Amalfi Capital Corp. ("Amalfi" or the "Corporation") (TSX VENTURE:ALI.P)
announces amendments to the terms of the CDR Minerals Inc. ("CDR") brokered
private placement previously announced on May 17, 2010. Amalfi also announces
amendments (the "Consequential Amendments") to the terms of the amalgamation
agreement (the "Amalgamation Agreement") between Amalfi and CDR, in addition to
those terms previously announced on May 31, 2010. Pursuant to the Amalgamation
Agreement, Amalfi's wholly-owned subsidiary will amalgamate with CDR (the
"Business Combination") to continue as one company ("Amalco") under the Business
Corporations Act (Ontario). In connection with the successful completion of the
Business Combination, Amalfi will change its name to "Royal Coal Corp." (the
"Resulting Issuer") and its shares will begin trading on the TSX Venture
Exchange ("TSX Venture") under the symbol "RDA".
CDR Private Placement Amendments and Proposed Shares for Debt Transaction
CDR intends to raise $4,606,000 in a private placement of 23,030,000 units (the
"Units") at a price of $0.20 per Unit (the "Private Placement"). Each Unit is
comprised of one common share of CDR (the "CDR Shares") and one common share
purchase warrant ("Warrant"). Each whole Warrant will entitle the holder to
purchase one common share of CDR at a price of $0.20 for a period of five years
from the closing of the Private Placement. CDR has engaged Northern Securities
Inc. ("Northern Securities") as agent on a best efforts basis in connection with
the Private Placement and the previously announced "bought deal" financing will
not be proceeding.
Pursuant to the terms of the Private Placement, Northern Securities received an
engagement fee of $20,000 and was issued 125,000 CDR Shares. On closing,
Northern Securities and other placement agents will receive a commission of up
to 8% of the aggregate gross proceeds of the Private Placement and will be
issued broker warrants equal to up to 10% of the number of Units sold pursuant
to the Private Placement. Each broker warrant will be exercisable to purchase
one Unit at $0.20 for a period of 60 months from the closing of the Private
Placement.
The Private Placement is being completed in connection with the Business
Combination. The closing of the Private Placement is conditional on the
completion of the Business Combination and is expected to close in the next
week. CDR intends to use the gross proceeds of the Private Placement to fund its
current coal projects in the Central Appalachian Basin in the United States, for
repayment of debt, and for general working capital purposes.
CDR has also entered into agreements (the "CDR Debt Settlement") with two arm's
length third parties (the "Trade Creditors"), pursuant to which CDR has agreed
to issue 4,125,000 Units with an aggregate value of $825,000 to the Trade
Creditors in exchange for the cancellation of $825,000 in outstanding trade
payables.
Amendments to Amalgamation Agreement
As a result of the Private Placement and in accordance with the Consequential
Amendments, Amalfi will now consolidate its shares on the basis of one new
Amalfi common share ("Amalfi Share") for every two existing Amalfi common shares
(instead of on the basis of one Amalfi Share for every three and a half existing
Amalfi common shares). As a result, shareholders of Amalfi will receive an
aggregate of 5,800,000 common shares of the Resulting Issuer ("Resulting Issuer
Shares") (instead of 3,866,666 Resulting Issuer Shares) after the completion of
the consolidation and the Business Combination, with a deemed price of $0.20 per
share (instead of $0.50 per share). In addition, each holder of an Amalfi Share
on a post consolidation basis will now receive 0.2857143 of a Resulting Issuer
new common share purchase warrant ("Resulting Issuer New Warrant") for each
Amalfi Share held, each whole warrant entitling the holder to acquire one
Resulting Issuer Share at a price of $0.20 per share for two years from the
closing of the Business Combination (instead of 0.4285714 of a Resulting Issuer
New Warrant for each Amalfi Share held with an exercise price of $0.50 per
share), resulting in the issuance of an aggregate of 1,657,143 Resulting Issuer
New Warrants. Pursuant to the Business Combination, the 1,160,000 outstanding
Amalfi stock options ("Amalfi Options") will be replaced with 580,000 stock
options of the Resulting Issuer ("Resulting Issuer Amalfi Options"), each
entitling the holder to acquire one Resulting Issuer Share at a price of $0.20
per share until November 30, 2012 (instead of 331,429 Resulting Issuer Amalfi
Options with an exercise price of $0.35 per share).
Amendments to Other Debt Arrangements
Third Eye Capital Corporation ("TEC") and Juno Special Situations Corporation
("Juno") have agreed to amend the note purchase agreement dated September 30,
2009 between Juno and TEC (the "TEC Loan") and the corresponding note purchase
agreement dated September 30, 2009 between CDR and Juno (the "Juno Loan", and
together with the TEC loan the "Indebtedness") to waive certain covenants that
were not achieved by CDR, and establish updated financial and production,
interest and repayment covenants. From the proceeds from the Private Placement,
US$1,000,000 will be paid to reduce the Indebtedness (the "Closing Repayment")
and US$450,000, representing unpaid waiver fees, will be added to the
Indebtedness and the outstanding amount of the Indebtedness after payment of the
Closing Repayment will be US$5,750,000, plus the US$2 per ton royalty capped at
3,105,000 tons referenced in the Filing Statement. The royalty payment
commitment maturity date was extended from March 31, 2011 to January 31, 2012.
GC Global Capital Inc.'s convertible debenture with CDR in the amount of
$375,000 has been amended such that $25,000 will be paid on closing of the
Private Placement and the balance of the principal will be repaid over the
period ending December 31, 2011.
Upon closing of the Private Placement, CDR has also agreed to pay Cheyenne
Resources Inc. US$800,000 of the principal amount owing under its convertible
debentures with CDR (the "CDR Cheyenne Debentures"). The principal amount of the
CDR Cheyenne Debentures after this payment will be US$4,200,000 and the maturity
date of the CDR Cheyenne Debentures will be extended to January 31, 2012.
Operations Update
Mining at the Big Branch (Cheyenne) surface mine has been continuous since the
acquisition of the mine on October 1, 2009. CDR has averaged coal production of
30,553 tons per month over the past 8 months and the proceeds of the CDR Private
Placement will be used to increase production to a targeted 65,000 tons per
month beginning October 2010. CDR intends to make capital expenditures of
US$2,400,000 at the Big Branch (Cheyenne) surface mine as follows: US$950,000
will be expended on the current mining fleet to repair key components; the
balance of US$1,450,000 will be used to acquire additional equipment enabling
the production forecast of 65,000 tons per month beginning in October 2010.
Working Capital Projections
Based on current working capital projections, the Resulting Issuer's working
capital available to fund ongoing operations, together with its revenue from
operations and the proceeds of the Private Placement, is expected by management
of CDR to meet its work program and administration costs for a minimum of 18
months without further additional capital. The projections of CDR assume the
following factors: (a) coal production will be from the Big Branch (Cheyenne)
mine only; (b) coal production from the Big Branch (Cheyenne) mine of 34,000
tons per month initially and increasing to 65,000 tons per month beginning
October 2011; (c) further capital equipment expenditures of US$2,400,000 as
described above; (d) average coal prices of US$61 for the balance of 2010 and
US$69.50 in 2011 which are based on existing contracts and contract prices
currently being negotiated by CDR. The price assumptions of CDR for 2011 are
based on prevailing market prices and the forward price curve for CDR's grade of
coal. CDR is currently negotiating coal sales contracts for 2011 at the
projected prices; and (e) average mining costs per ton of US$54 for the balance
of 2010 and US$50 in 2011, which are based on actual costs of CDR experienced to
date and projected to the end of 2010. The average mining costs projected for
2010 are based on current costs of CDR adjusted for anticipated changes in
materials and labour. Significant risks to be considered include, without
limitation, the risk that CDR might not receive the prices for its coal that are
used in its projections; CDR's production costs coming in higher than expected;
CDR's production levels and availability (uptime) of the coal production
equipment being lower than expected; CDR being unable to acquire necessary
equipment for purchase or lease; non-cooperation of suppliers with respect to
significant accrued accounts payable; CDR not being able to renew its lease on
the Charlene rail load-out facility it uses to ship coal; CDR not meeting its
outstanding financial or payment covenants in relevant loan arrangements and
related future production targets; and the other factors discussed under "Risk
Factors" in the Filing Statement.
The minimum 18 month working capital projections of CDR assume that CDR will
exercise its option in March 2011 to convert the principal amount of the Juno
Loan into Resulting Issuer Shares. CDR's option to convert is subject to CDR
using its best efforts to find alternative financings to repay the Juno Loan in
cash, to CDR not being in default under the Juno Loan, and to increased royalty
payments to Juno of US$0.10 per ton of coal for each US$1,000,000 principal
amount of the Juno Loan converted. The Resulting Issuer will remain a guarantor
of Juno's debt obligations to TEC, an arm's length lender, in respect of which
CDR has granted a general security interest over its assets.
Amendment to Previous Financing
In accordance with their agreement with CDR, investors who subscribed for an
aggregate of 2,200,000 units of CDR at a price of $0.50 per unit in January 2010
(the "January Units"), will receive 3,300,000 CDR Shares for no additional
consideration (so they will hold an aggregate of 5,500,000 CDR Shares), and the
underlying 2,200,000 share purchase warrants will be cancelled and they will
instead receive 5,500,000 Warrants.
Filing Statement Amendments
The revised terms of the Business Combination and CDR Private Placement
supersede and replace, as applicable, the description of the Business
Combination and related private placement set out in the Corporation's filing
statement dated March 29, 2010 (the "Filing Statement") which is available on
SEDAR and the Corporations press releases issued on May 17 and May 31, 2010. The
following information updates and replaces the disclosure of the Resulting
Issuer's expected pro forma consolidated capitalization and its fully diluted
share capital.
Capitalized terms used in the following sections that are not otherwise defined
herein have the meanings assigned to them in the Filing Statement.
Consolidated Capitalization of the Resulting Issuer
As a result of the Consequential Amendments, the expected capitalization of the
Resulting Issuer, after giving effect to the Qualifying Transaction and CDR
Private Placement, is as follows:
Outstanding in the Resulting
Issuer After Giving Effect to the
Qualifying Transaction and
Capital Authorized Certain Matters (1)
----------------------------------------------------------------------------
(unaudited)
Long-term Debt N/A US$2,492,340 (2)
Current Portion of Long-Term
Debt N/A US$5,213,102 (2)
Resulting Issuer Shares Unlimited US$19,012,844(3)
(93,786,007)(4)(5)
Resulting Issuer special
shares Unlimited Nil
Notes:
1. Pursuant to the Amalfi Stock Option Plan, the Resulting Issuer will have
reserved 20% of the outstanding Resulting Issuer Shares for stock
options.
2. See the pro forma financial statements of the Resulting Issuer attached
as Schedule "E" to the Filing Statement. Upon completion of the
Qualifying Transaction, the Cheyenne Debentures and the CDR Global
debentures are classified as long term debt, since the undiscounted face
value of $4,550,000 is not payable within 12 months of the Qualifying
Transaction. The Juno Loan maturity date of March 31, 2011 is less than
12 months from the Qualifying Transaction date, resulting in the
$5,750,000 undiscounted face value of the Juno Loan being reclassified
as current debt.
3. In accordance with generally accepted accounting principles for a
reverse takeover transaction, the dollar value of the share capital of
Resulting Issuer after the completion of the Amalgamation will be the
dollar value of the share capital of CDR immediately prior to completion
of the Amalgamation, together with the net value of Amalfi. In addition,
the deficit of Resulting Issuer will be the deficit of CDR immediately
prior to the completion of the Qualifying Transaction, which as at
September 30, 2009 after the deduction of stock-based compensation
costs, commissions, consultant fees and related expenses will be
($4,446,465).
4. Not including any Resulting Issuer Shares issuable pursuant to the
exercise of any convertible securities of the Resulting Issuer.
5. See Fully-Diluted Share Capital Table below.
Fully Diluted Share Capital of the Resulting Issuer
The following table describes the expected the fully-diluted share capital of
the Resulting Issuer, after giving effect to the Qualifying Transaction and CDR
Private Placement.
Number of Resulting
Issuer Shares Assuming Percentage Assuming
Outstanding Resulting Issuer Completion of the Completion of the
Shares Amalgamation(4)(6) Amalgamation
----------------------------------------------------------------------------
Resulting Issuer Shares issued
after Completion of
Amalgamation and
Consolidation to former
holders of Amalfi Shares 5,800,000 3.59%
Resulting Issuer Shares issued
after Completion of
Amalgamation and
Consolidation to former
holders of CDR Shares (as
disclosed in May 31, 2010
press release) 55,678,484 34.45%
Additional Resulting Issuer
Shares issued after
Completion of Amalgamation to
former holders of January
Units 3,300,000 2.04%
Additional Resulting Issuer
Shares issued after
Completion of Amalgamation to
holders of CDR Shares that
exercised their CDR PKM MOU
Rights 1,652,523 1.02%
Resulting Issuer Shares issued
after Completion of
Amalgamation and
Consolidation to Investors in
the CDR Private Placement(4) 23,030,000 14.25%
Resulting Issuer Shares issued
after Completion of
Amalgamation and
Consolidation to Trade
Creditors(4) 4,125,000 2.55%
Resulting Issuer Shares issued
as finder's fee pursuant to
the Qualifying Transaction 200,000 0.12%
-----------------------
Subtotal 93,786,007
Reserved Resulting Issuer
Shares
------------------------------
Securities reserved for
issuance pursuant to
Resulting Issuer CDR New
Warrants 27,155,000 16.80%
Securities reserved for
issuance pursuant to
Resulting Issuer CDR Warrants 7,735,407 4.79%
Securities reserved for
issuance pursuant to
Resulting Issuer CDR 2010
Warrants 5,500,000 3.40%
Securities reserved for
issuance pursuant to
Resulting Issuer CDR Broker
Warrants 518,446 0.32%
Securities reserved for
issuance pursuant to
Resulting Issuer CDR New
Broker Warrants (including
the underlying CDR Warrants)
(5) 4,606,000 2.85%
Securities reserved for
issuance pursuant to
Resulting Issuer CDR Options 8,050,000 4.98%
Securities reserved for
issuance pursuant to
Resulting Issuer CDR Cheyenne
Debentures(1) 8,400,000 5.20%
Securities currently reserved
for issuance pursuant to
Resulting Issuer CDR Global
Debentures(2) 700,000 0.43%
Securities reserved for
issuance pursuant to
Resulting Issuer Amalfi
Options 580,000 0.36%
Securities reserved for
issuance pursuant to
Resulting Issuer New Warrants 1,657,143 1.03%
Securities reserved for
issuance pursuant to
Resulting Issuer New
Options(3) 2,909,902 1.80%
----------------------------------------------
Total Fully-Diluted Resulting
Issuer Shares 161,597,905 100%
Notes:
1. The US$5,000,000 principal amount of CDR Cheyenne Debentures were issued
pursuant to the Big Branch Acquisition and matured on April 1, 2011.
They bear interest at 12% per annum and are convertible into CDR Shares
on the basis of one CDR Share for each US$0.50 principal amount of
debentures until maturity. For additional information see the notes to
the financial statements for the nine months ended September 30, 2009 of
CDR attached as Schedule "D" to the Filing Statement and the notes to
the pro forma financial statements of the Resulting Issuer attached as
Schedule "E" to the Filing Statement. On closing, CDR intends to pay
US$800,000 principal amount of the CDR Cheyenne Debentures, resulting in
a principal amount owing of US$4,200,000 under the CDR Cheyenne
Debentures and the issuance on conversion of up to 8,400,000 Resulting
Issuer Common Shares.
2. The $375,000 principal amount of CDR Global Debentures currently
outstanding matures on December 31, 2010, bear interest at 12% per
annum, and are convertible into CDR Shares on the basis of one CDR Share
for each $0.50 (subject to the adjustment provisions in the CDR Global
Debentures) principal amount of debentures until maturity. For
additional information see the notes to the financial statements for the
nine months ended September 30, 2009 of CDR attached as Schedule "D" to
the Filing Statement and the notes to the pro forma financial statements
of the Resulting Issuer attached as Schedule "E" to the Filing
Statement. On closing, CDR intends to pay $25,000 principal amount of
the CDR Global Debentures, resulting in principal amount owing of
$350,000 under the CDR Global Debentures, and the issuance on conversion
of up to 700,000 Resulting Issuer Common Shares.
3. Assuming the maximum Resulting Issuer New Options are granted.
4. Assuming the completion of the CDR Private Placement and the CDR Debt
Settlement, the Resulting Issuer will issue up to an additional
27,155,000 Resulting Issuer Units, comprised of up to 27,155,000
Resulting Issuer Shares and up to 27,155,000 Resulting Issuer CDR New
Warrants in replacement of the up to 27,155,000 CDR Units issuable
pursuant to the CDR Private Placement and the CDR Debt Settlement. Each
Resulting Issuer CDR New Warrant entitles the holder to acquire one
Resulting Issuer Share at a price of $0.20 per share until the date that
is 60 months from the closing of the CDR Private Placement.
5. The Resulting Issuer will also issue up to 2,303,000 Resulting Issuer
CDR New Broker Warrants in replacement of the up to 2,303,000 CDR New
Broker Warrants issuable pursuant to the CDR Private Placement, each
entitling the holder to acquire one Resulting Issuer Unit at a price of
$0.20 per Unit until two years from the closing of the CDR Private
Placement being comprised of 2,303,000 Resulting Issuer Shares and
2,303,000 Resulting Issuer CDR New Warrants.
6. The Amalfi Agents Options previously disclosed in the Filing Statement
have expired, and no Resulting Issuer Amalfi Agents' Options will be
issued in connection with the Closing of the Business Combination.
Conditions to Completion of Business Combination
The Corporation intends to work with CDR to complete the Business Combination
and Private Placement and will continue to make any additional disclosure
related to these transactions as may be required. As previously announced, the
Business Combination, if completed, is expected to constitute Amalfi's
qualifying transaction for the purposes of Policy 2.4 (the "Policy") of TSX
Venture. The completion of the Private Placement and the Business Combination
are subject to several conditions including, but not limited to, the receipt of
all applicable regulatory approvals, including the approval of the TSX Venture
of which there is no guarantee it will be obtained.
About CDR
CDR is a privately held coal exploration and production company, incorporated
pursuant to the Business Corporations Act (Ontario), headquartered in Toronto,
Ontario, Canada with a regional office in Hazard, Kentucky, U.S.A. CDR is
concentrating its efforts on developing producing surface coal mining operations
in the Central Appalachian coal producing region of the United States, which
includes parts of West Virginia, Virginia, Kentucky, Ohio, and Tennessee.
The completion of the Private Placement and the Business Combination are subject
to a number of conditions, including but not limited to, TSX Venture acceptance.
There can be no assurance that the Private Placement or the Business Combination
will be completed as proposed or at all.
Investors are cautioned that any information released or received with respect
to the Private Placement or the Business Combination may not be accurate or
complete and should not be relied upon. Trading in the securities of the
Corporation should be considered highly speculative.
Except for historical information contained herein, this news release contains
forward-looking statements that involve risks and uncertainties. Actual results
may differ materially. Neither Amalfi nor CDR will update these forward-looking
statements to reflect events or circumstances after the date hereof. More
detailed information about potential factors that could affect financial results
is included in the documents filed from time to time with the Canadian
securities regulatory authorities by Amalfi and CDR.
The securities of Amalfi being offered have not been, nor will be, registered
under the United States Securities Act of 1933, as amended, and may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons absent U.S. registration or an applicable exemption from U.S.
registration requirements. This release does not constitute an offer for sale of
securities in the United States.
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