Kaizen Discovery Announces Corporate Reorganization
Vancouver, August 9, 2021 - Eric Finlayson, Interim President and Chief Executive Officer of Kaizen Discovery Inc. (TSXV: KZD) (otherwise "Kaizen" or "the Company") announces today that it is undertaking a series of transactions to recapitalize and reorganize the Company (the "Reorganization") to be implemented over the next 60 days:
- A C$7,500,000 rights offering, extended to all shareholders of Kaizen, backed by a stand-by guarantee of Ivanhoe Electric (BVI) Inc., the Company's majority shareholder, with the proceeds used to fund the Company's upcoming exploration programs and business operations;
- Conversion to common shares of all loans advanced to the Company by majority shareholder Ivanhoe Electric (BVI) Inc.;
- Following the settlement of the rights offering and conversion of the loans, the Company intends to implement a 10 for 1 share consolidation; and
- The addition of three independent directors, each of whom has extensive industry experience and a successful track record of advancing mineral exploration projects and companies.
"Upon completion, this Reorganization will result in the Company being well-capitalized, debt-free and efficiently structured to advance its mineral projects and to drive value for its shareholders," said Eric Finlayson, Interim President and CEO of Kaizen.
Rights Offering
The Company will conduct an offering of rights (the "Rights Offering") to acquire common shares of the Company ("Common Shares") to raise gross proceeds of C$7,500,000.
Pursuant to the rights offering circular (the "Rights Offering Circular") and the notice of rights offering (the "Notice of Rights Offering"), each eligible registered shareholder of the Company, as disclosed in the Rights Offering Circular, and holding Common Shares as at the close of business on August 23, 2021 (the "Record Date") will receive 0.4851239331 transferable right for every one Common Share held (a "Right"). Each Right will entitle the holder to subscribe for one Common Share ("Rights Shares") at a subscription price of C$0.045 per Common Share (the "Basic Subscription Privilege"). Shareholders who fully exercise their Rights under the Basic Subscription Privilege will also be entitled to subscribe for additional Common Shares, on a pro rata basis, if available as a result of unexercised Rights prior to the Expiry Time (the "Additional Subscription Privilege"), subject to certain limitations as set out in the Company's Rights Offering Circular.
The Rights will be listed and posted for trading on the TSX Venture Exchange ("TSXV") under the symbol "KZD.RT" on a "when issued" basis commencing on August 20, 2021 and will expire at 5:00 p.m. (Vancouver time) (the "Expiry Time") on September 16, 2021, after which time unexercised Rights will be void and of no value.
The Company currently has 343,554,821 Common Shares issued and outstanding. If all Rights issued under the Rights Offering are validly exercised, an additional 166,666,666 Common Shares would be issued.
The Company intends to use the net proceeds of the Rights Offering to deploy Ivanhoe Electric Inc.'s1 proprietary Typhoon™ transmitter system at its 100% owned Pinaya copper-gold project in Peru to undertake a 129 km2 3D Induced Polarization and Resistivity ("IP-resistivity") survey - the largest Typhoon™ survey completed to date. In addition, the Company will conduct exploration diamond drilling of laterally extensive shallow gold targets (refer to Kaizen's news release dated August 9, 2021).
A Notice of Rights Offering and a Direct Registration System (DRS) advice statement (a "Rights Certificate") will be mailed to each registered shareholder of the Company resident in Canada as at the Record Date. Registered shareholders who wish to exercise their rights must forward the completed Rights Certificate, together with the applicable funds, to the rights agent, Computershare Investor Services Inc. (the "Rights Agent"), at 100 University Avenue, 8th Floor, Toronto, ON M5J 2Y1 Attention: Corporate Actions, on or before the Expiry Time. Shareholders who own their Common Shares through an intermediary, such as a bank, trust company, securities dealer or broker, will receive materials and instructions from their intermediary.
The Rights Offering will be conducted in all provinces and territories of Canada. However, certain holders of Common Shares in jurisdictions outside of Canada may be able to participate in the Rights Offering where they can establish that the transaction is exempt under applicable legislation. If you are a holder of Common Shares and reside outside of Canada, you will receive a Notice of Rights Offering, for information purposes only, and a letter advising you as to how to determine your eligibility and the process and timing requirements to receive and, or, exercise your Rights. The Company requests any ineligible shareholder interested in exercising their Rights to contact the Company at their earliest convenience. A copy of the Notice of Rights Offering, the Rights Offering Circular and the Notice to Ineligible Shareholders are available under the Company's profile on SEDAR at www.sedar.com.
Neither the Rights being offered or the Common Shares issuable upon exercise of the Rights have been or will be registered under the United States Securities Act of 1933, as amended, and may not be exercised, offered or sold, as applicable, in the United States absent registration or an applicable exemption from the registration requirements. This news release shall not constitute an offer to sell or the solicitation of an offer to buy the securities of the Company. There shall be no offer or sale of these securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification of such securities under the laws of any such jurisdiction.
In connection with the Rights Offering, the Company has entered into a standby commitment agreement (the "Standby Commitment Agreement") with Ivanhoe Electric (BVI) Inc. ("Ivanhoe Electric BVI" or the "Standby Purchaser"), the Company's majority shareholder. The Standby Purchaser has agreed, subject to certain terms and conditions, to exercise its Basic Subscription Privilege in respect of any Rights it holds, and, in addition thereto, to acquire any additional Common Shares available as a result of any unexercised Rights under the Rights Offering, such that the Company will, subject to the terms of the Standby Commitment Agreement, be guaranteed to issue 166,666,666 Common Shares in connection with the Rights Offering for aggregate gross proceeds of C$7,500,000.
In consideration for the Standby Commitment, Ivanhoe Electric BVI will receive 5-year warrants to purchase 25% of the Common Shares that Ivanhoe Electric BVI has agreed to acquire under the Standby Commitment (not including any Common Shares acquired pursuant to its Basic Subscription Privilege or Additional Subscription Privilege), at an exercise price equal to C$0.065 per Common Share.
The Standby Purchaser is a "related party" of the Company under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101") because it exercises control and direction over more than 10% of the issued and outstanding Common Shares. The Rights Offering is not subject to the related party rules under MI 61-101 based on a prescribed exception related to rights offerings.
Further details of the Rights Offering are contained in the Rights Offering Circular, which will be filed on SEDAR under the Company's profile at www.sedar.com and will be available at the Company's website at www.kaizendiscovery.com, from your dealer representative or by contacting the Company's information contact listed below.
The Rights Offering is subject to certain conditions including, but not limited to, the receipt of all necessary regulatory approvals, including the final acceptance of the TSXV.
This press release does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such jurisdiction.
Debt Conversion
The Company has entered into a debt settlement agreement with Ivanhoe Electric BVI whereby the Company will issue Common Shares at $0.05 per Common Share in settlement of all principal and accrued and unpaid interest owing by the Company to Ivanhoe Electric BVI (the "Debt Settlement"). As of the date of this news release, the principal amount of US$5,242,000 plus approximately US$514,000 in accrued interest remains owing to Ivanhoe Electric BVI.
The Debt Settlement constitutes a "related party transaction" under MI 61-101 and will require "minority approval" of shareholders in accordance with MI 61-101. At the Meeting, shareholders, excluding Ivanhoe Electric BVI and certain affiliated persons, will be asked to approve the Debt Settlement. Pursuant to Section 5.5(b) of MI 61-101, the Company is exempt from obtaining a formal valuation in respect of the Debt Settlement.
The Debt Settlement is subject to the approval of the TSXV. The Common Shares issued will be subject to a statutory hold period in Canada expiring four months and a day from the closing date. Upon completion of the Debt Settlement and assuming the full subscription of Rights under the Rights Offering, Ivanhoe Electric BVI is expected to own approximately 517,866,644 Common Shares, representing an approximate 79.10% interest in the Company.
A full description of the review and approval process adopted by the board of directors of the Company and the special committee will be included in the management information circular provided to shareholders in connection with the Company seeking shareholder approval of the Debt Settlement at the Meeting (as defined below).
Assuming shareholder and TSXV approval is obtained, the Debt Settlement is expected to close after the Meeting. The Company will file a material change report in respect of the announcement of the Debt Settlement.
Share Consolidation
Shareholders will be asked to consider a resolution to approve a consolidation (the "Consolidation") of the Company's Common Shares on a ratio of one (1) post-Consolidation Common Share for every ten (10) pre-Consolidation Common Share.
The Consolidation is subject to shareholder and TSXV approval. As of the date of this news release, there are 343,554,821 Common Shares issued and outstanding. Upon completion of the Debt Settlement and assuming the full subscription of Rights under the Rights Offering, it is anticipated that there will be approximately 65,469,708 Common Shares issued and outstanding following the Consolidation. The Company is pursuing the Consolidation to reduce its number of issued and outstanding Common Shares and to provide for an increased Common Share price, which will allow it to attract additional investors who have minimum share price thresholds for equity investments.
Board Nominees
The Company proposes to expand the board to six directors, and to add the following three new independent directors being, Mr. Jay Chmelauskas, Mr. Ricardo Labó and Mr. Blake Steele.
Mr. Chmelauskas has 25 years of international experience in project financing, mergers and acquisitions (M&A), and mining project development. As a seasoned senior executive, Mr. Chmelauskas is serving as the President and CEO of Camino Corporation. Prior to that, Mr. Chmelauskas was the CEO of Western Lithium (now Lithium Americas Corp.) He has a Geological Engineering Degree from the University of British Columbia, and an MBA from Queens University.
Mr. Labó is a mineral economist with over 20 years of industry experience in Peru, Latin America, and Africa. Mr. Labó has extensive experience and knowledge about the Peruvian mining industry from both the public and private sectors. Mr. Labó has held several high-level positions in the Ministry of Energy and Mines of Peru, including Vice Minister of Mines, Advisor to the Minister of Energy and Mines as well as Director of Mining Promotion and Development.
Mr. Steele is an experienced metals and mining industry executive with extensive knowledge across public companies and capital markets. Mr. Steele is currently President and CEO of Azarga Uranium Corp., also serves as a non-executive director of Gold Mountain Mining Corp. and Azarga Metals Corp. Mr. Steele is a Chartered Professional Accountant and Chartered Business Valuator in Canada.
The nominees will be included along with nominations to re-appoint the three current directors, being Mr. Eric Finlayson, Mr. David Boehm and Mr. Terry Krepiakevich.
2021 Annual General Meeting
Each of the Debt Settlement, Consolidation and board appointments will be presented for consideration and approval by the shareholders at Kaizen's Annual General Meeting (the "Meeting"), to be held on September 27, 2021. The Company anticipates mailing Meeting materials to shareholders on or about August 20, 2021.
At the Meeting, shareholders will also be asked to vote on the usual Annual General Meeting matters including the re-appointment of the Company's auditor and approval of the Company's equity incentive plans.
About Kaizen
Kaizen is a Canadian mineral exploration and development company with exploration projects in Peru and Canada. More information on Kaizen is available at www.kaizendiscovery.com
ON BEHALF OF THE COMPANY
Eric Finlayson, Interim President and Chief Executive Officer
Information contact
Ran Li +1-604-689-8765
info@kaizendiscovery.com
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 includes "forward-looking statements" and "forward-looking information" within the meaning of Canadian securities legislation. All statements included in this news release, other than statements of historical fact, are forward-looking statements including, without limitation, statements with respect to the Rights Offering; the stand-by commitment by Ivanhoe Electric BVI; the intended use of the proceeds raised under the Rights Offering; the Meeting and approval of matters thereat; the Debt Settlement; the Consolidation; and the Board appointments. Forward-looking statements include predictions, projections and forecasts and are often, but not always, identified by the use of words such as "anticipate", "believe", "plan", "estimate", "expect", "potential", "target", "budget" and "intend" and statements that an event or result "may", "will", "should", "could" or "might" occur or be achieved and other similar expressions and includes the negatives thereof.
Forward-looking statements are based on a number of assumptions and estimates that, while considered reasonable by management based on the business and markets in which the Company operates, are inherently subject to significant operational, economic, and competitive uncertainties, risks and contingencies. These include assumptions regarding, among other things: the Company's receipt of all necessary regulatory, stock exchange and third party approvals in respect of the Rights Offering, the Debt Settlement, the Consolidation; the exercise of Rights by Ivanhoe Electric BVI; the timing of the Rights Offering will meet the Company's expectations based on its business and operational requirements; costs of completing the Rights Offering; risks that could cause the Company to allocate the proceeds of the Rights Offering in a manner other than as disclosed; and that the Rights Offering will provide sufficient liquidity to support the Company's intended use of the proceeds therefrom. In addition, forward-looking statements are also based upon assumptions about general business and economic conditions; the availability of additional exploration and mineral project financing; the supply and demand for, inventories of, and the level and volatility of the prices of metals; the timing and receipt of governmental permits and approvals; the timing and receipt of community and landowner approvals; changes in regulations; political factors; the accuracy of the Company's interpretation of drill results; the geology, grade and continuity of the Company's mineral deposits; the availability of equipment, skilled labour and services needed for the exploration and development of mineral properties; and currency fluctuations. There can be no assurance that forward-looking statements will prove to be accurate and actual results, and future events could differ materially from those anticipated in such statements. Important factors that could cause actual results to differ materially from the Company's expectations include actual exploration results, interpretation of metallurgical characteristics of the mineralization, changes in project parameters as plans continue to be refined, future metal prices, availability of capital and financing on acceptable terms, general economic, market or business conditions, uninsured risks, regulatory changes, delays or inability to receive required approvals, unknown impact related to potential business disruptions stemming from the COVID-19 outbreak, or another infectious illness, and other exploration or other risks detailed herein and from time to time in the filings made by the Company with securities regulators, including those described under the heading "Risks and Uncertainties" in the Company's most recently filed MD&A. The Company does not undertake to update or revise any forward-looking statements, except in accordance with applicable law.
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1 Kaizen's majority shareholder, Ivanhoe Electric (BVI) Inc., is a wholly-owned subsidiary of Ivanhoe Electric Inc.
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