Mr. Paul Ciullo reports
HASHCHAIN TECHNOLOGY INC. ANNOUNCES EXTENSION TO DEFINTIVE AGREEMENT AND PROVIDES UPDATE ON PROPOSED REVERSE TAKEOVER TRANSACTION WITH DIGIHOST INTERNATIONAL, INC.
Hashchain Technology Inc. has provided an update with respect to its previously announced reverse takeover transaction with Digihost International Inc., previously disclosed in the company's press releases of March 28, 2019, April 26, 2019, June 7, 2019, and July 29, 2019.
Upon completion of the proposed transaction, the issuer resulting from the proposed transaction will carry on the business previously carried on by Hashchain. It is anticipated that upon completion of the proposed transaction, the resulting issuer will be listed as a Tier 2 technology issuer under the policies of the TSX Venture Exchange.
Extension to definitive agreement
As last disclosed in the press release of the company dated March 28, 2019, the company has entered into an agreement dated March 28, 2019, with shareholders of Digihost, pursuant to which the assets of Hashchain and Digihost will be combined by way of a share exchange between Hashchain and shareholders of Digihost. The proposed transaction will constitute a reverse-takeover of Hashchain by Digihost under the policies of the exchange. On Aug.
30, 2019, the company entered into an extension agreement with the shareholders of Digihost, extending the date before which the proposed transaction must close under the terms of the definitive agreement from Aug. 31, 2019, to Oct. 31, 2019. The terms of the definitive agreement remain otherwise unchanged.
General information about Digihost
Digihost is a private company focused on identifying and evaluating opportunities to develop cryptocurrency mining operations. Digihost has its registered office in Wilmington, Del., and was incorporated under the laws of Delaware on Oct. 9, 2018. Since incorporation, Digihost has entered into agreements to purchase equipment for the purposes of providing cryptocurrency hosting services. Concurrent with the closing of the proposed transaction, it is anticipated Digihost will complete acquisitions pursuant to asset purchase and assignment agreements with Bit.Management LLC,
Bit Mining International LLC and NYAM LLC to acquire hosting infrastructure and equipment, assume a lease agreement for a single facility divided into two separate warehouses, and a 115,000 KVA (kilovolt amperes) outdoor substation used for cryptocurrency mining operations located in Buffalo, N.Y., and assume a power contract for the supply of electricity for cryptocurrency operations at the Buffalo warehouses. The fair market value of the assets is approximately $6,792,020 (U.S.).
A summary of financial information respecting Digihost and its assets is presented in the included table.
Six-month period ended Incorporation to
June 30, 2019 (U.S. dollars) Dec. 31, 2018 (U.S. dollars)
Net sales or total revenues Nil Nil
Income from continuing operations Nil Nil
Net income or (loss), in total $(123,392) $(4,765)
Total assets $1,500,561 $20
Total liabilities $1,628,698 $4,765
Cash dividends declared Nil Nil
The proposed transaction
Hashchain's cryptocurrency mining centre is hosted in the warehouse located in Buffalo, N.Y., for which it pays Bit.Management rent for the physical space of its rigs and for the electricity used in its cryptocurrency operations, pursuant to co-location facilities agreements dated May 20, 2018, between the
company and Bit.Management. Due to increasing costs of cryptocurrency mining and the sharp decline in the valuation of mined-cryptocurrencies during the period of October, 2018, to May, 2019, the hosting expenses paid pursuant to the co-location agreements by Hashchain to Bit.Management per coin mined by Hashchain were greater than the value of the coins mined. After completion of the proposed transaction, the co-location agreements between Hashchain and Bit.Management will be terminated, and be of no force and effect. Additionally, Hashchain shall be released of any and all past liabilities or accrued payments owing to Bit.Management pursuant to the co-location agreements after completion of the proposed transaction, which as of Aug. 31, 2019, were approximately $450,000 (U.S.). Completion of the proposed RTO will vertically integrate the hosting assets of Bit.Management, to be acquired by Digihost, with the mining operations of Hashchain, such that the cost of mining is significantly reduced, allowing the resulting issuer to better weather future volatility in cryptocurrency prices and increased mining competition leading up to and following the halving of block rewards to Bitcoin miners in May, 2020.
The proposed transaction is anticipated to be completed by way of share exchange. Hashchain currently has 261,222,157 common shares issued and outstanding. All existing stock options of Hashchain will be cancelled and will not be exchanged for corresponding securities of the resulting issuer. Assuming completion of the proposed transaction and the Hashchain share consolidation (as defined herein),
existing Hashchain shareholders will hold approximately 6,530,553 of the then issued and outstanding common shares in the capital of the resulting issuer, representing approximately 18 per cent of the total resulting issuer shares (subject to dilution resulting from the issuance of resulting issuer shares pursuant to the proposed financing, as discussed herein). Holders of existing common share purchase warrants in the capital of Hashchain shall receive common share purchase warrants in the capital of the resulting issuer on equivalent terms and conditions, after adjustment with respect to the Hashchain share consolidation (as defined herein).
Pursuant to the terms of the definitive agreement, shareholders of Digihost will receive approximately 181.83 resulting issuer shares for every one Digihost common share held. Assuming completion of the proposed transaction, a total of 29.82 million resulting issuer shares, representing approximately 82 per cent of the total resulting issuer shares (subject to the financing) will be issued to Digihost shareholders and Digihost will become a wholly owned subsidiary of Hashchain.
Each resulting issuer share issued to the holders of Digihost common shares is currently expected to be issued at a deemed price of approximately 96 cents per resulting issuer share for aggregate deemed consideration of $28,627,200. On a pre-Hashchain share consolidation basis, the resulting issuer shares issued to the holders of Digihost common shares will be equivalent to 1,192,800,000 pre-Hashchain share consolidation common shares issued at a deemed price of approximately 2.4 cents per pre-Hashchain share consolidation common share.
Assuming completion of the proposed transaction and Hashchain share consolidation, but excluding the effect of the financing, the resulting issuer will have 30,473,533 resulting issuer shares outstanding.
Update to Digihost financing
Digihost has updated the terms of its non-brokered private placement previously disclosed in the company's press releases of June 10, 2019, and June 11, 2019. The updated private placement will be for gross proceeds of up to $5-million through the issuance of
securities of Digihost comprising subscription receipts at a price of 96 cents per subscription receipt,
with each subscription receipt
exchangeable for one common share of Digihost, and unit subscription receipts at a price of $1.20 per unit subscription receipt, with each
unit subscription receipt
exchangeable for one unit. Each unit will consist of one common share and one common share purchase warrant
Each warrant shall entitle the holder thereof to acquire one common share at a price of $1.75 for a period of 18 months following the closing.
Each subscription receipt and unit subscription receipt will be automatically converted, without payment of additional consideration, into one common share or one unit, as applicable, upon completion of the proposed transaction and subject to other conditions precedent. Subsequent to the conversion of the subscription receipts and unit subscription receipts, it is anticipated that the common shares and warrants issued pursuant to the financing will be exchanged for equivalent resulting issuer shares and common share purchase warrants of the
resulting issuer, respectively, on a 1:1 basis. The net proceeds of the financing will be held in escrow pending satisfaction of the escrow release conditions, which includes TSX-V approval for the proposed transaction.
Digihost will allow subscribers of the financing to waive the escrow release conditions upon written notice to Digihost and the subscription receipt agent to
convert the subscription receipts or unit subscription receipts into common shares and warrants, as applicable, and release the applicable net proceeds to Digihost prior to completion of the proposed transaction.
Digihost intends to use the net proceeds of any subscription receipts or unit subscription receipts exercised prior to the completion of the proposed transaction to purchase cryptocurrency mining equipment (up to a total amount of $1.5-million) to be used to carry on the business of Hashchain after completion of the proposed transaction. The net proceeds received after satisfaction of the escrow release conditions will be used to
carry on the business and operations of Hashchain, in addition to general corporate purposes.
The financing is intended to close on or about Sept. 27, 2019. If the financing does not close by Sept. 27, 2019, closing will be extended to a later date to be determined by Digihost. The net proceeds of the financing will be returned to subscribers if the escrow release conditions are not satisfied, unless the subscribers elect to waive the escrow release conditions.
Hashchain shareholder meeting
It is anticipated that Hashchain will hold a special meeting of its shareholders to pass resolutions to: (i) approve the proposed transaction and issuance of the resulting issuer shares; (ii) consolidate the issued and outstanding common shares of Hashchain on the basis of one postconsolidation Hashchain share for 40 preconsolidation Hashchain shares; and (iii) approve the new equity incentive plan of the company to take effect after completion of the proposed transaction.
It is not anticipated that the proposed transaction will be subject to approval of the Digihost shareholders at this time. The shareholders of Hashchain will be required to approve the proposed transaction in accordance with the provisions of the Business Corporations Act (British Columbia).
Management team, board of directors and other insiders
As of the date of this press release, it is anticipated that no person will own or exercise control, directly or indirectly, of more than 10 per cent of the voting rights attached to the resulting issuer shares other than Michel Amar, Alec Amar and NYAM, a corporation controlled by Michel Amar and existing under the laws of the State of California, and Bit Management LLC. The persons comprising the NYAM group are non-arm's-length parties to Digihost, and the target assets as such terms are defined in TSX Venture Exchange Policy 5.2 (Changes of Business and Reverse Takeovers).
It is anticipated the NYAM group will hold resulting issuer shares representing 37 per cent of the resulting issuer shares outstanding, immediately following completion of the proposed transaction.
Upon completion of the proposed transaction, it is anticipated that all of the directors and officers of Hashchain will resign and be replaced by nominees of Digihost. Details regarding the anticipated directors and officers of the resulting issuer are set forth herein. Additional directors or officers may be added to the board of directors or management of the resulting issuer in the normal course, and once identified, information with respect to the proposed additional directors or officers will be included in a subsequent news release.
Mr. Amar -- Los Angeles, Calif. -- chief executive officer and chairman
Mr. Amar is a French-American businessman and entrepreneur known for his success in innovative technology, such as blockchain and electronics, as well as developing branded fashion. With a bachelor's degree in accounting and business management, he has worked and consulted with some of the most famous international brands, playing a vital role in their profitability and continued relevance. In 2019, he partnered with Brookstone, a novelty retailer, in developing exclusive, technologically advanced products for its consumer electronics market.
Alec Amar -- Los Angeles, Calif. -- president and director
Alec Amar is an entrepreneur who has achieved success in both product development and licensing, as well as blockchain solutions. After graduating from the University of Southern California, with a degree in economics and digital entrepreneurship, he devised and headed a blockchain operation, building out highly efficient and productive mining facilities. In addition to blockchain success, his product licensing company, MAT, a versatile research and development incubator, has partnered with notable brands, such as Brookstone, in developing innovative electronics. As one of the sole licensees of Brookstone, he is actively curating a collection of intelligent, proprietary consumer electronics.
Cindy Davis -- Pickering, Ont. -- chief financial officer
Since June, 2008, Ms. Davis has provided accounting and financial reporting services for publicly listed companies through Marrelli Support Services Inc. She is currently a director and audit committee chair for OutdoorPartner Media Corp., and CFO for each of Cobalt 27 Capital Corp., Char Technologies Ltd. and NSR Resources Inc. Ms. Davis is a Canadian chartered professional accountant, and holds a bachelor of science degree specializing in accounting and economics from the University of West Indies.
Jon Williams -- Buffalo, N.Y. -- director
Mr. Williams is an entrepreneur who founded OSC Holding Inc. in 1997 as a comprehensive specialty contracting provider. Today, OSC operates across North America with corporate offices in Buffalo, N.Y., and a divisional office in Toronto, Ont., Canada. OSC works mostly for private chemical and industrial manufacturing firms with contracting requirements in the areas of environmental remediation and brownfield redevelopment. He developed the first brownfield redevelopment in upstate New York, which resulted in the construction of a new manufacturing plant nearly 25 years ago. Since then, he purchased, remediated and put back into sustainable and productive use over 1,000 acres of former industrial and mostly inactive brownfield properties.
Adam Rossman -- Los Angeles, Calif. -- director
Mr. Rossman is a business and real estate attorney. He is a member of the California bar since 1995. Mr. Rossman has handled transactions throughout the United States relating to commercial real estate and trademark licensing. Mr. Rossman maintains offices in Beverly Hills, Calif. Mr. Rossman received his JD from Loyola law school, Los Angeles, in 1994, an MA in rhetoric in 1990 and a BA in rhetoric in 1988, both from the University of California at Berkeley.
Manish Kshatriya -- Toronto, Ont. -- director
Mr. Kshatriya is a chartered professional accountant and currently serves as the managing director of MZK Advisors Inc., a private business advisory firm providing executive management, governance and compliance oversight, and capital markets advisory services to small and mid-market private and publicly listed companies. He has over 20 years of experience obtained in diverse sectors including mining, merchant banking, financial services, technology and energy. His various roles in both private and publicly listed companies have included board director, chief executive officer, chief financial officer, director of finance and secretary. Mr. Kshatriya earned his bachelor of commerce degree, with honours in accounting and finance, from York University in Toronto. He is a graduate of the director's education program at the Institute of Corporate Directors at the Rotman School of Management, University of Toronto, and is an institute certified director. He is a chartered professional accountant and a member of the Institute of Chartered Professional Accountants of Ontario. He is also a certified public accountant in the United States and a member of the Colorado State Board of Accountancy.
Certain principal securities will be subject to escrow requirements in accordance with TSX-V Policy 5.4 -- Escrow, Vendor Consideration and Resale Restrictions. Further details regarding the escrow of resulting issuer shares issued to shareholders of Digihost will be disclosed in a subsequent news release.
Sponsorship of the proposed transaction may be required by the TSX-V unless an exemption or waiver from this requirement can be obtained in accordance with the policies of the TSX-V. There is no assurance that a waiver from this requirement can or will be obtained.
The Hashchain shares are currently halted from trading and are not expected to resume trading until the exchange completes its review of the proposed transaction and a management information circular describing the proposed transaction is filed on SEDAR for consideration by Hashchain's shareholders.
The proposed transaction cannot close until the required shareholder approval is obtained and there can be no assurance that the proposed transaction will be completed as proposed or at all.
Conditions to completion of the proposed transaction and regulatory matters
The parties to the proposed transaction are at arm's length, and therefore it is anticipated that the proposed transaction will not be a non-arm's-length transaction for the purposes of TSX-V Policy 5.2 as none of the directors, officers or insiders of Hashchain, or any of their respective associates or affiliates, own any securities of Digihost.
Completion of the proposed transaction is subject to a number of conditions including, but not limited to:
- Hashchain shareholders approving the proposed transaction and the Hashchain share consolidation;
The resignation of all directors and officers of Hashchain and appointment of new officers and director to be determined by Digihost;
The completion of certain asset purchases and assignments by Digihost from Bit.Management, Bit Mining International and NYAM on or before the date of closing of the proposed transaction;
Approvals of all regulatory bodies having jurisdiction in connection with the proposed transaction, including TSX-V acceptance;
- Closing conditions customary in a transaction of this nature.
Completion of the transaction is subject to a number of conditions, including but not limited to, exchange acceptance and, if applicable, disinterested 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 Hashchain should be considered highly speculative.
We seek Safe Harbor.
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