Zaio closes $1.58-million private placement

2016-01-26 08:15 ET - News Release

Mr. Phil Wazonek reports

ZAIO CORPORATION ANNOUNCES COMPLETION OF DEBENTURE FINANCING FOR GROSS PROCEEDS OF $1.58 MILLION, EXECUTIVE EMPLOYMENT MATTERS AND REPORTS THE EARLY CONVERSION OF DEBENTURES AND CONCURRENT EXERCISE OF WARRANTS

Zaio Corp. has closed approximately $1,585,000 in gross proceeds pursuant to its previously announced private placement.

Zaio issued an aggregate amount of approximately $1,635,000 in principal amount of debentures to subscribers at a price of $1,000 per $1,000 principal amount of debenture. The debentures will bear interest at a rate of 15 per cent per annum payable quarterly and in cash or on common shares, at the option of the holder, subject to a reduction to 12 per cent per annum if the company's existing debentures (as defined below) are fully repaid. The debentures will mature on Jan. 25, 2019. The company may, at any time prior to maturity and upon giving notice, prepay the debentures in full or in part, by paying the holders thereof the outstanding principal amount plus a 5-per-cent premium on the outstanding principal amount as a bonus for early redemption, together with all accrued and unpaid interest. At any time on or after July 25, 2017, StableView Asset Management Inc., on behalf of all holders of debentures, may also upon notice, require repayment of the outstanding debentures together with any accrued and/or unpaid interest. The debentures have been guaranteed by the company's wholly owned subsidiary, Valuation Vision Inc., and have been secured against all of the company's and the guarantor's property, assets and patents, and will be registered in all of the jurisdictions in which the company and the guarantor carry on business.

As part of the financing, Zaio also issued approximately 4,905,000 common share purchase warrants, representing a total of three warrants issued to each subscriber for each $1.00 of principal amount of debentures. Each warrant entitles the holder thereof to purchase one common share in the capital of the company at 11 cents per common share exercisable for a period of 36 months from the date of issuance.

Under the terms of the financing, Zaio has agreed to pay the following fees to the lender representative: a $150,000 facility administration fee, payable as to $100,000 by way of the issuance of 1,666,667 common shares and as to $50,000 through the issuance of $50,000 debentures; and a fixed annual fee of $70,000, payable quarterly.

Finders' fees were paid to arm's-length third parties of Zaio consisting of cash in the aggregate amount of $23,100 being 6 per cent of the gross proceeds raised by the finders and 23,100 finders' compensation warrants were issued to the finders, being 6 per cent of the number of debentures subscribed for through the finders. The finders' warrants were issued on the same terms and conditions as the warrants.

All securities issued pursuant to the financing (including any underlying securities and the finders' warrants) will be subject to a four-month hold period.

The proceeds from the financing will be used for general corporate purposes. This transaction is subject to the submission of final documentation and final approval of the TSX Venture Exchange.

David King, a director of the company, directly subscribed for an aggregate of $200,000 debentures. As such, these transactions are considered to be related-party transactions subject to TSX Venture Exchange Policy 5.9 and Multilateral Instrument 61-101. The company is relying on exemptions from the formal valuation and minority shareholder approval requirements provided under sections 5.5(a) and 5.7(a) of Multilateral Instrument 61-101 on the basis that the subscriptions by insiders did not exceed 25 per cent of the fair market value of the company's market capitalization.

The terms of the financing also grant the lender representative the right to nominate up to four replacement directors to the board of Zaio. Effective on Jan. 25, 2016, Gregory Ford, Joel Strickland and Ed Madro have each resigned from the board of directors of the company, and Robert Louis Gloer, Willem Francois Emile Galle and Walter Andri have each been appointed to the board of directors of the company as replacement directors. Jim Boyle has also been appointed to the board of directors of the company to replace David Gregory, who resigned effective Oct. 19, 2015.

Executive employment matters

The company announces that Phil Wazonek has entered into a consulting agreement to serve as the continuing president and chief operating officer of the company. Pursuant to the terms of Mr. Wazonek's consulting agreement, the company will issue two million options, exercisable into common shares in the capital of the company at 6.8 cents per share and will have a term of five years. The issuance of the options remains subject to the approval of the TSX Venture Exchange.

The company announces that it will issue two million common shares in the capital of the company to Ron Love, the chief financial officer of the company, as part of a restructuring of Mr. Love's employment relationship with the company. The common shares will be issued at a deemed issue price of six cents per common share.

The company further announces that it will issue 1.2 million common share purchase warrants to Mr. King under his employment contract. Each warrant shall entitle Mr. King to purchase, at an exercise price of 25 cents, one common share of the company at any time prior to the earlier of: 36 months from the date of issuance of the warrants; and the date that is 45 days from the date that the company provides notice to warrantholders that the 20-day volume-weighted average trading price of the company's common shares has exceeded 40 cents per share, where such price threshold occurs more than 12 months from the issuance date.

The issuance of all such common shares and common share purchase warrants remains subject to the approval of the TSX Venture Exchange.

Early conversion of existing debentures and concurrent exercise of warrants

The company further announces that that on July 31, 2015, in response to the one-time offering to holders of its 10-per-cent secured, redeemable, convertible debentures due May 9, 2017, to convert their existing debentures into units in the capital of the company, existing debentureholders holding approximately $607,000 of principal amount of existing debentures elected to convert their existing debentures into 5,058,335 units. Each unit consisted of one common share and one common share purchase warrant exercisable into one common share at a price of 15 cents per share. Concurrent with the early conversion, existing debentureholders exercised 5,058,335 2015 warrants, providing proceeds of approximately $758,750 to the company. In consideration for the early conversion and pursuant to the trust indenture governing the existing debentures, existing debentureholders were issued an aggregate of 307,116 common shares of the company at a deemed price of 28 cents per share for the make-whole-amount payment to compensate participating existing debentureholders for their forgone interest payments between the conversion date (May 9, 2015) and the maturity date of the existing debentures (May 9, 2017) in the amount of $121,400.

On June 10, 2015, existing debentureholders voted in favour of amending the existing trust indenture to provide for the early conversion. The company has issued 10,423,786 common shares in consideration for the early conversion, as determined in accordance with the formula set forth in the existing trust indenture, as amended, subject to approval by the TSX Venture Exchange.

Zaio would like to thank Colin Fisher and his team at StableView Asset Management Inc. for their extensive support and efforts particular to this debenture financing and additional future financing options. Boyle & Co. LLP, Toronto, acted as legal counsel to StableView.

We seek Safe Harbor.