- Orletto Capital II inc. announces an agreement for a qualifying transaction with CHARBONE Corporation
QUEBEC–Orletto Capital II inc. (TSXV: OLT.P) (the “ Company ” or “ Orletto ”), a capital pool company listed on the TSX Venture Exchange (the “ Exchange ”), is pleased to announce that it has entered into an letter of understanding dated April 8, 2021 with Corporation CHARBONE (“ Charbone ”) with respect to a proposed business combination under which Orletto will acquire all of the issued and outstanding shares of Charbone, through a triangular merger between Orletto, Charbone and a wholly-owned subsidiary of Orletto (the ” Proposed Transaction “).
It is expected that the Proposed Transaction will constitute the “Qualifying Transaction” of Orletto in accordance with Policy 2.4 – Capital Pool Companies of the Bourse. The Letter of Understanding replaces the Letter of Understanding entered into between Orletto and Enerdro Inc. (“ Enerdro ”) on January 6, 2021 (the “ Enerdro Letter of Understanding ”).
Charbone had initially planned to transfer its hydroelectric activities to Enerdro while continuing its development activities in the field of green hydrogen. After a review of the potential markets, Charbone has chosen to maintain and continue its activities in the two markets of hydroelectricity and green hydrogen within Charbone and has mutually agreed to terminate the Enerdro Letter of Understanding, with the agreement of Orletto, on April 6, 2021.
About Charbone
Charbone has been governed and incorporated under the Canada Business Corporations Act since April 17, 2019.
Charbone is a renewable energy manager that provides clean and reliable energy solutions for hydroelectric power plants with limited operations and activities. Charbone intends to become a producer of green hydrogen that will provide an environmentally friendly solution for industrial and commercial uses.
On June 29, 2021, Charbone, through its wholly owned subsidiary, CHARBONE Corporation USA, made its first acquisition since its incorporation, Stuwe and Davenport Partnership, LLC (“ Stuwe and Davenport LLC ”), a hydroelectric power station of 0.2 MW located in Vermont for an amount of $ 470,000 paid in cash. The Vermont hydroelectric plant includes a 20-year power purchase agreement with Cabot Hosiery Mills Inc. Stuwe and Davenport is located in the Municipality of Northfield where it has a dam built in 1983 on the Dog River. The hydroelectric plant was operated by Gravity Renewables, Inc., a Colorado-based company, from 2015 to 2021.
On July 27, 2021, Charbone announced the conclusion of a 25-year emphyteutic lease with a 10-year renewal option on 390,686.89 square feet of land in Sorel-Tracy, for a annual rent of $ 78,000. Charbone intends to build its first 0.5 MW hydrogen production plant in the last quarter of 2021. In addition, plans are progressing to start production of green hydrogen at Sorel-Tracy by now. June 2022.
Following the purchase of the Vermont hydroelectric plant, Charbone intends to continue the acquisition of 0.2 MW to 25 MW hydroelectric plants in the United States where the Company has identified potential acquisitions of assets of more than 1,500 MW. Through the acquisition and consolidation of small hydroelectric power stations, the Company expects to generate fixed income during the deployment of its green hydrogen production plants across North America.
As the hydrogen market evolves, Charbone plans to use its hydropower plants to supply clean energy to its green hydrogen production plants with the aim of reducing carbon emissions, but also reducing the costs of production. Energy costs are currently an important component of the price of hydrogen and the ability to control and reduce its costs will allow the Company to have a more competitive offer compared to other methods of hydrogen production.
Buckell Trust, whose trustee is Dave B. Gagnon, 9029-6799 Québec inc., Owned by Daniel Charette and JURAFE Trust, whose trustee is Stéphane Dallaire, respectively hold, directly or indirectly, 8,611,343 shares, 7,151,793 shares and 5,692,244 shares in the capital of Charbone, which represent a total of 88.5% of the voting shares of Charbone.
Summary of Charbone’s financial information
The following table presents information in the financial statements about the financial condition and results of operations of Stuwe and Davenport LLC. This information is taken from the unaudited financial statements of Stuwe and Davenport LLC for the years ended December 31, 2020, December 31, 2019 and December 31, 2018. In connection with the Proposed Transaction, Charbone will provide its consolidated financial statements as at June 30 2021.
| Fiscal year ended December 31, 2020 (unaudited) (1) |
Fiscal year ended December 31, 2019 (unaudited) |
Fiscal year ended December 31, 2018 (unaudited) |
|
| Income | $ 10,041 | $ 281,302 | $ 343,387 |
| Net losses | ($ 279,115) | ($ 503,037) | ($ 393,790) |
| Adjustments ( 2 ) | |||
| + Amortization and depreciation |
$ 129,746 | $ 310,801 | $ 302,127 |
| + Interest | $ 45,735 | $ 47,822 | $ 49,827 |
| + Management fees | $ 69,156 | $ 262,585 | $ 297,868 |
| + Losses on disposal of tangible fixed assets |
—– $ | $ 64,776 | —– $ |
| Adjusted EBITDA | ($ 34,478) | $ 182,947 | $ 256,032 |
(1) Stuwe and Davenport LLC was in operation for only one (1) month in 2020 due to the termination of the contract with Northfield Electric Department. The new contract for the interconnection at the Cabot Hosiery Mills inc. was entered into before the acquisition of Charbone. The contract is for 20 years for Stuwe and Davenport LLC and Charbone management expects to restart hydropower production by the end of September 2021.
(2) Charbone believes that Adjusted EBITDA is an important measure for analyzing its operating profitability without being influenced by financing decisions, non-cash items, income tax strategies and management fees that are not not necessary for the operation of the business. Comparison with peers is also easier, as companies rarely have the same capital and funding structure. Each of these non-IFRS financial measures is not a measure of profit or cash flow recognized by International Financial Reporting Standards (IFRS) and does not have standardized meanings prescribed by IFRS. The method of calculating these financial measures may differ from methods by other issuers and, therefore, the definition of these non-IFRS measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that non-IFRS financial measures should not be interpreted as an alternative to net results determined in accordance with IFRS as indicators of Charbone’s performance or to cash flows from operating activities as liquidity and cash flow measures.
Based on Charbone’s unaudited financial statements for the quarter ended March 31, 2021, Charbone has total current assets of approximately $ 1,400,000, total current liabilities of approximately $ 130,000, and $ 2,000,000 convertible debentures. As of December 31, 2020, Charbone had no assets and no income and losses of $ 360,000. With the newly acquired Vermont hydroelectric plant, Charbone expects to start generating revenue from September 2021.
The proposed Operation and the concomitant financing
Charbone currently has 24,243,367 Class A shares issued and outstanding (the “ Charbone Common Shares ”) as well as convertible debentures for a total amount of $ 2,395,845 which can be converted on or before December 31, 2023 into shares of category A in the context of a material event such as the proposed Transaction (the “ Existing Charbone Debentures ”) which will be converted into Charbone Ordinary Shares at the close of the proposed Transaction.
As part of the Proposed Transaction, Charbone will make a private placement (the “ Charbone Private Placement ”) of Charbone subscription receipts (the “ Subscription Receipts ”). ”) For a minimum amount of C $ 5,000,000, which will be escrowed with a subscription receipt agent. The price of each Subscription Receipt will be determined based on market conditions at the time of closing. Once the escrow release conditions have been met, which includes the completion of the Proposed Transaction, each Subscription Receipt should be exercised, without payment of any additional consideration and without further action by its holder, for one Charbone ordinary share. On July 5, 2021, Charbone entered into a letter of understanding with Desjardins Securities Inc. to act as an agent (the ” Agent ”) Which undertakes to deploy“ reasonable commercial efforts ”for the Charbone Private Placement and, within the framework of which Charbone will pay, in the event that the Charbone Private Placement is completed, a closing commission equal to 8% of the proceeds gross obtained from all investors as well as to issue a number of warrants equal to 8% of the number of securities issued within the framework of the Charbone Private Placement (the “ Agent “). The exercise price of the Agent’s warrants will be equal to the price of the securities issued within the framework of the Charbone Private Placement. The period of exercise of the Agent’s warrants will be 24 months from the closing of the Charbone Private Placement. Charbone will also pay a commission of CA $ 100,000 to the Agent at the closing of the Charbone Private Placement, by issuing securities at a price equal to the price per security issued under the Charbone Private Placement.
The Proposed Transaction will be carried out through a triangular merger whereby a wholly owned subsidiary of Orletto (“ Orletto Subco ”), will merge with Charbone pursuant to a merger agreement (the “ Merger Agreement “). Orletto will acquire all of the Charbone Ordinary Shares in consideration for the issuance of Orletto Ordinary Shares which will represent 82% of all Charbone Ordinary Shares at the close of the Proposed Transaction after the conversion of the existing Charbone Debentures, but before the closing of the Charbone private placement. The exchange ratio remains a subject of discussion between Orletto and Charbone. In addition, all Charbone Ordinary Shares issued and outstanding after the exercise of the Subscription Receipts will be exchanged for Orletto Ordinary Shares under the same terms and conditions. The Agent’s Warrants issued by Charbone will be exchanged for Agent’s Warrants by Orletto with the required adjustments,
The company resulting from the merger of Orletto Subco and Charbone will be 100% owned by Orletto (the “ Resulting Issuer ”). Upon completion of the proposed Transaction, the Resulting Issuer will then change its name to “Corporation CHARBONE” (the “ Change of Name ”) in order to continue its activities.
Completion of the proposed Transaction remains subject to a number of conditions, including, among others: receipt of all necessary consents, orders and approvals; submission of Orletto’s audited financial statements; Charbone’s audited financial statements for the financial year of December 31, 2020; no material adverse changes in the business, business or operations of Orletto; no material adverse change in the business, business or operations of Charbone; examination, to the sole satisfaction of Charbone, of the financial condition, business, properties, titles, assets and affairs of Orletto; the examination, to the sole satisfaction of Orletto, of the assets of Charbone and of the financial situation and activities of Charbone; approval of the proposed Transaction by the board of directors of each of Orletto and Charbone; the conclusion of final agreements in a form and content satisfactory to the parties; the Exchange Escrow Agreement must have been entered into; the board of directors of Orletto must be composed of five directors; Orletto must not have undertaken any activities other than those related to the completion of the proposed Transaction and the conclusion of the Merger Agreement.
There is no guarantee that all necessary regulatory approvals will be obtained.
Summary of the officers of the resulting Issuer
It is expected that, simultaneously with the closing of the proposed Transaction, the board of directors and management of Orletto will be reconstituted. Details of the proposed directors of the Resulting Issuer will be provided in a subsequent press release. The proposed directors will hold office until the next annual meeting of shareholders of the Resulting Issuer following closing, or until their successors are duly appointed or elected. The principal officers of the Resulting Issuer will be Dave B. Gagnon as President and Chief Executive Officer, Stéphane Dallaire as Chief Financial Officer and Head of Financing, and Daniel Charette as Chief Operating Officer.
Additional biographical information on the proposed directors and officers of the Resulting Issuer is provided below:
Dave B. Gagnon – President and CEO
Dave B. Gagnon has been a climate technology entrepreneur for over 25 years. With his vision and his ability to establish strategic partnerships, he has developed several international companies by engaging them in large-scale projects with public entities. He was also a pioneer in implementing sustainable development policies that would later become common practice in many industries.
In 1998, Mr. Gagnon joined ExportDev, a subsidiary of the Caisse de dépôt et placement du Québec, where he assisted other entrepreneurs in growing their businesses and where he acquired in-depth knowledge of the financial markets. After working for the largest pension fund in Quebec, he returned to his entrepreneurial passion and pursued his vision by starting his own businesses.
In 2000, he founded the wind turbine manufacturer AAER Inc. After the acquisition of AAER Inc. by Pioneer Power Solutions Inc. in 2010, Mr. Gagnon founded Tantalex Resources Inc. in 2012, a company exploration and development of listed lithium and tantalum, for which he was CEO until 2019.
Mr. Gagnon is currently the principal shareholder and CEO of Charbone, a zero carbon energy supplier that is involved in green hydrogen and hydroelectric operations.
Stéphane Dallaire – Chief Financial Officer and Head of Financing
Stephane Dallaire is an executive-level manager with 25 years of experience leading financial operations, private placements, mergers and acquisitions and asset disposals in the high technology, entertainment, telecommunications, computer technologies, solar and energy technologies. He has participated in more financial and strategic partnerships at the international level where he has played a key role in the implementation and delivery of high growth solutions for large institutions.
Mr. Dallaire spent many years in the renewable energy sector as an investment manager at Hydro-Québec – Capitech from 2001 to 2002 and as chief financial officer and senior vice-president of business development at ICP Solar Technologies in 2003. From 2014 to 2018, he was Managing Partner at Towerlook / Fidenti Global Partners, a boutique investment firm in Montreal, as well as President and CEO of Platinum Corporation, an EHR software company. He also demonstrated expertise in financial valuation, venture capital and private placements at the Société générale de financement du Québec from 1998 to 2001, then, from 2004 to 2013, as an independent advisor where he assisted companies. to increase their value and improve their performance.
Recognized as an IT-Finance specialist, Mr. Dallaire also recently received his certification in artificial intelligence from the MIT Sloan School of Management.
Holder of CFA, CMA, CPA and CPA (US) titles, Mr. Dallaire also holds a BAA from HEC Montréal in finance (1995), an EMBA (2003) and a graduate diploma specializing in accounting from the University of Quebec (2007). He is also a member of the CFA Institute, the Ordre des CPA du Québec, the Illinois Board of Examiners and the Illinois Department of Financial and Professional Regulation.
Daniel Charette – Chief Operating Officer
Daniel Charette is a renewable energy veteran and entrepreneur who has managed numerous sustainable energy companies for over 30 years. In the beginning, when the Canadian wind energy industry began to be seen as a viable solution, he became a renowned leader in the renewable energy markets.
In 1998, he was appointed director of manufacturing by Danish wind turbine manufacturer NEG Micon A / S to set up the first wind turbine nacelle assembly plant in Canada. From 1999 to 2002, he established the first regional wind turbine operation and maintenance center in Canada, for what was then the largest wind farm in North America. From 2002 to 2005, he served as National Sales Manager for NEG Micon A / S for Canada and for Vestas Wind Systems A / S. In 2005, he joined Brookfield Renewable Partners LP as Director of Business Development for the Renewable Energy division.
In 2006, he joined AAER inc. as senior vice president. AAER inc. was the first purely Canadian manufacturer of wind turbines. Following the takeover of AAER inc. by Pioneer Power Solutions Inc., he was appointed President of Pioneer Wind Energy Systems Ltd. He then joined the Canadian subsidiary of NRG Systems, Inc. as Director of Operations for the Weather Tower Manufacturing and Installation Division. Most recently, he held the position of Project Manager at Leader Resources Services Corp. for the construction of wind, solar and storage energy projects.
Mr. Charette has served on various boards of directors and association boards, including the board of directors of the Canadian Wind Energy Association for nine years, the Quebec Association of Renewable Energy Producers for two years. and the Latin Wind Energy Association for 3 years.
Insiders
It is expected that the following persons will be insiders of the Resulting Issuer: Dave B. Gagnon, Daniel Charette and Stéphane Dallaire, either personally or through their management company.
Sponsorship of the Qualifying Transaction
Sponsorship of a Qualifying Transaction is required by the Bourse, unless exempted or waived in accordance with the policies of the Bourse. Orletto intends to request a waiver of the sponsorship requirements in accordance with the policies of the Exchange, but there can be no assurance that such waiver will be granted.
Other information relating to the proposed Operation
The Proposed Transaction will not constitute a “qualifying non-arm’s length transaction” (as that term is defined in the policies of the Exchange) for Orletto. Therefore, the proposed Transaction will not require the approval of the shareholders of Orletto.
No finder’s fee is payable in connection with the proposed Transaction.
The proposed Transaction will require the approval of the shareholders of Charbone. Charbone intends to hold a meeting of shareholders to obtain all necessary approvals.
In accordance with Exchange policies, the Ordinary Shares of Orletto are currently suspended from trading and will remain so until the Exchange determines, which, depending on Exchange policies, may not occur until completion. of the proposed Operation.
Further updates, including financial information regarding Charbone, its subsidiary Charbone Corporation USA and details regarding the proposed directors of the Resulting Issuer, will be provided in a subsequent press release. In addition, additional information regarding the proposed Transaction, Orletto, Charbone and the resulting Issuer will be provided in the filing statement which will be filed by the Company in connection with the proposed Transaction and which will be available in due course under the profile of the Company on SEDAR at www.sedar.com .
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