Yonge Street Capital Corp.

March 01, 2007 17:16 ET

Yonge Street Announces Letter of Intent

TORONTO, ONTARIO--(CCNMatthews - March 1, 2007) - Yonge Street Capital Corp. (TSX VENTURE:YSC) ("Yonge Street" or the "Company") is pleased to announce that it has entered into a letter of intent with Hempline Inc. (now operating as "Stemergy") dated February 27, 2007 (the "LOI") to complete an arm's-length business combination with Stemergy (the "Proposed Acquisition").

About the Proposed Acquisition

Pursuant to the terms of the LOI, and subject to adjustment to account for new equity financing in Stemergy pre-closing, shareholders of Stemergy immediately before closing (including persons with rights to convert options, warrants or other instruments to shares before closing) would own 90% of the shares of the resulting issuer and existing shareholders of Yonge Street immediately before closing would own 10% of the shares of the resulting issuer.

If Stemergy raises more than $500,000 of equity privately in the period from November 1, 2006 and closing, the proportion of the resulting company issued to Stemergy shareholders would increase by 0.1% for each $100,000 raised, up to a maximum of an additional 2.5%.

Yonge Street currently has 3,028,750 shares issued and outstanding and a further 405,750 shares reserved for issuance pursuant to stock options and broker warrants. Based on Stemergy shareholders receiving 90% of the resulting company post closing, Stemergy shareholders would be issued 27,258,750 shares of the resulting issuer.

Yonge Street is a "capital pool company" and intends for the Proposed Acquisition of Stemergy to constitute the "Qualifying Transaction" of the Company as such terms are defined in the policies of the TSX Venture Exchange (the "Exchange").

The completion of the Proposed Acquisition is subject to Exchange approval and any other necessary regulatory approvals. It is also subject to additional conditions precedent, including such security holder approvals of both Yonge Street and Stemergy as may be required by applicable corporate or securities laws; satisfactory completion of due diligence reviews by both parties; approvals of the boards of directors of Yonge Street and Stemergy; completion of a definitive agreement setting forth the terms and conditions of the Proposed Acquisition consistent with the LOI; and certain other conditions customary for transactions of this nature.

The completion of the Proposed Acquisition is also subject to the successful completion of a concurrent offering of Yonge Street shares to raise additional working capital of a minimum of $5 million for the resulting issuer, the particulars of which will be disclosed in a subsequent news release once they are determined. This financing would be dilutive to both the Yonge Street and Stemergy shareholders.

The proposed Qualifying Transaction is an arm's-length transaction and accordingly does not require shareholder approval. The Company will be applying to list as a Tier 2 Industrial Issuer upon completion of the Proposed Acquisition.

Trading in Yonge Street shares has been halted pending the completion of certain due diligence investigations by the Exchange. There can be no assurance that trading in Yonge Street shares will resume prior to the completion of the Qualifying Transaction.

On completion of the Proposed Acquisition, the Company will be in the renewable bio-fibres industry, specifically in the business of research, manufacture and sale of natural fibre products. Further information on the business of Stemergy is detailed below.

Sponsorship of Qualifying Transaction

Sponsorship of a qualifying transaction of a capital pool company is required by the Exchange unless an issuer is granted an exemption in accordance with Exchange policies. The Company will apply for an exemption from sponsorship requirements. However, there is no assurance that the Company will obtain an exemption.

About Yonge Street

Yonge Street is a company incorporated under the Canada Business Corporations Act. It is a reporting issuer in the Provinces of Alberta, British Columbia, Manitoba, and Ontario.

Further information concerning Yonge Street can be found in the prospectus of Yonge Street dated March 27, 2006 and at www.sedar.com.

About Stemergy (Hempline Inc.)

The following information relating to Stemergy, its operations and financial history, has been provided to the Company by Stemergy.

Stemergy was incorporated January 21, 1994 pursuant to the Business Corporations Act (Ontario). Stemergy is a private corporation with its head office located in Delaware, Ontario.

Grant Kime, of Ilderton, Ontario, the Chairman and CEO of Stemergy, presently holds, directly or indirectly, 41.22% of the issued and outstanding shares of Stemergy. No other person holds more than 20% of Stemergy.

Business of Stemergy

Stemergy is focused on producing and supplying renewable bio-fibres from annual stem fibre plants to large, expanding global markets. In the era of rising fossil fuel and energy prices, using annual plants to efficiently and quickly convert solar energy and green house gases into useful materials makes sound economic and environmental sense. As a result, the demand for renewable bio-fibres, derived from plants such as flax and hemp, is accelerating in a broad range of applications including composites, paper and nonwovens.

In 1994, Stemergy became the first company in North America since the 1940's to grow industrial hemp for research purposes. In 1998, the company established its existing research and development facility at Delaware, Ontario to further explore renewable fibre technologies and identify applications for extracted and refined fibres derived from stem fibre plants.

The continued operation of this R&D facility has given Stemergy practical experience in procurement, processing and selling of renewable bio-fibres. The company has been successful in developing proven, proprietary processing systems and technology for extracting and refining the different fibres in stem fibre plants. Stemergy's expertise in research, development and implementation of bio-fibre processing extends from genetics through to novel composites and includes agronomics, logistics, materials handling, processing, distribution, product development and marketing of renewable bio-fibres.

Stemergy is planning to implement a commercial scale processing facility to separate, refine and package bio-fibres such as flax and hemp to supply established markets. There is a large capacity to economically grow bio-fibres throughout Canada. The long slender fibres on the outside of annual stem fibre plants are used to replace synthetic fibres in composites for the automotive, construction and consumer products industries. These fibres are also used to make specialty pulp and paper, packaging, nonwovens (felt), insulation, stuffing, and many other materials. The core of the stem fibre plants is extracted, screened, packaged and sold as animal bedding, garden mulch, and plastic and concrete fillers. Many new applications are being developed including heating and fuel pellets. These markets are cumulatively, in excess of $4 billion. In the future Stemergy intends to pursue further value added opportunities and technologies with the fibres it produces.

Management and Board of Directors of the Resulting Issuer

Upon completion of the Proposed Acquisition, it is anticipated that the board of directors and management of the resulting issuer will include the persons identified below. Further individual(s) will be identified at a later date.

Gerald Ruth - Director

Mr. Ruth is a seasoned financial professional more than 19 years experience in the Canadian capital markets. He provides strategic advisory services to companies in a broad range of industries focusing on going public, corporate finance, capital markets, corporate governance and exchange related matters. Mr. Ruth is currently a Director of Western Goldfields, Inc., a U.S. gold mining company that trades on the Toronto Stock Exchange and the NASDAQ OTC Bulletin Board, and a Director and Chief Financial Officer of Greenwich Global Capital Inc., a capital pool company that is listed on the TSX Venture Exchange, President, CEO and Director of Yonge Street and is President and CEO of York Street Capital Corp., a limited market dealer involved in corporate finance, capital markets activities and strategic advisory services.

From 1988 to 2003, Mr. Ruth held various positions at the Toronto Stock Exchange, serving as the head of Listings Department from 1997 to 2003 where he was responsible for leading and directing all operations, policy development and general management within the Listings Group.

Mr. Ruth is a Chartered Accountant who was employed in private practice with KPMG Peat Marwick and Coopers and Lybrand. Mr. Ruth received a Bachelor of Business Administration (Honors) from Wilfrid Laurier University.

John M. Delf - Director

Mr. Delf was born and educated in the United Kingdom and joined the Barclays Bank International Management Training Program in 1962. Following assignments in the United Kingdom, Malta, the Middle East and the Caribbean, he moved to New York in 1972. He held a number of senior management positions for Barclays Bank in New York spanning corporate, retail, international and private banking and was promoted to Executive Vice President in 1986.

At the end of 1992, Mr. Delf left Barclays to concentrate on small business consulting and subsequently moved to Russia to manage a small business development program for ShoreBank of Chicago, funded by the European Bank for Reconstruction and Development and the G7 Nations. Mr. Delf moved back to the United States in 1997 to become President of ShoreBank Pacific until he retired at the end of 1998. Mr. Delf is an active member of the board of the directors of VanCity Capital Corporation in Vancouver, British Columbia, and a member of their Audit Committee. Mr. Delf is currently a Director of Yonge Street.

F. Grant Kime - Chairman and CEO

Mr. Grant Kime is an accountant (CGA) with 40 years proven entrepreneurial, manufacturing and business experience. Grant started his career in the public accounting profession in 1960 and worked in that industry until 1978. He was founder, president and largest shareholder in Big 'O' Inc., an innovative international plastic pipe producer with multi-plant operations in five Provinces in Canada the United States and the UK, employing over 350 people with sales exceeding $65 million. Grant was instrumental in orchestrating the sale of Big'O' Inc. in 1998 to a large multi-national construction products company.

During his tenure at Big'O', Grant was responsible for the successful introduction and acceptance of a number of innovative piping and water control products including: the wide spread use of corrugated plastic pipe in the agriculture and the building trades; knitted sock filter used over the pipe to drain soils that previously were un-drainable; single and double wall corrugated pipe in sizes up to 36" for use in both storm and sanitary sewers; and "System Platon" a dimpled plastic membrane for use on foundation walls to prevent moisture from penetrating through the concrete. He is a past president and chairman of the research committee of the Corrugated Plastic Pipe Association.

Grant became involved with Stemergy in 1994 when he advised the Company on the development of a corporate structure. In 1998 he assumed the role of Chairman, focusing on the development and implementation of an innovation strategy as Stemergy started its processing operation. Grant has been instrumental in creating Stemergy's business and financial plan.

Grant is currently a member of the Board of Directors of Prism Medical Limited and chairs the Governance Committee for Prism which is listed on the TSX Venture Exchange. He has been a cash crop and livestock farmer since 1960.

Geofrey G. Kime, P.Eng. - President and COO

Mr. Geof Kime was a founding Director of Stemergy and has been instrumental in re-establishing industrial hemp as a valuable fibre commodity in North America. He has been responsible for creating the company's expertise in hemp and flax fibre production, processing technology and creating new market opportunities for hemp and flax. He is considered to be a world authority in this industry.

Geof received a degree in Mechanical Engineering from Queen's University in 1990. He has been a licensed Professional Engineer in the Province of Ontario since 1993. While working with Big'O' Inc. from 1990 to 1997 in equipment and product design he received US patents for his designs of plastic processing equipment. Geof was a founding director of the North American Industrial Hemp Council and served on it from 1995 to 2001. He helped start the Canadian Hemp Trade Alliance and has served as a director since its inception in 2003 and is presently the Vice President. Geof is a founding member of the National Bio-fibre Advisory Board working for the advancement of the bio-fibre industry in Canada since 2006. He is also involved in an advisory capacity with Flax Canada 2015, an organization established to advance the uses of flax in Canada.

Geof served on the Board of Trustees for the London Waldorf School from 1998 to 2006, as a volunteer community member active on numerous committees, including overseeing the construction of a new building for the school in 2004.

Michael McCourt - Director

Mr. Michael McCourt has been a director of Hempline Inc. (operating as Stemergy) since 1997 and provides important analysis of the Company's operational effectiveness, raw material production and technical developments. In 1991 Michael McCourt received a diploma in both Controls Engineering Technology Systems and in Electrical Engineering Technology from Fanshawe College in London, Ontario. In 1992, Michael McCourt and a fellow partner incorporated D&D Automation Inc. to capitalize on automation contracts for aluminum-smelting projects in Quebec and the Persian Gulf. He is currently the president of D&D Automation, employing 50 people that design, install and maintain control and automation systems in over 15 countries around the world. Michael McCourt owns and operates a cash crop and cattle farm near Atwood, Ontario and has grown hemp for Stemergy in the past.

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.

Contact Information

  • Yonge Street Capital Corp.
    Gerald Ruth
    President & CEO
    (416) 899-3304
    Hempline Inc.
    Geofrey Kime
    President & COO
    (519) 652-0450
    Website: www.stemergy.com