Cluny Capital Corp.
TSX VENTURE : CLN.P

October 09, 2014 18:40 ET

Cluny Capital Corp. Announces Details of Proposed Qualifying Transaction With Birchtree Energy Corp.

TORONTO, ONTARIO--(Marketwired - Oct. 9, 2014) -

NOT FOR DISSEMINATION IN THE UNITED STATES OR FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES AND DOES NOT CONSTITUTE AN OFFER OF THE SECURITIES DESCRIBED HEREIN.

Cluny Capital Corp. ("Cluny") (TSX VENTURE:CLN.P), a capital pool company as defined under Policy 2.4 of the TSX Venture Exchange (the "Exchange"), is pleased to provide this update on the proposed arm's length acquisition of 100% of the common shares of Birchtree Energy Corp. ("Birchtree") by Cluny previously announced on September 30, 2014. Pursuant to the terms of the letter of intent dated September 30, 2014 (the "LOI") between Cluny and Birchtree, and subject to completion of certain conditions precedent, the proposed acquisition of Birchtree will qualify as Cluny's "Qualifying Transaction" as defined by Exchange Policy 2.4.

Birchtree Energy Corp.

Birchtree, incorporated on September 10, 2014 under the laws of the Province of Ontario, is an Ontario based company that specializes in the distribution of wood pellets worldwide. Birchtree's primary focus is European markets where Birchtree holds current supply contracts and letters of intent from customers. Birchtree's growth strategy is based on organic growth and acquisitions to capture Asian markets where wood pellets are in high demand.

There are currently eight shareholders of Birchtree. Alexander Krutous of St. Petersburg, Russia, through AMK International Trading Corp., a corporation existing under the laws of the State of Delaware, owns 65.1% of the outstanding shares of Birchtree. No other person owns or controls, directly or indirectly, more than 10% of the outstanding shares of Birchtree.

As of September 30, 2014 (unaudited), Birchtree has assets of $140 and has a contract for EUR4,140,000 to supply wood pellets to a German company, no revenue and liabilities of $2,500.

About the Proposed Transaction

Pursuant to the LOI, it is currently contemplated that Cluny and Birchtree will combine their businesses by means of a three-cornered amalgamation (the "Amalgamation").

The Amalgamation will effectively provide for the acquisition of all of the outstanding equity interests of Birchtree by Cluny, indirectly through a wholly-owned Ontario incorporated subsidiary of Cluny (the "Amalgamation Entity") in a transaction in which the shareholders of Birchtree will receive shares of Cluny (the "Resulting Issuer Shares"). As a result of the Amalgamation of Amalgamation Entity and Birchtree (the "Amalgamated Corporation"), Cluny (the "Resulting Issuer") will become the sole beneficial owner of all of the outstanding shares of Amalgamated Corporation. The exchange ratio for the exchange of shares of Birchtree ("Birchtree Shares") will be 1:1.

The Amalgamation will result in Cluny issuing an aggregate of 13,833,272 Resulting Issuer Shares to the shareholders of Birchtree (the "Consideration Shares") and an aggregate of up to 7,500,000 Resulting Issuer Shares to purchasers in connection with the proposed Financing (as such term is defined below).

The Amalgamation is expected to constitute the Qualifying Transaction of Cluny defined by the policies of the Exchange, and upon the closing thereof, the Resulting Issuer will be listed as a Tier 2 Industrial issuer on the Exchange.

The Amalgamation will not constitute a "Non-Arm's Length Qualifying Transaction" (as such term is defined by the Exchange). In addition, the Amalgamation is not a "related party transaction" as such term is defined by Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions and is not subject to Policy 5.9 of the Exchange. As a result, no meeting of the shareholders of Cluny is required pursuant to Policy 2.4 of the Exchange or applicable corporate and securities laws.

Assuming the maximum Financing is achieved, the former Birchtree shareholders will own approximately 55.2% of the Resulting Issuer Shares, current Cluny shareholders will hold approximately 14.9% of the Resulting Issuer Shares and purchasers under the Financing (assuming the Maximum Financing (as such term is defined below)) will hold approximately 29.9% of the Resulting Issuer Shares. Accordingly, the Amalgamation will constitute a reverse take-over of Cluny.

Following completion of the Amalgamation, the Amalgamated Corporation will be a wholly-owned subsidiary of the Resulting Issuer, the auditors of the Resulting Issuer will be Schwartz Levitsky Feldman LLP and it is anticipated that the name of Cluny will be changed so that the name of the Resulting Issuer will be Birchtree Energy Inc.

Completion of the Amalgamation is conditional upon all necessary director, shareholder and regulatory approvals, including the approval of the Exchange, completion of the Minimum Financing (as such term is defined below), or such other amount as required by the Exchange, and other conditions which are typical for a business combination transaction of this type.

Concurrent Financings

In conjunction with the Amalgamation, the parties will complete two concurrent financings (together, the "Financing") for aggregate gross proceeds of a minimum of $1,000,000 (the "Minimum Financing") and a maximum of $1,500,000 (the "Maximum Financing"), as follows:

(a) non-brokered private placement financing (the "Debenture Unit Financing") of debenture units of Birchtree at the subscription price of $1,000 per unit. Each unit shall consist of (i) one $1,000 principal amount convertible unsecured subordinated debenture, bearing interest at a rate of 10% per annum, payable on maturity, and maturing 18 months from closing of the financing, and (ii) 5,000 transferable common share purchase warrants with each such warrant entitling the holder thereof to acquire one Birchtree Share at a price of $0.25 per share until the date that is 24 months from the closing of the financing. At the option of the holders, principal and interest under the convertible debentures may be convertible into Birchtree Shares at a conversion price of $0.20. Concurrently with the closing of the Amalgamation, the convertible debentures will be automatically converted into Birchtree Shares (which will then be exchanged for Resulting Issuer Shares). In connection with the financing, agents/finders will be entitled to a cash commission equal to 6% of the aggregate gross proceeds raised; and

(b) brokered private placement financing (the "Brokered Financing"), through one or more investment dealers, of Resulting Issuer Shares, at the subscription price of $0.20 per share. In connection with the financing, such investment dealer, will be entitled to a cash commission equal to 6% of the aggregate gross proceeds raised under the Brokered Financing and broker warrants exercisable for Resulting Issuer Shares equal to 6% of the number of Resulting Issuer Shares issued under the Brokered Financing at an exercise price of $0.20 per Resulting Issuer Share exercisable for a period of twenty-four (24) months from the closing of the Brokered Financing. All securities issued pursuant to the Brokered Financing will be subject to a four-month hold period.

Management and Board of Directors of the Resulting Issuer

The proposed management of the Resulting Issuer following the completion of the Amalgamation is as follows:

Anton Konovalov, Director and Chief Executive Officer

Mr. Konovalov holds a Bachelor of Economics from the University of Economics and Finance in Russia and he earned a Postgraduate Diploma from George Brown College in 2011. He has been the President of Amber Capital Corp. since December 2011.

Thomas Sears, Director and Chief Financial Officer

Since April 2014, Mr. Sears has been a Trader at Pollitt & Co. Inc. From October 2010 to April 2014 he was in Institutional Sales at Dominick & Dominick Securities Inc. and from February 2010 to October 2010 he was a Sales Consultant for PasWord Protection Inc. From 2009 to 2010 he was an Investment Advisor at Canaccord Capital Corporation (now known as Canaccord Genuity Corp.) and from 2002 to 2007 he was an Investment Advisor at Research Capital Corporation (now known as Mackie Research Capital Corporation). Mr. Sears obtained his Bachelor of Commerce from the University of Windsor in 2002.

Robbie Grossman, Director and Corporate Secretary

Mr. Grossman was called to the Ontario bar in 2002. Mr. Grossman, an experienced securities partner, joined McMillan LLP in September 2013 after having been with Garfinkle Biderman LLP since 2004. He is a corporate finance, M&A and securities lawyer acting for public and private companies and securities dealers. He is currently an officer and director of several publicly-listed issuers. Mr. Grossman holds a LL.B. from the University of Windsor and a B.A. (Political Science) from Concordia University.

Vitali Savitsky, Director

Mr. Savitsky has been an Equity Research Associate at Canaccord Genuity Inc. since September 2009 working for Oil & Gas, Technology and Agriculture groups where he currently maintains coverage of small and large market capitalization companies within the agriculture sector including PotashCorp, Mosaic, Agrium, Monsanto and Alliance Grain Traders.

Peter Simeon, Director

Mr. Simeon is a Partner at Wildeboer Dellelce LLP, a corporate finance law firm. Prior to joining Wildeboer Dellelce LLP in 2008, Mr. Simeon was associate counsel at Nortel Networks. Prior to that, Mr. Simeon practiced corporate and securities law at another large law firm in Toronto. Mr. Simeon is also on the board of directors of Tolima Gold Inc. (TSXV). Mr. Simeon holds a Bachelor of Arts degree from Queen's University and a Bachelor of Laws degree from Osgoode Hall Law School.

One or more additional directors will also be identified prior to closing of the Amalgamation and will be disclosed in future press releases.

Loan to Birchtree

Pursuant to the terms of the LOI, subject to Exchange approval, as soon as possible after the date of this press release, Cluny has agreed to advance to Birchtree, as a secured loan, $225,000 pursuant to Exchange Policy 2.4. The loan will have a term of twelve months and will accrue interest at a rate of 4% per annum. The loan will be used by Birchtree to pay (i) its portion of the Qualifying Transaction expenses, (ii) to facilitate existing orders, and (iii) general working capital.

Sponsorship

Sponsorship of a Qualifying Transaction of a capital pool company is required by the Exchange unless exempt in accordance with Exchange policies. Cluny intends on applying for an exemption from the sponsorship requirements under subsection 3.4(a)(ii) of Policy 2.2 of the Exchange Corporate Finance Manual, however, there is no assurance that Cluny will ultimately obtain either of these exemptions.

The information provided in this press release regarding Birchtree and its management has been provided by Birchtree and has not been independently verified by Cluny.

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.

This press release contains forward-looking statements regarding the proposed Amalgamation and the Financing. The forward- looking statements contained in this press release represent Cluny's views and expectations as of the date of this press release and should not be relied upon as representing its views and expectations at any subsequent date. Actual developments may differ materially from those contemplated by these forward-looking statements. The forward-looking events and circumstances discussed in this press release, including the completion of the proposed Amalgamation and the Financing, may not occur or could differ materially as a result of known and unknown risk factors and uncertainties affecting Cluny, including (without limitation) risks regarding market conditions, economic factors, and the equity markets generally. No forward-looking statement can be guaranteed. Forward-looking statements speak only as of the date on which they are made and, except as required by applicable securities laws, Cluny undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise.

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.

This press release does not constitute and the subject matter hereof is not, an offer for sale or a solicitation of an offer to buy, in the United States or to any "U.S Person" (as such term is defined in Regulation S under the U.S. Securities Act of 1933, as amended (the "1933 Act")) of any equity or other securities of Cluny or Birchtree. The securities of Cluny and Birchtree have not been registered under the 1933 Act and may not be offered or sold in the United States (or to a U.S. Person) absent registration under the 1933 Act or an applicable exemption from the registration requirements of the 1933 Act.

Contact Information

  • Cluny Capital Corp.
    Simon Yakubowicz
    Chief Executive Officer, Corporate Secretary and Director
    (416) 787-6633