Cathedra Bitcoin Completes Business Combination with Kungsleden

Rhea-AI Summary

Cathedra Bitcoin Inc. (TSXV: CBIT) (OTCQB: CBTTF) has completed its business combination with Kungsleden, Inc., creating a developer and operator of high-density compute infrastructure with 95 MW of expected power capacity and 4.8 EH/s of expected hash rate under management. The transaction resulted in Kungsleden shareholders owning approximately 72.5% of Cathedra's equity and 80% of voting rights. Cathedra's shares are expected to resume trading on the TSXV under the symbol 'CBIT' around early August 2024. The company also plans to list on a major U.S. stock exchange in the second half of 2024, subject to approvals.

Positive

• Creation of a larger entity with 95 MW of expected power capacity and 4.8 EH/s of expected hash rate
• Potential expansion into high-growth markets like bitcoin mining and artificial intelligence
• Plans for U.S. stock exchange listing in second half of 2024
• Approval of all items of business at the annual and special meeting

Negative

• Significant dilution for existing Cathedra shareholders, now owning only 27.5% of the company's equity
• Trading halt on TSXV since March, with resumption expected in August 2024
• Delisting from OTCQB, with relisting process ongoing
• Potential share consolidation of up to 150:1 ratio, which could impact share price and liquidity

• Completion of the transaction creates a developer and operator of high-density compute infrastructure with 95 MW of expected power capacity under management and 4.8 EH/s of expected hash rate under management.
• Shares of Cathedra Bitcoin Inc. are expected to resume trading on the TSXV under the symbol "CBIT" on or around the beginning of August 2024.

Toronto, Ontario--(Newsfile Corp. - July 23, 2024) - (Block Height: 853,620) - Cathedra Bitcoin Inc. (TSXV: CBIT) (OTCQB: CBTTF) ("Cathedra" or the "Company") is pleased to announce the completion of its previously announced business combination (the "Transaction"), with Kungsleden, Inc. ("Kungsleden"), a developer and operator of alternative high-density compute infrastructure.

"We are excited to complete this strategic business combination and begin executing our shared vision alongside the Kungsleden team," remarked AJ Scalia, Chief Executive Officer of the Company. "We look forward to expanding our portfolio of high-density compute data centers for customers in high-growth end markets like bitcoin mining and-in time-potentially artificial intelligence."

Thomas Masiero, the former Chief Executive Officer and co-founder of Kungsleden, added, "John D. Rockefeller got it right when he said, 'I do not think that there is any other quality so essential to success of any kind as the quality of perseverance. It overcomes almost everything, even nature.' Let's get to work!"

The Transaction

The Transaction was completed according to the terms of a share exchange agreement dated March 6, 2024, as amended on June 18, 2024 (together, the "Share Exchange Agreement") between the Company, Kungsleden and Kungsleden's shareholders (the "Vendors", and together with the Company and Kungsleden, the "Parties").

Pursuant to the terms of the Share Exchange Agreement, Cathedra acquired all of the outstanding shares of Kungsleden from the Vendors in exchange for 6,253,429 multiple voting shares of Cathedra (the "Multiple Voting Shares") on the basis of an exchange ratio of one common share of Kungsleden for approximately 6.253429078 Multiple Voting Shares. The 6,253,429 Multiple Voting Shares issued to the Vendors are convertible into 625,342,900 subordinate voting shares of Cathedra (the "Subordinate Voting Shares"). The Transaction resulted in the Vendors owning (on a non-diluted basis) approximately 72.5% of the equity of the Company and existing Cathedra shareholders owning the remaining 27.5% of the equity of the Company. The Vendors hold approximately 80% of the voting rights of Cathedra and existing Cathedra shareholders own the remaining 20%.

In connection with the Transaction, the Company's articles and notice of articles were amended to, among other things (the "Share Structure Alteration"): (a) change the name of Cathedra's common shares to Subordinate Voting Shares, (b) create a new class of unlimited Multiple Voting Shares, with each Multiple Voting Share convertible into 100 Subordinate Voting Shares, (c) add special rights and restrictions to the Subordinate Voting Shares and the Multiple Voting Shares, pursuant to which, among other things, the holders of the Multiple Voting Shares are entitled to 152 votes per Multiple Voting Share held (or 1.52 votes per Subordinate Voting Share on an as converted basis). The Transaction constituted a "reverse takeover" of the Company pursuant to Policy 5.2 of the TSX Venture Exchange (the "TSXV").

A summary of material changes resulting from the Transaction is provided herein. For further information, readers are referred to the management information circular of the Company dated June 18, 2024 (the "Circular") which is available under the Company's SEDAR+ profile at www.sedarplus.ca. The Transaction and resumption of trading remains subject to the final approval of the TSXV.

The Meeting

Shareholders of Cathedra approved all items of business at its annual and special meeting held on July 22, 2024 (the "Meeting"), including the appointment of the Company's auditors, increasing the number of directors to seven, the election of the Company's directors, the Transaction, the Consolidation (as defined below), the Share Structure Alteration (as defined below), and the Company's equity-based incentive plan.

Management and Directors

Management of Cathedra remains unchanged and consists of Antonin Scalia, Chief Executive Officer; Thomas Armstrong, President and Chief Operating Officer; and Inar Kamaletdinov, Chief Financial Officer.

Kungsleden co-founders Thomas Masiero and Jialin (Gavin) Qu will focus on leading growth initiatives.

The board of directors of the Company consists of the four prior Cathedra directors, Antonin Scalia, Thomas Armstrong, Marcus Dent, and David Jaques; and three new directors, Jialin (Gavin) Qu, Thomas Masiero, and Matthew Kita. Jialin (Gavin) Qu is the Chairman of the Company.

An aggregate of 8,141,544 restricted share units ("RSUs") were granted to certain directors and officers of the Company in accordance with the Company's amended long-term incentive plan which was approved by shareholders at the Meeting. 1/3 of the RSUs will vest on the date that is one year from the date of the grant, 1/3 of the RSUs will vest on the date that is two years from the date of the grant, and the remaining RSUs will vest on the date that is three years from the date of the grant. All such RSUs are subject to escrow, as further detailed below.

Consolidated Capitalization

After giving effect to the Transaction, the following securities of the Company are outstanding as of the date hereof: 237,513,935 Subordinate Voting Shares, 6,253,429 Multiple Voting Shares, 3,605,364 stock options, 9,858,425 RSUs, and 51,144,882 Subordinate Voting Share warrants.

Repricing of Convertible Debentures

Cathedra also announces that, in connection with the closing of the Transaction, it has amended the conversion price (the "Repricing") of 3.5% senior secured convertible debentures of the Company due November 11, 2025 (the "Maturity Date"), originally issued to the debenture holder on November 11, 2021 (the "Debentures"), from C$0.78 to C$0.15. The aggregate principal amount outstanding of the Debentures as of the date hereof is C$5,733,728.38. Cathedra expects that the Repricing will optimize its capital structure and prepare the Company to focus on profitable growth. The remaining outstanding principal amount of the Debentures continues to bear interest at a rate of 3.5% per annum, payable quarterly in arrears on the last day of March, June, September, and December of each year until the Maturity Date.

Escrow

In connection with the Transaction, certain principals of the Company and Kungsleden have entered into escrow agreements with Computershare Investor Services, Inc., as escrow agent (the "Escrow Agent"). 7,965,879 Subordinate Voting Shares and 2,800,000 options to purchase Subordinate Voting Shares have been deposited with the Escrow Agent in accordance with a Tier 2 Value Escrow Agreement (the "Tier 2 Escrow Agreement"). In addition, 263,676 Subordinate Voting Shares, 6,128,361 Multiple Voting Shares, 88,841 stock options to purchase Subordinate Voting Shares, and 7,414,415 RSUs have been deposited with the Escrow Agent in accordance with a Tier 1 Value Escrow Agreement (the "Tier 1 Escrow Agreement").

Under the terms of the Tier 2 Escrow Agreement, 10% of such escrowed securities will be released upon the date of the exchange bulletin from the TSXV (the "Exchange Bulletin"), with the balance to be released in six tranches of 15% every six months thereafter. Under the terms of the Tier 1 Escrow Agreement, 10% of such escrowed securities will be released on the date of the Exchange Bulletin, with the balance to be released in three tranches of 25% every six months thereafter.

Trading Halt Update

Trading in the Company's shares is expected to resume on the TSXV at or around the beginning of August 2024, once all conditions to the TSXV's acceptance of the Transaction have been satisfied. A further press release is expected to be disseminated prior to the commencement of trading.

Additionally, in accordance with OTC Markets policy, the OTCQB delisted the Company's shares in March in response to the mandatory trading halt placed on the Company's shares on the TSXV. Consequently, the Company has begun the process of relisting its shares on the OTCQB and expects to receive approval shortly after trading resumes on the TSXV. Trading in the Company's shares on the OTCQB would resume shortly thereafter.

U.S. Listing Update

As previously announced, to improve market accessibility and liquidity, the Company is continuing the process of listing its shares on a major U.S. stock exchange (a "U.S. Listing"). The Company expects to complete a U.S. Listing in the second half of 2024, subject to receipt of applicable regulatory and exchange approvals.

Consolidation

At the Meeting, Cathedra received approval from its shareholders to approve a consolidation of its Subordinate Voting Shares (the "Consolidation"), in preparation for potentially listing the Subordinate Voting Shares on a major U.S. stock exchange, on the basis of one post-Consolidation Subordinate Voting Share for up to one hundred fifty (150) pre-Consolidation Subordinate Voting Shares, with the exact Consolidation ratio to be determined definitively by the directors of the Company at a later date. The Consolidation is only expected to be completed in connection with a U.S. Listing, as the exchange in question imposes minimum share price requirements for listed companies, which the Company does not presently satisfy based on the most recent price of its Subordinate Voting Shares on the TSXV. The Company intends only to consolidate Subordinate Voting Shares in connection with the approval of its listing application by a major U.S. exchange, and any U.S. Listing would occur immediately following the Consolidation. If the Company does not obtain a U.S. Listing, it does not intend to consolidate its Subordinate Voting Shares. Furthermore, if the Company obtains a U.S. Listing, it intends to consolidate its Subordinate Voting Shares at the minimum ratio necessary to comfortably satisfy applicable exchange requirements. The Consolidation ratio of up to 150:1 represents a maximum potential Consolidation ratio and is significantly more than what the Company anticipates will be necessary.

Early Warning Disclosure

Thomas Masiero, a director of the Company, acquired: (i) through Thy Kingdom Trust, 2,993,829 Multiple Voting Shares, convertible into 299,546,576 Subordinate Voting Shares, in exchange for 478,750 common shares of Kungsleden; and (ii) 2,325,950 RSUs. Prior to the acquisition, Mr. Masiero owned 163,676 Subordinate Voting Shares, and 88,841 stock options representing 0.07% of the issued and outstanding Subordinate Voting Shares on a non-diluted basis and 0.11% of the issued and outstanding Subordinate Voting Shares on a partially-diluted basis assuming the exercise of Mr. Masiero's stock options into Subordinate Voting Shares. Immediately following the acquisition, Mr. Masiero now owns 163,676 Subordinate Voting Shares, 2,993,829 Multiple Voting Shares, 88,841 stock options and 2,325,950 RSUs, representing 34.73% of the issued and outstanding Subordinate Voting Shares on a non-diluted basis (assuming the conversion of all outstanding Multiple Voting Shares into Subordinate Voting Shares) and 34.92% of the issued and outstanding Subordinate Voting Shares on a partially-diluted basis assuming the exercise of Mr. Masiero's options and RSUs into Subordinate Voting Shares (and assuming the conversion of all outstanding Multiple Voting Shares into Subordinate Voting Shares).The Multiple Voting Shares were acquired by Mr. Masiero for investment purposes. Mr. Masiero may acquire additional securities of the Company, including on the open market or through private acquisitions, or sell securities of the Company, including on the open market or through private dispositions, in the future depending on market conditions, reformulation of plans and/or other relevant factors.

Jialin (Gavin) Qu, a director and the Chairman of the Company, acquired: (i) through Togetsu Trust, 3,134,532 Multiple Voting Shares, convertible into 313,382,900 Subordinate Voting Shares, in exchange for 501,250 common shares of Kungsleden; and (ii) 2,035,386 RSUs. Prior to the acquisition, Mr. Qu did not own any securities in the Company. Immediately following the acquisition, Mr. Qu now owns 3,134,532 Multiple Voting Shares, and 2,035,386 RSUs, representing 36.32% of the issued and outstanding Subordinate Voting Shares on a non-diluted basis (assuming the conversion of all outstanding Multiple Voting Shares into Subordinate Voting Shares) and 36.47% of the issued and outstanding Subordinate Voting Shares on a partially-diluted basis assuming the exercise of Mr. Qu's RSUs into Subordinate Voting Shares (and assuming the conversion of all outstanding Multiple Voting Shares into Subordinate Voting Shares). The Multiple Voting Shares were acquired by Mr. Qu for investment purposes. Mr. Qu may acquire additional securities of the Company, including on the open market or through private acquisitions, or sell securities of the Company, including on the open market or through private dispositions, in the future depending on market conditions, reformulation of plans and/or other relevant factors.

This disclosure is issued pursuant to National Instrument 62-103 - The Early Warning System and Related Take-Over Bid and Insider Reporting Issues, which also requires an early warning report to be filed with the applicable securities regulators containing additional information with respect to the foregoing matters. A copy of the early warning report will be filed by Mr. Masiero and Mr. Qu in accordance with applicable securities laws and will be available on the Company's issuer profile on SEDAR+ at www.sedarplus.ca.

About Cathedra Bitcoin

Cathedra Bitcoin Inc. develops and operates high-density compute infrastructure across North America. The Company hosts bitcoin mining clients across its portfolio of three data centers (30 MW total) in Tennessee and Kentucky. Additionally, Cathedra is a 25% partner in a joint venture that is developing a 60-MW data center in North Dakota which will also host bitcoin miners upon its expected completion in Q3 2024. Cathedra also operates a fleet of proprietary bitcoin mining machines at its own and third-party data centers, producing approximately 400 PH/s of hash rate. The Company is focused on expanding its portfolio of data center infrastructure for high-density compute applications including bitcoin mining and artificial intelligence. Cathedra is headquartered in Vancouver and its shares trade on the TSX Venture Exchange under the symbol CBIT.

For more information about Cathedra, visit cathedra.com or follow Company news on Twitter at @CathedraBitcoin or on Telegram at @CathedraBitcoin.

Media and Investor Relations Inquiries

Please contact:
AJ Scalia
Chief Executive Officer
ir@cathedra.com

Cautionary Statement

Trading in the securities of the Company should be considered highly speculative. No stock exchange, securities commission or other regulatory authority has approved or disapproved the information contained herein. Neither the 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.

Forward-Looking Statements

This news release contains certain "forward-looking information" and "forward-looking statements" within the meaning of applicable Canadian securities laws that are based on expectations, estimates and projections as at the date of this news release. The information in this release about future plans and objectives of the Company and Kungsleden, are forward-looking information. Forward-looking information contained in this news release includes but is not limited to information concerning: the expectation that the Repricing will optimize its capital structure and prepare the Company to focus on profitable growth, the release of the Company's securities from escrow and the timing thereof, timing with respect to the resumption of trading of the Subordinate Voting Shares on the TSXV, the expectation to complete a U.S. Listing, that the U.S. Listing will improve market accessibility and liquidity, the completion of the Consolidation and the timing and consolidation ratio thereof, the expected completion of the 60-MW data center in North Dakota in Q3 2024, that the Company is focused on expanding its portfolio of data center infrastructure for high-density compute applications including bitcoin mining and artificial intelligence, the intentions and future actions of senior management, the intentions, plans and future actions of the Company, as well as its ability to successfully mine digital currency; the expected benefits from the Transaction; the combination of Cathedra's business and Kungsleden's business; the impact that the Transaction is expected to have on the business operations of the Company including without limitation, the expected growth and capabilities of the Company; and the expectation that the Company will receive approval of the OTCQB shortly after trading resumes on the TSXV and that trading in the Company's Subordinate Voting Shares on the OTCQB will resume shortly thereafter. Any statements that involve discussions with respect to predictions, expectations, beliefs, plans, projections, objectives, assumptions, future events or performance (often but not always using phrases such as "expects", or "does not expect", "is expected", "anticipates" or "does not anticipate", "plans", "budget", "scheduled", "forecasts", "estimates", "believes" or "intends" or variations of such words and phrases or stating that certain actions, events or results "may" or "could", "would", "might" or "will" be taken to occur or be achieved) are not statements of historical fact and may be forward-looking information and are intended to identify forward-looking information.

This forward-looking information is based on reasonable assumptions and estimates of management of the Company at the time it was made, including, without limitation, assumptions that the parties will be able to obtain the final approval to resume trading; that no unanticipated events will occur that will frustrate the operation of Cathedra and Kungsleden's combined businesses; that market conditions impacting the average revenue per MWh will align with management's expectations; that the Company will be able to meet all requirements and obtain all applicable approvals to complete the U.S. Listing; that management's expectations regarding the impact of the Repricing, the completion of the Transaction and the completion of the U.S. Listing will prove to be accurate; and that the parties will have access to the financial and other resources required to carry out their business plans as currently anticipated. The Company has also assumed that no significant events occur outside of its normal course of business.

Additionally, these forward-looking statements may be affected by risks and uncertainties in the business of Cathedra and Kungsleden and general market conditions. Investors are cautioned that forward-looking statements are not based on historical facts but instead reflect Cathedra and Kungsleden's respective management's expectations, estimates or projections concerning future results or events based on the opinions, assumptions and estimates of management considered reasonable at the date the statements are made. Although Cathedra and Kungsleden believe that the expectations reflected in such forward-looking statements are reasonable, such statements involve risks and uncertainties, and undue reliance should not be placed thereon, as unknown or unpredictable factors could have material adverse effects on future results, performance or achievements of the Company. Among the key factors that could cause actual results to differ materially from those projected in the forward-looking statements are the following: the failure to successfully combine the business operations of the Company and Kungsleden; the failure of the Company to obtain final TSXV approval to resume trading; the potential impact of the announcement of the completion of the Transaction on relationships, including with regulatory bodies, employees, customers and competitors; changes in general economic, business and political conditions, including changes in the financial markets; changes in applicable laws and regulations both locally and in foreign jurisdictions; compliance with extensive government regulation and the costs associated with compliance; unanticipated costs; changes in market conditions impacting the average revenue per MWh; the risks and uncertainties associated with foreign markets; the failure of the Company to meet the requirements or obtain the approvals required for the U.S. Listing; and the failure of the Transaction, the U.S. Listing, or the Repricing to have the impact expected. Additionally, the forward-looking statements contained herein may be affected by risks and uncertainties in the business of Cathedra and Kungsleden and general market conditions.

Should one or more of these risks or uncertainties materialize, or should assumptions underlying the forward-looking statements prove incorrect, actual results may vary materially from those described herein as intended, planned, anticipated, believed, estimated or expected. Although the Company has attempted to identify important risks, uncertainties and factors which could cause actual results to differ materially, there may be others that cause results not to be as anticipated, estimated or intended and such changes could be material. Readers should not place undue reliance on forward-looking information.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

To view the source version of this press release, please visit https://www.newsfilecorp.com/release/217519

FAQ

What is the expected power capacity and hash rate of Cathedra Bitcoin after the business combination with Kungsleden?

After the business combination, Cathedra Bitcoin is expected to have 95 MW of power capacity and 4.8 EH/s of hash rate under management.

When are Cathedra Bitcoin (CBTTF) shares expected to resume trading on the TSXV?

Cathedra Bitcoin shares are expected to resume trading on the TSXV under the symbol 'CBIT' around the beginning of August 2024.

What percentage of Cathedra Bitcoin's equity do Kungsleden shareholders now own after the transaction?

Kungsleden shareholders now own approximately 72.5% of Cathedra Bitcoin's equity and 80% of voting rights after the business combination.

Is Cathedra Bitcoin (CBTTF) planning to list on a U.S. stock exchange?

Yes, Cathedra Bitcoin is planning to list on a major U.S. stock exchange in the second half of 2024, subject to regulatory and exchange approvals.