KCO Capital Inc. Announces Agreement for Qualifying Transaction

TSXV:  KCO.P

VANCOUVER, June 27, 2013 /CNW/ - KCO Capital Inc. ("KCO") (TSXV: KCO.P), a Capital Pool Company ("CPC") trading on the TSX Venture Exchange (the "Exchange"), is pleased to announce that it has entered into a letter of intent dated May 17, 2013 (the "Agreement") regarding a proposed transaction (the "Transaction") with Grey Hawk Exploration Inc. ("Grey Hawk"), a privately held company incorporated under the Business Corporations Act (British Columbia), which operates as an exploration company with various oil and gas interests in the State of Utah.

It is intended that the Transaction will constitute KCO's "Qualifying Transaction" in accordance with the Policy 2.4 of the Exchange.  KCO and Grey Hawk are at arm's length; and accordingly, the Transaction is not a "Non-Arm's Length Qualifying Transaction". As such, it is anticipated that the approval of the shareholders of KCO will not be required.  Subject to any regulatory, director or other approvals that may be required, the completion of satisfactory due diligence by KCO and other conditions contained in the Agreement, it is anticipated that the Transaction will involve an acquisition, merger, amalgamation, plan of arrangement, reorganization, sale of all or substantially all of the assets, or exchange of assets or securities in a similar transaction.  Upon completion of the Qualifying Transaction, it is expected that KCO will be listed on the Exchange as a Tier 2 oil and gas issuer.

KCO has engaged Canaccord Genuity Corporation ("Canaccord") as advisor for the Transaction and agent for the proposed concurrent private placement as set out below.

About Grey Hawk Exploration Inc.

Grey Hawk was incorporated on May 24, 2011 pursuant to the Business Corporations Act (British Columbia).  Grey Hawk's head office and registered office are located in Vancouver, British Columbia. Grey Hawk's wholly owned subsidiary, Grey Hawk Exploration (USA) Inc. ("Grey Hawk USA"), was incorporated on January 26, 2012 pursuant to the Nevada Revised Statute 78.055.  Since incorporation, Grey Hawk USA has been actively involved in the business of exploring and developing oil and gas concessions, and has interests in two wells with associated acreage in the Uinta Basin, a prolific oil and gas development area in Utah.

Grey Hawk's growth strategy will initially focus on acquiring and enhancing producing wells in the Uinta Basin and sharing exploration risk with partners for drilling new wells.  Grey Hawk plans to leverage its operating expertise and relationships in the Uinta Basin to acquire distressed assets that it can add value to with the application of new technologies and operating efficiencies.

Grey Hawk's major shareholder is New Times Energy Corporation Ltd. ("NewTimes") (HKEx: 166), an integrated natural resources company engaged in the acquisition, development and operation of oil and gas projects in Argentina, China and USA.  New Times currently owns 45% of the shares of Grey Hawk.

Grey Hawk has a 50% working interest in 80 acres of land in West Willow Area of the Uinta Basin, in northeastern Utah, containing two oil wells which are currently in production, and are scheduled to undergo a work program to increase production capacity.

In addition to these wells, Grey Hawk has the right to earn up to an additional 1,544.52 acres by drilling wells which will earn 320 acres each.  Grey Hawk pays 100% of capital to earn an 85% working interest before payout and a 75% working interest after payout in these horizontal wells.

Oil exploration and development in the Uinta Basin has been active over the last decade with production growing from approximately 20,000 bbl/day in 2002 to more than 50,000 bbl/day by the end of 2011.  In 2012 more than 275 wells were drilled in the Uinta Basin.  There is good infrastructure for oil and gas exploration and development in the Uinta Basin and the State of Utah has a total refining capacity of over 165,000 bbl/day.  Recent mergers and acquisitions activity in the Uinta Basin has included acquisitions by Anadarko Petroleum, Exxon Mobil, Crescent Point Energy and Linn Energy.

The greater Uinta-Piceance Basin is a structural basin of latest Cretaceous and Tertiary age located in northeast Utah and northwest Colorado.  It is subdivided into two lesser basins, the Piceance Basin located in Colorado east of the Douglas Creek Arch and the Uinta Basin located in Utah.  The Uinta Basin is sharply asymmetrical with a steep north flank bounded by the Uinta Mountains and a gently dipping south flank filled by as much as 17,000 feet of Cretaceous and Paleogene lacystrine and fluvial sedimentary rocks.

A more detailed summary of financial information in respect of Grey Hawk, and an audited balance sheet, will be included in the Filing Statements which will be prepared and filed by KCO on SEDAR in connection with the proposed Transaction.

The Transaction

KCO will acquire 100% of all of the issued and outstanding securities of Grey Hawk Exploration Inc. ("Grey Hawk") from all of its shareholders in exchange for 23,750,000 common shares of KCO valued at $0.50 per share to complete a Qualifying Transaction under the rules and policies of the Exchange. It is anticipated that the Transaction will be by way of a share exchange transaction or some other form of business combination transaction whereby KCO will acquire all of the outstanding shares issued by Grey Hawk.

Concurrently with closing of the Transaction, the directors of KCO will pass a resolution to approve a change of KCO's name to "Grey Hawk Energy Inc." or such other name as may be selected by KCO.

Subject to Exchange approval, in connection with the Transaction, by way of a finder's fee (representing 5% of the Transaction value, being Cdn. $11,875,000), Colin I. Wilson will be issued 890,625 common shares in the capital of KCO and a cash finder's fee of Cdn.$148,437.

Upon completion of the Transaction, KCO will have 31,750,000 common shares outstanding, before any dilution pursuant to the issuance of the finder's fee of 890,625 common shares and the common shares issued in connection with the proposed Concurrent Financing.

KCO has agreed to advance Grey Hawk $100,000 in a secured loan subject to the approval of the Exchange.

Capital Structure of Grey Hawk

Grey Hawk currently has 19,000,100 common shares ("Grey Hawk Shares") issued and outstanding.  The principal stakeholders of Grey Hawk are:

Prominent Sino Holdings Limited and Value Train Investments Ltd are both wholly-owned by New Times Energy Corp. Ltd., a Hong Kong Stock Exchange traded company (HKEx: 166).  The remaining 6,200,000 Grey Hawk Shares are held by approximately 19 other shareholders.

In addition, Grey Hawk also has the following convertible securities outstanding: approximately $700,000 in convertible debentures exercisable into Grey Hawk Shares at an exercise price of $0.15.  The convertible debentures are held by Prominent Sino Holdings Limited.  On a fully diluted basis, Prominent Sino Holdings Limited will own approximately 9,666,667 Grey Hawk Shares or 40.84% of the issued and outstanding shares of Grey Hawk.

Proposed ConcurrentFinancing

In conjunction with the Transaction, it is expected that KCO will undertake a brokered private placement (the "Offering") to raise gross proceeds of up to $3,000,000 through the issuance of 6,000,000 shares of KCO at $0.50 per share.  KCO has engaged Canaccord as agent in conjunction with the Offering.  The specific terms of the Offering and the terms of any related agent's compensation will be disclosed in a future press release. The Offering shall close concurrently with the Transaction.

The proceeds from the Offering will be used for exploration and development of the Grey Hawk oil and gas properties and general working capital requirements. Additional amounts have been allocated for costs required to complete the Transaction and for unallocated working capital. There may be circumstances where, for sound business reasons, a reallocation of funds may be necessary in order for KCO to achieve its business objectives.

Sponsorship

Sponsorship of the Transaction of a CPC is generally required by the Exchange, unless exempted in accordance with Exchange policies.  KCO intends to apply for an exemption from the sponsorship requirement based on the considerations as contemplated in section 3.4 (Exemptions from Sponsorship) of Exchange Policy 2.2.

However, there is no assurance that KCO will be able to obtain such an exemption. In the event that KCO is not able to obtain an exemption from the sponsorship requirement, Canaccord has agreed to provide sponsorship services in accordance with Exchange Policy 2.2.

Resulting Issuer Capital Structure

Assuming the close of the Transaction and the Offering being conducted at $0.50 per share, KCO will have the following capital structure:

On a non-diluted basis KCO will have approximately 38,735,625 common shares issued and outstandingupon completion of the Transaction and the Offering.

On a non-diluted basis immediately after the Transaction, Prominent Sino Holdings Limited will hold approximately 25.04% of KCO common shares and Value Train Investments Ltd. will hold approximately 9.07% of KCO common shares giving New Times Energy Corp. Ltd. an indirect beneficial ownership of 34.11% of KCO common shares. On a fully diluted basis after the close of the Transaction, New Times Energy Corp. Ltd. will have an indirect beneficial ownership of approximately 30.38% of KCO common shares.

Closing Conditions

The closing of the Transaction with Grey Hawk is subject to a number of conditions, including, but not limited to the following:

1. completion of all due diligence reviews;
2. receipt of all director and shareholder approvals as may be required under applicable laws or regulatory policies;
3. execution of a formal agreement;
4. entry into any regulatory required escrow agreements by Grey Hawk shareholders;
5. completion of the proposed Offering;
6. confirmation of ownership of key oil and gas properties in Utah;
7. confirmation acquisition of all shares of Grey Hawk will be free and clear of all liens, claims, charges or encumbrances;
8. no material actions, suits or proceedings at time of closing involving either party;
9. no material adverse change to assets, liabilities, business, operations, or financial condition at time of closing of either party;
10. completion or exemption of sponsorship;
11. receipt of all required regulatory approvals, including the approval of the Exchange, of the Transaction;
12. satisfaction of the Minimum Listing Requirements of the Exchange and all requirements under the Exchange rules relating to completion of a "Qualifying Transaction"; and
13. a new slate of directors be appointed as agreed by the parties.

A filing statement in respect of the proposed Transaction will be prepared and filed in accordance with Policy 2.4 of the Exchange on SEDAR at www.sedar.com no less than seven business days prior to the closing of the proposed Transaction. A press release will be issued once the filing statement has been filed as required pursuant to Exchange policies.

Directors of Resulting Issuer

Following the completion of the Transaction, the directors of the "Resulting Issuer" (as defined in Exchange Policy 2.4) will be as follows:

Satvir Dhillon - Director

Mr. Satvir Dhillon has worked in the banking, investment and securities industries for the past 20 years for various companies in both the public and the private markets.  Mr. Dhillon has been involved in raising over $75 million in for the venture capital markets during this time.  He has been involved in the growth, development and corporate communications of U.S. Geothermal Inc. (NYSE MKT: HTM & TSX:GTH), since the early stages of the company publicly listing on the Venture Exchange in 2004, as well as providing his skills and knowledge to several other private and public companies.

Kim Oishi -  Director

Mr. Kim Oishi has 20 years of experience in financing and advising growth companies, and has served in senior management and board positions on a number of public and private companies. Mr. Oishi is the Founder and President of Grand Rock Capital Inc., a company that invests in growth companies and provides consulting services for investor relations, corporate finance, business development, mergers and acquisitions for companies listed on the Toronto Stock Exchange ("TSX"). He is currently a director of China Health Labs & Diagnostics Ltd. (TSXV:CHO) and Great Northern Gold Exploration Corporation (TSXV: GGE). Since June 2011Mr. Oishi has been serving on the board of directors of Liberty Mines Inc. (TSX:LBE).

Previously, Mr. Oishi served from June 2007 until December 2012 on the board of Zongshen PEM Power Systems Inc. (TSX:ZPP), a company that manufactured and sold gas and electric motorcycles in China. He was the Senior Vice President, Finance and Business Development of Hanwei Energy Services Corp. (TSX:HE), an energy services company with products for oil, wind power and clean coal in China, a position he held from May 2007 to May 2010.  Mr. Oishi was also a director of Hanfeng Evergreen Inc. (TSX:HF), a specialty fertilizer manufacturer in China from March 2006 to March 2008 and served as President until March 2006. He was a director of Cantronic Systems Inc. (TSXV:CTS), a developer of infrared imaging and night vision systems, from March 2009 to June 2010. Mr. Oishi was a director of Grand Power Logistics Group Inc. (TSXV:GPW), a logistics and freight forwarding company from December 2007 until November 2010.  Mr. Oishi received a Bachelor of Sciences degree and a MBA from the University of British Columbia.

Robert Maddigan - Director

Mr. Maddigan received a Bachelor of Science and Engineering from the University of Alberta in 1986. He is a professional engineer and has held various positions with private and public companies. From 2000 to 2009, Mr. Maddigan was the owner and Chief Executive Officer of FSC International, a private company that was engaged in the design, build and construction of various projects in Russia with an aggregate value of $450 million. Mr. Maddigan was the President and Chief Executive Officer of Taman Petroleum, the Corporation's wholly owned subsidiary with oil and gas interests in Russia. Mr. Maddigan has and continues to serve as a director, officer and/or consultant to various public junior mining companies.

Tommy Cheng - Director

Mr. Tommy M.K. Cheng is the CEO and a director of New Times Energy.  Mr. Cheng has over ten years of corporate finance and operational experience in the PRC. He founded Neo & Thompson Group Inc. in 2003, a private equity investment firm focusing on direct investment opportunities in the PRC. He was the former Vice President of Mandra Capital from July to November 2003. Prior to that Mr. Cheng was an assistant general manager of New World China Land Limited (HKEx: 0917) from 1995 to 2003, a real estate developer in China and an assistant to managing director of New World Development Company Limited (HKEx: 0017)("New World Development") from 1995 to 2003, a diversified conglomerate and a constituent stock of the Hang Seng Index of the Hong Kong Stock Exchange. During his tenure, he has worked with credit rating agencies to secure investment grade ratings for New World Development's bond issuance and was involved with New World Development's various equity offerings. Mr. Cheng was the Chairman, Chief Executive Officer and Chief Financial Officer of Neo Alliance Minerals Inc (TSX: NAM)(nka Synergy Acquisitions Inc. NEX: SAQ.H) a TSX Venture listed company from March 29, 2006 to March 19, 2007.  Mr. Cheng received his Bachelor of Commerce in Accounting from the University of Alberta in Canada.

Mr. Oishi owns a total of 2,160,000 shares of KCO indirectly through his holding company Grand Rock Capital Inc. Mr. Dhillon owns a total of 2,150,100 shares of Grey Hawk.  None of the other proposed directors and officers and or companies controlled by them own any securities of KCO or Grey Hawk.

New Incentive Stock Option Plan

As part of the Transaction, KCO intends to implement a new incentive stock option plan, the terms and conditions of which will be implemented and determined by the board of directors of KCO, but will not allow for the issuance of options to acquire in excess of 10% of the issued and outstanding shares of KCO.

Cautionary Statement

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.

About KCO

KCO, a capital pool company within the meaning of the policies of the Exchange, was incorporated in British Columbia on July 29, 2011 and was listed on the Exchange on October 26, 2012. KCO does not have any operations and has no assets other than cash. KCO's business is to identify and evaluate businesses and assets with a view to completing a Transaction

Forward-Looking Statements

This news release contains certain forward-looking statements, including statements regarding the business and anticipated financial performance of KCO. These statements are subject to a number of risks and uncertainties. Actual results may differ materially from results contemplated by the forward-looking statements. When relying on forward-looking statements to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and should not place undue reliance on such forward-looking statements. KCO does not undertake to update any forward looking statements, oral or written, made by itself or on its behalf.

SOURCE: KCO Capital Inc.