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Zaruma Resources Inc., (TSXV-ZMR.H), (the “Company” or “Zaruma”) announces that it has executed an additional promissory note in favour of Gravity Ltd. (“Gravity”), pursuant to which Gravity may advance to the Company up to an additional Cdn$300,000 of debt financing (the “Additional Bridge Financing”), to be advanced in tranches of Cdn$75,000 each.
Gravity has already advanced Cdn$500,000 to the Company (the “Original Bridge Financing”) pursuant to a promissory note dated May 5, 2010 (the “Original Gravity Promissory Note”) and a memorandum of understanding dated May 5, 2010 (the “Gravity MOU”). The terms of the Original Gravity Promissory Note and the Gravity MOU were disclosed in the Company’s news release dated May 6, 2010 and the Company’s management information circular dated June 17, 2010 (the “Circular”), distributed in connection with the shareholders’ meeting held on July 19, 2010. As disclosed in the Circular, the MOU contemplates that Gravity may provide equity financing to the Company of approximately US$20 million, subject to satisfaction of various conditions, including the Company arranging new debt financing acceptable to Gravity. As announced in the Company’s news release dated August 6, 2010, the Company has received an indicative financing term sheet in respect of a US$30 million copper off-take facility from a major international bank. The Additional Bridge Financing is intended to fund the Company’s cash requirements while the Company continues to pursue the debt financing and the Gravity equity financing.
The terms of the Additional Bridge Financing are identical to the terms of the Original Bridge Financing. The principal and interest owing under the Additional Bridge Financing is due May 5, 2011, subject to early maturity in certain circumstances. Gravity has the right at any time to convert all unpaid amounts of principal and interest into common shares of the Company at a conversion price of Cdn$0.05 per share. As consideration for the establishment of the Additional Bridge Financing, the Company will issue warrants to Gravity, on the basis of 1,500,000 warrants to be issued in respect of each advance of Cdn$75,000 under the Additional Bridge Financing. Each warrant entitles Gravity to purchase one common share of the Company at a price of Cdn$0.10 for a period of one year from the date of issue. If the full Cdn$300,000 is advanced under the Additional Bridge Financing, the Company would be obligated to issue an aggregate of 6,000,000 warrants to Gravity.
The Gravity MOU contains a covenant of the Corporation to not solicit or participate in discussions or negotiations concerning any equity financing other than the proposed Gravity equity financing for a period (the “Exclusivity Period”) ending on the earlier of 120 days after the first advance under the Original Gravity Promissory Note (which advance was made on May 6, 2010), the completion of the Gravity equity financing or the completion of a competing equity financing which is determined to be a proposal superior to the Gravity Equity Placement. If the Gravity Equity Placement is not completed and Zaruma completes a competing equity financing that is a superior proposal, Zaruma is obligated to reimburse Gravity for all expenses incurred in connection with the proposed Gravity equity financing, plus US$500,000. The Company has agreed to extend the Exclusivity Period to January 4, 2011.
Prior to the Additional Bridge Financing, Gravity held the Original Gravity Promissory Note in the principal amount of Cdn$500,000, plus 10,000,000 warrants issued in connection with the Original Bridge Financing. If these securities were converted and/or exercised for common shares of the Company, Gravity would hold more than 10% of the then outstanding common shares of the Company. As a result, Gravity is a “related party” of the Company, and the establishment of the Additional Bridge Financing and the extension of the Exclusivity Period is a “related party transaction” for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”).
The Company is also indebted to Frank van de Water, a director and senior officer of the Company, in the principal amount of Cdn$100,000, pursuant to a Series A convertible debenture issued September 15, 2009 (the “Debenture”), which is due and payable on September 15, 2010. As the Company will not be in a position to repay the Debenture on the scheduled maturity date, the Company and Mr. van de Water have agreed to extend the maturity date of the Debenture to December 14, 2010. The extension of the maturity date of the Debenture is also a related party transaction for purposes of MI 61-101.
The Company is relying upon the financial hardship exemption from the formal valuation and minority approval requirements of MI 61-101 provided in subsection 5.5(g) and 5.7(e) of MI 61-101 in respect of the related party transactions with Gravity and with Mr. van de Water. The independent directors of the Company (being all of the directors other than Daniel Major, with respect to the transactions with Gravity, and all of the directors other than Mr. van de Water, with respect to the extension of the Debenture) have unanimously determined that the Company is in serious financial difficulty, that the transactions are designed to improve the financial condition of the Company, and the terms of the transactions are reasonable in the circumstances of the Company. The establishment of the Additional Bridge Financing, the extension of the Exclusivity Period and the extension of the maturity date of the Debenture will occur less than 21 days following the issuance of this news release and the filing of a material change report by the Company. The Company’s independent directors have determined that it is reasonable and necessary to complete the related party transactions on an expedited basis, due to the Company’s immediate need for funding to continue to pursue the debt financing and the Gravity equity financing.
Zaruma is listed on the NEX Board of the TSX Venture Exchange, (symbol ZMR.H) and the Frankfurt Stock Exchange, (symbol: ZMR). Common shares outstanding: 117,608,747.
www.zaruma.com/
Gravity has already advanced Cdn$500,000 to the Company (the “Original Bridge Financing”) pursuant to a promissory note dated May 5, 2010 (the “Original Gravity Promissory Note”) and a memorandum of understanding dated May 5, 2010 (the “Gravity MOU”). The terms of the Original Gravity Promissory Note and the Gravity MOU were disclosed in the Company’s news release dated May 6, 2010 and the Company’s management information circular dated June 17, 2010 (the “Circular”), distributed in connection with the shareholders’ meeting held on July 19, 2010. As disclosed in the Circular, the MOU contemplates that Gravity may provide equity financing to the Company of approximately US$20 million, subject to satisfaction of various conditions, including the Company arranging new debt financing acceptable to Gravity. As announced in the Company’s news release dated August 6, 2010, the Company has received an indicative financing term sheet in respect of a US$30 million copper off-take facility from a major international bank. The Additional Bridge Financing is intended to fund the Company’s cash requirements while the Company continues to pursue the debt financing and the Gravity equity financing.
The terms of the Additional Bridge Financing are identical to the terms of the Original Bridge Financing. The principal and interest owing under the Additional Bridge Financing is due May 5, 2011, subject to early maturity in certain circumstances. Gravity has the right at any time to convert all unpaid amounts of principal and interest into common shares of the Company at a conversion price of Cdn$0.05 per share. As consideration for the establishment of the Additional Bridge Financing, the Company will issue warrants to Gravity, on the basis of 1,500,000 warrants to be issued in respect of each advance of Cdn$75,000 under the Additional Bridge Financing. Each warrant entitles Gravity to purchase one common share of the Company at a price of Cdn$0.10 for a period of one year from the date of issue. If the full Cdn$300,000 is advanced under the Additional Bridge Financing, the Company would be obligated to issue an aggregate of 6,000,000 warrants to Gravity.
The Gravity MOU contains a covenant of the Corporation to not solicit or participate in discussions or negotiations concerning any equity financing other than the proposed Gravity equity financing for a period (the “Exclusivity Period”) ending on the earlier of 120 days after the first advance under the Original Gravity Promissory Note (which advance was made on May 6, 2010), the completion of the Gravity equity financing or the completion of a competing equity financing which is determined to be a proposal superior to the Gravity Equity Placement. If the Gravity Equity Placement is not completed and Zaruma completes a competing equity financing that is a superior proposal, Zaruma is obligated to reimburse Gravity for all expenses incurred in connection with the proposed Gravity equity financing, plus US$500,000. The Company has agreed to extend the Exclusivity Period to January 4, 2011.
Prior to the Additional Bridge Financing, Gravity held the Original Gravity Promissory Note in the principal amount of Cdn$500,000, plus 10,000,000 warrants issued in connection with the Original Bridge Financing. If these securities were converted and/or exercised for common shares of the Company, Gravity would hold more than 10% of the then outstanding common shares of the Company. As a result, Gravity is a “related party” of the Company, and the establishment of the Additional Bridge Financing and the extension of the Exclusivity Period is a “related party transaction” for purposes of Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions (“MI 61-101”).
The Company is also indebted to Frank van de Water, a director and senior officer of the Company, in the principal amount of Cdn$100,000, pursuant to a Series A convertible debenture issued September 15, 2009 (the “Debenture”), which is due and payable on September 15, 2010. As the Company will not be in a position to repay the Debenture on the scheduled maturity date, the Company and Mr. van de Water have agreed to extend the maturity date of the Debenture to December 14, 2010. The extension of the maturity date of the Debenture is also a related party transaction for purposes of MI 61-101.
The Company is relying upon the financial hardship exemption from the formal valuation and minority approval requirements of MI 61-101 provided in subsection 5.5(g) and 5.7(e) of MI 61-101 in respect of the related party transactions with Gravity and with Mr. van de Water. The independent directors of the Company (being all of the directors other than Daniel Major, with respect to the transactions with Gravity, and all of the directors other than Mr. van de Water, with respect to the extension of the Debenture) have unanimously determined that the Company is in serious financial difficulty, that the transactions are designed to improve the financial condition of the Company, and the terms of the transactions are reasonable in the circumstances of the Company. The establishment of the Additional Bridge Financing, the extension of the Exclusivity Period and the extension of the maturity date of the Debenture will occur less than 21 days following the issuance of this news release and the filing of a material change report by the Company. The Company’s independent directors have determined that it is reasonable and necessary to complete the related party transactions on an expedited basis, due to the Company’s immediate need for funding to continue to pursue the debt financing and the Gravity equity financing.
Zaruma is listed on the NEX Board of the TSX Venture Exchange, (symbol ZMR.H) and the Frankfurt Stock Exchange, (symbol: ZMR). Common shares outstanding: 117,608,747.
www.zaruma.com/
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