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

TORONTO, ON / ACCESSWIRE / November 17, 2016 / BFK Capital Corp. (BFK-P.V) ("BFK"), 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 16, 2016.

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 2,756,665 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 outstanding stock options to purchase up to an aggregate of 266,665 BFK Shares at a price of $0.60 per share (the "BFK Options") to directors and officers. Other than these BFK Shares and BFK Options, 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 Access to Cannabis for Medical Purposes Regulations to cultivate and sell marijuana seeds and plants and dried marijuana product and to produce marijuana oils, marijuana resins and fresh marijuana products. 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 7,346,637 common shares ("THC Shares") issued and outstanding. In addition, THC has issued and outstanding: (i) stock options to purchase up to an aggregate of 835,649 THC Shares at exercise prices ranging between $1.00 and $4.50 per share (the "THC Options"); (ii) common share purchase warrants to purchase up to an aggregate of 1,850,905 THC Shares at exercise prices ranging between $4.00 and $6.23 per share (based on current exchange rates for certain warrants exercisable at US$4.60 per share) (the "THC Warrants"); (iii) $345,000 principal amount of unsecured convertible debentures (the "THC Unsecured Debentures"), the principal amount of which is convertible into units of THC at a price of $4.50 per unit, each unit consisting of one THC Share and one common share purchase warrant exercisable to acquire one THC Share at an exercise price of $5.00 per share for a period of two years from the date of issuance; (iv) US$3,275,000 principal amount of secured convertible debentures (the "THC Secured Debentures"), the principal amount of which is convertible into THC Shares at a price of US$4.20 per share. Other than these THC Shares, THC Options, THC Warrants, THC Unsecured Debentures and THC Secured Debentures, no other securities of THC are issued and outstanding.

The THC Shares are widely held and the only shareholders of THC who directly or indirectly own more than 5% of the issued and outstanding THC Shares are Sebastien St-Louis (resident in Ottawa, Ontario), Louis Gagnon (resident in Gatineau, Québec), Adam Miron (resident in Ottawa, Ontario), Dr. Michael Munzar (resident in Montreal Quebec) and Casale HC Limited Partnership (a private investment partnership formed under the laws of Québec), who directly or indirectly hold approximately 9.9%, 8.9%, 8.4%, 5.2% and 7.0% of the outstanding THC Shares, respectively. The remaining THC Shares are held by approximately 152 shareholders.

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 December 9, 2016 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 1.5 to 1 basis (the "Consolidation"), so that following the Consolidation, BFK will have 1,837,777 BFK Shares issued and outstanding, as well as the BFK Options which will then be exercisable to acquire 177,777 BFK Shares at a price of $0.90 per share;

  2. BFK will then issue BFK Shares to the holders of the THC Shares in exchange for the THC Shares on the basis of six (6) post-Consolidation BFK Shares for each THC Share held (the "Exchange Ratio"), resulting in the issuance of 44,079,822 post-Consolidation BFK Shares to THC's current shareholders;

  3. 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 5,013,894 post-Consolidation BFK Shares at exercise prices ranging between $0.17 and $0.75 per share;

  4. the holders of the THC Warrants will receive replacement common share purchase warrants of BFK in exchange for the THC Warrants on the basis of the Exchange Ratio, resulting in the issuance of BFK warrants exercisable to acquire 11,104,830 post-Consolidation BFK Shares at exercise prices ranging between $0.67 and $1.04 per share;

  5. the holders of the THC Unsecured Debentures will receive replacement unsecured debentures of BFK, the principal amount of which will be convertible into units of BFK at a price of $0.75 per unit, each unit consisting of one post-Consolidation BFK Share and one common share purchase warrant exercisable to acquire one post-Consolidation BFK Share at an exercise price of $0.83 per share;

  6. the holders of the THC Secured Debentures will receive replacement secured debentures of BFK, the principal amount of which will be convertible into post-Consolidation BFK Shares at a price of US$0.77 per share; and

  7. 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 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 Financing referred to below) will hold approximately 96% of the post-Consolidation BFK Shares and the current holders of the BFK Shares will hold approximately 4% 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 Greg Misztela, a director of BFK, holds or has a beneficial interest in, directly or through affiliates or associates, 104,810 THC Shares, representing approximately 1.43% 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 approve the Consolidation and, to the extent necessary, approve the appointment of 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.

Financing

Prior to completion of the Transaction, THC intends to complete a brokered private placement of up to 2,900,000 THC Shares at a price of $4.50 per share for gross proceeds of up to $13.05 million (the "Financing"). THC has engaged Canaccord Genuity Corp. to act as agent in respect of the Financing.

Under the Transaction, the THC shareholders resulting from the Financing will receive post-Consolidation BFK Shares in exchange for their THC Shares on the basis of the Exchange Ratio. It is a condition to closing of the Transaction that THC completes the Financing for gross proceeds of at least $10 million.

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 and 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 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.

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.

Vincent Chiara - Director

Mr. Chiara is President and sole owner of Group Mach Inc. He began his career in 1984 as a lawyer specializing in real estate transactions and corporate litigation. In 1999, he ceased practicing law and focused on real estate acquisitions and property development through Mach, a private holding company. Mach and its affiliates hold significant investments representing more than 6.5 million square feet of office buildings located in Montreal and throughout Québec. In addition to office and commercial spaces, Mach owns seven million square feet of industrial space, residential and development properties and land for development. Mr. Chiara holds a commerce degree from McGill University and a law degree from the University of Sherbrooke. Mr. Chiara is an independent trustee of Pro Real Estate Investment Trust.

It is expected that the directors of the resulting issuer will include two additional individuals to be determined.

THC Financial Information

During the fiscal year ended July 31, 2016, THC had sales of $1,871,781 and a net loss of $3,354,296. As at July 31, 2016, THC had total assets of $9,510,076 and no long term liabilities. The foregoing financial information is unaudited. 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 December 9, 2016 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 Financing by THC for gross proceeds of at least $10 million;

  • 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.

For further information, please contact:

Riccardo Forno
CEO
BFK Capital Corp.
(416) 361-2817

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

SOURCE: BFK Capital Corp.