a preferred and cost-effective feedstock for xylitol production due to their high xylose and low ash content."

Closing of the SPA is subject to various customary conditions and is expected to occur on or before May 31, 2018.

As a reminder, effective Feb 1, 2018 the shares of Fortress Global now trade under the symbol FGE on the Toronto Stock Exchange. In conjunction with this name change a new website will be rolled out in stages through the month of March.

About Fortress Global Enterprises

Fortress Global Enterprises operates its dissolving pulp business at the Fortress Specialty Cellulose Mill located in Canada, which also operates in the renewable energy generation sector through its cogeneration facility.

About Mondelēz International

Mondelēz International, Inc. is building the best snacking company in the world, with 2017 net revenues of approximately $26 billion. Creating more moments of joy in approximately 160 countries, Mondelēz International is a world leader in biscuits, chocolate, gum, candy and powdered beverages, featuring global Power Brands such as Oreo and belVita biscuits; Cadbury Dairy Milk and Milka chocolate; and Trident gum. Mondelēz International is a proud member of the Standard and Poor's 500, Nasdaq 100 and Dow Jones Sustainability Index.

Fortress Global Enterprises Inc. ("Fortress Global") is pleased to provide an update to its previously announced acquisition of S2G Biochemicals Inc. ("S2G"). Fortress has prepared an investor presentation related to this transaction. The presentation is available under the "Investor Relations" section at www.fortressge.com or by sending a request to info@fortressge.com.

Please find below an updated overview of the S2G acquisition originally announced on March 15, 2018:

Fortress Global has signed a share purchase agreement (the "SPA") with S2G and its shareholders, whereby Fortress Global will acquire all of the issued and outstanding common shares of S2G for a purchase price of $2,500,000, payable by the issuance of 666,652 common shares of Fortress Global at a deemed price of $3.75 per Fortress Global share.

Upon completion of the transaction, Fortress Global, through a newly formed special purpose company, intends to commission the construction of a demonstration plant to produce xylitol at its Fortress Specialty Cellulose ("FSC") Mill, utilizing proprietary process technologies, know-how and expertise developed by S2G and Mondelēz International, Inc. (NASDAQ: MDLZ), one of the world's largest snacking companies. The demonstration plant will use C5 sugars extracted from hemicellulose, which is a byproduct from the FSC Mill, to produce xylitol. The extraction and conversion of this byproduct will also further debottleneck the FSC Mill and increase its annual production capacity of dissolving pulp. The demonstration plant is expected to commence operation in 2020 and have a production capacity of up to 2,000 tonnes per year of xylitol. The FSC Mill is expected to produce sufficient C5 sugars annually to provide the feedstock for up to an additional 20,000 tonnes per year of xylitol production which Fortress intends to utilize by constructing an approximately $150 million full-scale plant following successful completion of the demonstration plant. When complete, the full-scale plant would be expected to generate up to $40 million of EBITDA annually.

Xylitol is a naturally occurring sugar polyol that has a sweetening property matching that of cane sugar but with 40% fewer calories. In addition, based on third-party research, Fortress Global believes that xylitol is currently the best nutritive sugar substitute with respect to the prevention of dental cavities. Xylitol is used extensively in a variety of confectionary products such as gums and candies with estimated annual global xylitol sales volumes in 2017 of approximately 200,000 tonnes and an expected annual growth rate of 6.5% through 2024. Current spot prices for xylitol vary by region and are in the US$3,500 – US$4,500/tonne range.

Fortress Global believes that the majority of xylitol is currently produced in China using corn cobs as the feedstock. Fortress Global will use FSC's low cost, high quality, non-GMO feedstock derived from Canada's sustainable forests and the high conversion efficiencies of the S2G process to improve the cost structure, improve efficiency and reduce environmental impact. Fortress Global believes that a full-scale plant at the FSC Mill will be one of the lowest cost producers of xylitol globally.

S2G is the exclusive global licensee of the xylitol process technology that S2G and Mondelēz International have jointly developed. In connection with the acquisition of S2G, Fortress Global and S2G have entered into a non-binding term sheet (the "Term Sheet") with Mondelēz International which sets out a framework to modify certain terms of the license and to provide for certain commitments from Mondelēz International with respect to the output of the demonstration plant and any future full scale plant.

The construction, commissioning and optimization of the demonstration plant is budgeted at approximately $33 million. It is anticipated that Fortress Global will provide $5.0 million in funding for the special purpose company in cash or in-kind. Fortress Global is in the process of securing the balance of the required funding through various non-dilutive sources, including federal and provincial grants, other non-recourse financing and consortium partners.

Chadwick Wasilenkoff, President and Chief Executive Officer of Fortress Global, commented: "The acquisition of S2G and the expansion of our dissolving pulp operation into the sugar substitutes business is in line with our corporate strategy of pursuing innovative and value enhancing opportunities. We believe that the production of xylitol will further optimize the utilization of our wood fibre and also provide us with the added benefit of offloading the recovery boiler which will provide a separate measurable economic benefit. With the expertise and know-how of the S2G team, who have dedicated over eight years to the development of this technology in conjunction with Mondelēz International, Fortress Global is well positioned to become a global low-cost producer of a product with an attractive growth profile. We are pleased with the positive feedback and funding opportunities provided by the federal and provincial funding agencies and look forward to finalizing all necessary arrangements in a timely manner."

Mark Kirby, President and Chief Executive Officer of S2G, commented: "We are very excited to become part of the Fortress team. It is the perfect partnership to commercialize the proprietary xylitol process technology which we have developed with Mondelēz International. Fortress brings proven operational capabilities, strong Canadian and Quebec government relationships, and a large and stable source of hemicellulose sugars that our research has shown are a preferred and cost-effective feedstock for xylitol production due to their high xylose and low ash content."

Closing of the SPA is subject to various customary conditions and is expected to occur on or before May 31, 2018.

As a reminder, effective Feb 1, 2018 the shares of Fortress Global now trade under the symbol FGE on the Toronto Stock Exchange. In conjunction with this name change a new website will be rolled out in stages through the month of March.

About Fortress Global Enterprises

Fortress Global Enterprises operates its dissolving pulp business at the Fortress Specialty Cellulose Mill located in Canada, which also operates in the renewable energy generation sector through its cogeneration facility.

About Mondelēz International

Mondelēz International, Inc. is building the best snacking company in the world, with 2017 net revenues of approximately $26 billion. Creating more moments of joy in approximately 160 countries, Mondelēz International is a world leader in biscuits, chocolate, gum, candy and powdered beverages, featuring global Power Brands such as Oreo and belVita biscuits; Cadbury Dairy Milk and Milka chocolate; and Trident gum. Mondelēz International is a proud member of the Standard and Poor's 500, Nasdaq 100 and Dow Jones Sustainability Index.