BFK Capital Corp.
TSX VENTURE : BFK.P

The Hydropothecary Corporation

December 02, 2014 09:53 ET

BFK Capital Corp. and the Hydropothecary Corporation Announce Proposed Qualifying Transaction

TORONTO, ONTARIO--(Marketwired - Dec. 2, 2014) - BFK Capital Corp. ("BFK") (TSX VENTURE:BFK.P), a Capital Pool Company, and The Hydropothecary Corporation ("THC") are pleased to announce that they have entered into a non-binding letter of intent to complete a business combination (the "Transaction"). The letter of intent was negotiated at arm's length and is effective as of November 28, 2014.

Information Concerning BFK

BFK is a company existing under the laws of Ontario, a reporting issuer in British Columbia, Alberta and Ontario, and a Capital Pool Company listed on the TSX Venture Exchange (the "Exchange"). BFK has not commenced commercial operations and has no assets other than cash. If completed, the Transaction will constitute BFK's Qualifying Transaction pursuant to the policies of the Exchange.

BFK currently has 2,666,665 common shares ("BFK Shares") issued and outstanding, of which 1,676,665 BFK Shares are currently held in escrow pursuant to the policies of the Exchange. In addition, BFK has granted stock options to acquire up to an aggregate of 266,665 BFK Shares at a price of $0.60 per share (the "BFK Options") to directors and officers, and broker warrants to acquire an aggregate of 100,000 BFK Shares at a price of $0.60 per share (the "BFK Warrants") to a certain investment dealer. Other than these BFK Shares, BFK Options and BFK Warrants, no other securities of BFK are outstanding.

Further information concerning BFK can be found in the prospectus of BFK dated October 23, 2014, which is available under BFK's profile on SEDAR at www.sedar.com.

Information Concerning THC

THC, through its wholly-owned subsidiary, 167151 Canada Inc. ("167151"), is licensed under the Marihuana for Medical Purposes Regulations to produce, possess and destroy marijuana seeds and plants and dried marijuana product. THC, through 167151, expects to obtain the license to sell and ship such product prior, and as a condition, to the completion of the proposed Transaction. THC's facilities are located in Gatineau, Québec.

THC is a private company existing under the laws of Canada which was incorporated on August 13, 2013. THC currently has 4,653,715 common shares ("THC Shares") issued and outstanding. In addition, THC has granted stock options to acquire up to an aggregate of 516,166 THC Shares at exercise prices ranging between $1.00 and $3.50 per share (the "THC Options"). Other than these THC Shares and THC Options and certain liquidity entitlements of certain shareholders of THC to acquire up to an additional 102,966 THC Shares for no additional consideration in the event that THC does not complete a liquidity event by May 30, 2015, no other securities of THC are outstanding.

The principal shareholders of THC are Sebastien St-Louis (resident in Ottawa, Ontario), Louis Gagnon (resident in Gatineau, Québec) and Adam Miron (resident in Ottawa, Ontario), who directly and indirectly hold approximately 14.1%, 14.0% and 13.3% of the outstanding THC Shares, respectively. The remaining THC Shares are held by 84 shareholders who are investors in THC.

Information Concerning the Proposed Transaction

BFK and THC have entered into the letter of intent setting out certain terms and conditions pursuant to which the proposed Transaction will be completed. The transaction terms set out in the letter of intent are non-binding, and the Transaction is subject to the parties successfully negotiating and entering into a definitive business combination agreement in respect of the Transaction (the "Definitive Agreement") on or before January 30, 2015 or such other date as BFK and THC may agree.

It is anticipated that the completion of the Transaction will involve the following steps:

  1. subject to shareholder approval, BFK will consolidate the outstanding BFK Shares on a 2.80007 to 1 basis (the "Consolidation"), so that following the Consolidation, BFK will have 952,356 BFK Shares issued and outstanding, as well as the BFK Options which will then be exercisable to acquire 95,235 BFK Shares at a price of $1.68 per share and the BFK Warrants which will then be exercisable to acquire 35,713 BFK Shares at a price of $1.68 per share;
  1. BFK will then issue BFK Shares to the holders of the THC Shares in exchange for the THC Shares on the basis of two (2) post-Consolidation BFK Shares for each THC Share held (the "Exchange Ratio"), resulting in the issuance of 9,307,430 post-Consolidation BFK Shares to THC's current shareholders;
  1. the holders of the THC Options will receive replacement stock options of BFK in exchange for the THC Options on the basis of the Exchange Ratio, resulting in the issuance of BFK stock options exercisable to acquire 1,032,332 post-Consolidation BFK Shares at exercise prices ranging between $0.50 and $1.75 per share;
  1. in the event the 102,966 THC Shares are issued pursuant to the liquidity entitlements, they will be exchanged for BFK Shares pursuant to the Exchange Ratio, resulting in the issuance of 205,932 post-Consolidation BFK Shares; and
  1. subject to shareholder approval, BFK will change its name to "The Hydropothecary Corporation" or such other similar name as the parties may agree to.

It is expected that the share exchange will be structured as a three-cornered amalgamation in which THC will amalgamate with a newly incorporated, wholly-owned subsidiary of BFK to be formed solely for the purpose of facilitating the Transaction. Following the amalgamation, the amalgamated company will be a wholly-owned subsidiary of BFK (renamed The Hydropothecary Corporation or such other similar name as the parties may agree to) and 167151 will be a wholly-owned subsidiary of the amalgamated company. The final legal structure for the Transaction, however, will be determined after the parties have considered all applicable tax, securities law, and accounting efficiencies.

As a result of the amalgamation, the current holders of THC Shares (not including future shareholders as a result of the Bridge Financing and Concurrent Financing referred to below) will hold approximately 90.72% of the post-Consolidation BFK Shares and the current holders of the BFK Shares will hold approximately 9.28% of the post-Consolidation BFK Shares.

The Transaction will not constitute a Non-Arm's Length Transaction (as such term is defined in the policies of the Exchange). No Insider, promoter or Control Person (as such terms are defined in the policies of the Exchange) of BFK has any material interest in THC prior to giving effect to the Transaction, except that: (i) Rocky Bellotti, the President and Chief Executive Officer and a director of BFK, holds, directly or through affiliates or associates, 399,036 THC Shares, representing approximately 8.6% of the issued and outstanding THC Shares; (ii) Greg Misztela, a director of BFK, holds or has a beneficial interest in, directly or through affiliates or associates, 105,000 THC Shares, representing approximately 2.26% of the issued and outstanding THC Shares; and (iii) Adam Chambers, a director and Corporate Secretary of BFK, holds or has a beneficial interest in, directly or through affiliates or associates, 20,000 THC Shares, representing approximately 0.43% of the issued and outstanding THC Shares. These shares were acquired in private placements completed prior to the date of this release.

The BFK securities issuable under the Transaction will be subject to the escrow requirements of the Exchange and hold periods as required by applicable securities laws.

The Transaction is not subject to approval by the shareholders of BFK. However, at a meeting of the shareholders of BFK to be called in connection with the Transaction, the shareholders of BFK will be asked to: (i) approve the Consolidation; (ii) approve the change of name to "The Hydropothecary Corporation" or such other similar name as the parties may agree to on closing of the Transaction; and (iii) approve the appointment of the new directors as detailed below. The Transaction is subject to approval by the shareholders of THC, which will be sought at a meeting of the shareholders of THC to be held as soon as practicable.

Financings

Prior to the completion of the Transaction, THC intends to complete a non-brokered bridge financing private placement (the "Bridge Financing") to raise up to $1,500,000 through the issuance of secured convertible debentures (the "Debentures"). It is expected that: (i) the Debentures will bear interest at the rate of 12% per annum, compounded monthly and payable monthly in arrears; (ii) the Debentures will have a maturity date which is eight (8) months from closing of the Bridge Financing; and (iii) the principal amount of the Debentures will be convertible at the option of the holders, and will be automatically converted immediately prior to the completion of the Business Combination, into units of THC at a price of $4.00 per unit, with each unit to consist of one THC Share and one common share purchase warrant of THC, each warrant being exercisable to acquire one THC Share at a price of $4.50 per THC Share for a period of 2 years from the date of issuance. A proposed cash commission equal to 3.5% of the principal amount of the Debentures sold and a 1% set-up fee payment will be payable in connection with the Bridge Financing, and it is proposed THC will also issue compensation warrants exercisable to acquire that number of THC Shares as is equal to 3.5% of the number of units into which the Debentures sold under the Bridge Financing would be convertible.

In addition, prior to or concurrent with the completion of the Transaction, THC also intends to complete a private placement for minimum gross proceeds of $12 million (the "Concurrent Financing") through the issuance of subscription receipts of THC (the "Subscription Receipts") at a price to be determined. Each Subscription Receipt will entitle the holder to acquire one THC Share for no additional consideration and will be automatically exercised for such shares immediately prior to the completion of the Transaction. It is expected that the Concurrent Financing will be a brokered financing.

Under the Transaction, the THC security holders resulting from the Bridge Financing and the Concurrent Financing will receive post-Consolidation BFK Shares or securities convertible into post-Consolidation BFK Shares in exchange for their THC securities, as applicable, on the basis of the Exchange Ratio.

Management and Board of Directors of Resulting Issuer

Upon completion of the Transaction, it is expected that the board of directors and management of the resulting issuer will consist of the persons identified below.

Sebastien St-Louis - President and Chief Executive Officer and Director

Mr. St-Louis has been the President and Chief Executive Officer of THC since August 2013. Mr. St-Louis is also the President and founder of Shield Real Estate Investments Inc., founded in 2012. Prior to that, he served as a Senior Account Manager at the Business Development Bank of Canada from 2008 to 2011 and as Chief Financial officer of Wholesale Autoparts Warehouses from 2011 to 2012. Mr. St-Louis holds an MBA, DESS, finance from the Université du Québec à Montréal and a Bachelor of Arts from the University of Ottawa.

Ed Chaplin - Chief Financial Officer

Prior to Joining THC as Chief Financial Officer in 2014, Mr. Chaplin served as V.P. Finance and Administration for Solacom Technologies Inc. from 2011 to 2014, Interim Corporate Controller at Arise Technologies Inc. in 2011, V.P Finance and Administration at BTI Systems Inc. from 2008 to 2010 and Corporate Controller at Corel Corporation from 2001 to 2008. He obtained his Chartered Professional Accountant, Chartered Accountant designation while working for Ernst and Young from 1996 to 1999. Mr. Chaplin holds a Bachelor of Commerce from Carleton University.

Adam Miron - Chief Operating Officer and Director

Mr. Miron has been the Chief Operating Officer of THC since August 2013. Mr. Miron is the co-founder of iPolitics.ca and was the CIO from 2010 to 2013 and was the National Director of the Federal Liberal Commission from 2007 to 2009 and was responsible for the Federal Liberal Party's online election campaigns. He has experience with online marketing & sales, and brand development. Mr. Miron has also run political campaigns in Canada and abroad.

Dr. Michael Munzar - Director

Dr. Munzar is a clinician and is currently serving as Medical Director of Statcare medical clinic in Pointe Claire, Québec. In addition, Dr. Munzar is on the board of directors of Osta Biotechnologies Inc., and has held the position of Vice President of Medical and Regulatory Affairs at Osta since 2005. He served as Medical Director of Nymox Pharmaceutical Corporation (NASDAQ:NYMX) from 1996 to 2004 and as the President of Serex Inc., a wholly owned subsidiary of Nymox, from 2000 to 2004. Dr. Munzar has experience in the regulatory development of drugs and medical devices. He obtained his MDCM from McGill University in 1979.

Kanti Mapara - Director

Mr. Mapara is currently Chief Executive Officer and a director of International Pharma Distribution Corp., a company he formed in 2014 to provide drug marketing and distribution services. Between 1997 and 2013, Mr. Mapara held various positions, from regulatory affairs to customer relations to Senior Distribution Manager, with McKesson Canada Corporation, a pharmaceutical logistics and distribution company. Prior to joining McKesson, from 1973 to 1997, Mr. Mapara was Senior Distribution Manager at Drug Trading Company, a pharmaceutical wholesaler and retailer. Mr. Mapara is a licensed pharmacist and holds a degree in International Business Management from Wilfred Laurier University, a Bachelor of Pharmacy (Honours) from the University of Leicester England and a Bachelor of Business Management from the American University of Lebanon.

Jason Ewart - Director

Mr. Ewart has been the Chief Executive Officer of GC-Global Capital Corp. since June 2004, as well as Director and Chief Operating Officer since July 2003. Mr. Ewart was a market analyst with A & E Capital Funding Inc. and Bradstone Equity Partners Inc. between 1998 and 2002 and Vice-President of Quest Investment Corporation between 2002 and 2003. He has experience with bridge financing, financial analysis, quantitative modeling, equities trading and mergers and acquisitions. Mr. Ewart holds an economics degree from McGill University.

THC Financial Information

During its 352 day fiscal period from incorporation to year end July 31, 2014, THC had no sales and a net loss of $1,300,211. As at July 31, 2014, THC had total assets of $3,557,141 and no long term liabilities. The foregoing financial information is audited. Financial information for THC will be provided in the filing statement of BFK to be prepared in connection with the Transaction.

Conditions to Transaction

The completion of the Transaction is subject to the approval of the Exchange and all other necessary regulatory approvals. It is also subject to additional conditions precedent, including:

  • execution of the Definitive Agreement on or before January 30, 2014 or such other date as BFK and THC may agree;
  • satisfactory completion of due diligence reviews by both parties;
  • approvals of the boards of directors of BFK and THC;
  • completion of the Bridge Financing and the Concurrent Financing;
  • preparation and filing of a filing statement outlining the definitive terms of the Transaction in accordance with the policies of the Exchange;
  • receipt of all director, shareholder and requisite regulatory approvals relating to the Transaction, including, without limitation, the approval of the Exchange;
  • any person who will be a post-closing shareholder of BFK which is required by the Exchange to sign an escrow agreement in accordance with the policies of the Exchange shall have signed and delivered such agreement;
  • each of BFK and THC shall have executed, delivered and performed all covenants on its part to be performed under the Definitive Agreement and all representations and warranties of each party contained in the Definitive Agreement shall be true and correct at the time of closing; and
  • at the time of closing the Transaction, THC's license to produce and sell medical marijuana must be in effect and in good standing.

Sponsor

The proposed Transaction is subject to the sponsorship requirements of the Exchange. The parties intend to apply for an exemption from the sponsorship requirements of the Exchange. In the event that an exemption is not available, a sponsor will be identified at a later date and will be announced in a subsequent press release of BFK. An agreement to sponsor should not be construed as an assurance with respect to the merits of the transaction or the likelihood of completion of the proposed Transaction.

Filing Statement and Caution

Further details about the Transaction and the resulting issuer will be provided in the filing statement of BFK to be prepared and filed in respect of the Transaction. Investors are cautioned that, except as disclosed in the filing statement, 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.

Trading in the BFK Shares

Trading in the BFK Shares will be halted as a result of this announcement. Trading in the BFK Shares will remain halted pending the review of the proposed Transaction by the Exchange. There can be no assurance that trading in the BFK Shares will resume prior to the completion of the Transaction.

Forward-Looking Information

This press release contains forward-looking information based on current expectations. Statements about the closing of the Transaction, expected terms of the Transaction, the number of securities of BFK that may be issued in connection with the Transaction, the ownership ratio of BFK's shareholders post-closing, and the parties' ability to satisfy closing conditions and receive necessary approvals are all forward-looking information. These statements should not be read as guarantees of future performance or results. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements to be materially different from those implied by such statements. Although such statements are based on management's reasonable assumptions, there can be no assurance that the Transaction will occur or that, if the Transaction does occur, it will be completed on the terms described above. BFK and THC assume no responsibility to update or revise forward-looking information to reflect new events or circumstances unless required by law.

Cautionary Statements

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, 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 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.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Neither 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.

Contact Information

  • BFK Capital Corp.
    Rocky Bellotti
    President and CEO
    (416) 750-4949

    The Hydropothecary Corporation
    Sebastien St-Louis
    President and CEO
    (613) 293-4515