Lomiko Metals Inc. (“Lomiko Metals”) (TSX-V: LMR, OTC: LMRMF,
FSE: DH8C) At the request of the Ontario Securities
Commission, Lomiko Metals is issuing this release in order to
better inform shareholders of the transaction that will be
presented at the Annual Special General Meeting scheduled for
November 29, 2019 at 11:00 am (Vancouver time) at Suite 1400, 885
West Georgia Street, Vancouver, BC, V6C 3E8 (the “Meeting”).
Lomiko Metals encourages shareholders to read, in detail, the
Information Circular mailed to shareholders dated October 25, 2019
and filed on SEDAR at www.sedar.com.
Sale of Assets
By agreement dated July 31, 2019, Lomiko Metals has agreed
to sell its wholly-owned subsidiary, Lomiko Technologies Inc.
(‘LTI’) to Promethieus Technologies Inc. (the “Purchaser”) for
$1,236,625 plus $193,614.32 representing reimbursement of expenses
(the “Asset Sale Transaction”). The transaction is non-arm’s length
as (1) A. Paul Gill is a director and officer of Lomiko
Metals, a director of LTI and a director of the Purchaser; (2)
Satvinder (Sat) Samra is a director of Purchaser and a shareholder
of Lomiko Metals; and (3) Lomiko Metals is a 20% shareholder of the
Purchaser at present, prior to its IPO and financing.
Lomiko Metals Inc.'s independent directors to this
transaction are Julius Galik and Gabriel Erdelyi (the “Independent
Directors”) which comprise a Review Committee (‘Committee’)
reviewing the transaction.
Assets of Lomiko Technologies
Smart Home Devices Ltd. (“SHD”)
SHD is a private company developing a series of energy
saving, connected building automation and security products and is
focused on developing smart home automation and security devices
for homes, offices, industrial buildings and hotels. SHD was formed
to commercialize intellectual property jointly under development at
the Megahertz Power Systems innovation lab (the majority
shareholder of SHD and the initial developer of the Spider Charger
concept). SHD technology focuses on power savings,
connectivity and security. LTI holds 1,792,269 shares of SHD.
Lomiko Metals previously accounted for the equity value of
SHD through direct costs that were incurred and in particular,
incorporation expenses, purchase of inventory parts, patents,
website, and share value. Lomiko Metals shareholding in SHD was
diluted to 18.25% which caused significant loss of control over the
future of SHD. Lomiko Metals was of the opinion that it
should discontinue the accounting for SHD using the equity
method. As at July 31, 2018, Lomiko Metals assessed that the
investment in SHD was impaired and recorded a write-down of
$1,136,574 to the investment to $1.
Graphene ESD Corp. (“G-ESD”)
G-ESD is a private company developing energy storage-based
graphene platelets. On December 12, 2014, LTI purchased 1,800
shares of G-ESD Series A Preferred Stock at a purchase price of
$101.27 US per share for a total consideration of $182,281 US. Each
Series A Preferred Stock held by LTI may be convertible to common
stock at the option of LTI and without the payment of additional
consideration. Dividends would be payable at the rate per annum of
$4.05 per share; however, over the period of four years there has
been no activity in G-ESD and G-ESD continued to accumulate losses.
As of July 31, 2019, LTI equity value in G-ESD was $56,572 and
management assessed that the value in G-ESD was impaired and should
be written off.
Reasons for the Asset Sale Transaction
Lomiko Metals has been unsuccessful in financing LTI and
its assets. Both SHD and G-ESD achieved progress and created
prototypes with SHD achieving partial advancement to underwriter’s
lab testing and patent filings. In 2018 it became apparent that
Lomiko Metals could not make any further cash investments to the
assets as Lomiko Metals' primary focus was the graphite project and
alternative financing was required for LTI. Without further
funding, the assets were considered without value.
Lomiko Metals had been funding various tech start-ups as a
way to create alternative income sources. It had funded from
2014 to present Graphene 3D Lab, G-ESD, SHD and Promethieus
Technologies Inc. The idea was to create a revenue-generating
subsidiary that could act as a hedge against the vagaries of the
junior mining market where the ability to raise funds for projects
was and is very inconsistent. Despite some initial success
with Graphene 3D Lab and recovery of some of the funds put forward,
the other projects did not see commercial success and were taxing
the treasury. Further, the market capitalization of Lomiko
Metals become smaller and smaller and the percentage of technology
interest increased to the point in January 2018 that the BC
Securities Commission requested Lomiko Metals provide comment on
whether it should undergo a Change of Business to a technology
issuer. It was at that time the concept of spinning out or
creating a technology vehicle was conceived. In 2018
Management sought funding sources for the advancement and/or sale
of technology assets and settled on a plan to change the focus of
the subsidiary Promethieus to a technology incubator that could
qualify for listing in Europe as disclosed in April 6, 2018 and
June 26, 2018 news releases. The process is currently ongoing
and confirmation of listing approval on an EU Exchange is still
pending but near completion.
An initial concept of a sale of the technology assets to
Promethieus was proposed by Management as a way to separate the
metals and technology. In September 2018 Promethieus changed
its name to Promethieus Technologies Inc. It was clear that
Lomiko Metals needed funding in 2018-19 to complete its option and
drilling and administration would tax the treasury. During
the progress of the strategy, the Independent Directors were
provided progress reports regarding the inability to complete
funding for Promethieus, SHD, and G-ESD during Directors
meetings. In 2019, Lomiko Metals was approached by the
management of the Purchaser which made an offer to purchase SHD for
$ 350,000. Negotiations then ensued among the parties.
Promethieus also became interested in licenses to manufacture SHD
technology which was held by LTI and they were included in the
negotiations. After examination, Promethieus then offered to
acquire all the assets of LTI and that included G-ESD shares.
Lomiko Metals then arranged to transfer its direct holdings of SHD
to LTI. The negotiations culminated in July 2019 with
Promethieus offering to purchase all of the shares of LTI.
The Committee worked hard to establish a fair value for LTI and its
sale. The Committee’s main focus was to recover Lomiko
Metals’ initial investment which was achieved.
In determining that the terms and conditions of the Asset
Sale Transaction contemplated thereby are in the best interests of
the shareholders of Lomiko Metals, the Committee considered and
relied upon a number of factors, including, among other things, the
following:
It is apparent that the status-quo of Lomiko Metals
funding LTI was not economically viable as the assets were not
advancing;
- the consideration to be paid pursuant to the Asset Sale
Transaction is all cash;
- the Asset Sale Transaction is the result of a strategic review
process conducted by a Committee comprised of Lomiko Metals
Independent Board of Directors, which included reviewing a broad
range of strategic alternatives available to Lomiko Metals;
- The Committee reviewed Management’s equity funding efforts for
Lomiko Metals as a whole and the specific projects to discover any
ways to fund LTI without a sale of the assets;
- The Committee reviewed Management efforts to seek funding via a
debenture or loan;
- The Committee communicated with the CEO of Promethieus to
discover if the maximum value had been attained by Lomiko Metals
for the assets;
- The Committee confirmed with Auditors the expenditures of
Lomiko Metals to fund LTI in the past and found the sale price was
equal to the costs incurred by Lomiko Metals;
- The Committee reviewed Management’s effort to attract buyers
and investors in the projects;
- The Committee considered an evaluation for the projects but
determined that it would not be cost-effective or beneficial for
Lomiko Metals, as the buyer would not pay more than the negotiated
price;
- At the conclusion of this Strategic Review, the Committee
unanimously determined that the Asset Sale Transaction was the best
alternative among the limited opportunities available to Lomiko
Metals to maximize shareholder value having regard to Lomiko Metals
current financial and operational position;
- the resolution approving the Asset Sale Transaction must be
approved by a special resolution by a majority of the common shares
represented and voted at the Meeting after excluding the votes
required to be excluded under MI 61-101 (as defined below);
- the terms and conditions of the Asset Sale Transaction,
including the parties’ respective representations, warranties and
covenants, and the conditions to their respective obligations have
been disclosed;
- the Committee believes that it is likely that the limited
conditions to complete the Asset Sale Transaction will be
satisfied;
- to the knowledge of the Committee, there are no material
regulatory issues which are expected to arise in connection with
the Asset Sale Transaction so as to prevent completion, and it is
anticipated that all required regulatory clearances are obtained;
and
- after conducting a review of Lomiko Metals' financing and
strategic alternatives, the Committee has determined that Lomiko
Metals subsidiaries could not continue to operate as going concerns
and was not likely to create greater value for shareholders than
the value obtained for shareholders pursuant to the Asset Sale
Transaction.
The foregoing summary of the information and factors
considered by the Committee is not, and is not intended to be,
exhaustive. In view of the variety of factors and the amount of
information considered in connection with its evaluation of the
Asset Sale Transaction, the Committee did not quantify or otherwise
attempt to assign any relative weight to each specific factor
considered in reaching its conclusion and recommendation. The
Committee’s recommendations were made after consideration of all of
the above-noted factors and in light of the Committee’s collective
knowledge of the business, financial condition and prospects of
Lomiko Metals.
Summary of Terms
The following summary of the Asset Sale Transaction is
qualified in its entirety by the terms of the Share Purchase
Agreement, a copy of which has been filed on SEDAR at
www.sedar.com. Any capitalized terms and section reference not
otherwise defined herein shall have the meanings set forth in the
Share Purchase Agreement.
the Purchaser will acquire all of the shares of LTI;
- the purchase price for all of the common shares of LTI is Cdn.
$1,236,625 plus $193,614.32 representing reimbursement of
expenses;
- pending approval of the Asset Sale Transaction at the meeting
and satisfaction of all conditions to closing set forth in the
Share Purchase Agreement, closing is scheduled to occur within five
(5) business days after all closing conditions have been met, and
in any event no later than December 31, 2019;
- major conditions to closing are: (1) the approval of the
Asset Sale Transaction at the Meeting; (2) a financing to be
completed by the Purchaser of $3,670,750; (3) the approval of the
TSX Venture Exchange; and (4) the representations and warranties
being correct at the time of closing and no material adverse change
having occurred at the time of closing;
- Lomiko Metals has made normal-course representations and
warranties; and
- both Lomiko Metals and the Purchaser will be responsible for
the payment of their own transaction costs, including legal,
accounting, tax and regulatory compliance costs.
Independent Valuation
Lomiko Metals has relied on an exemption to a Formal Valuation
based on MI 61-101 Section 5(5)(g). Lomiko Metals CFO,
Jacqueline Michael, has verified Lomiko Metals expenditures and
expenses for the financial years 2015, 2016, 2017 and 2018 relating
to LTI.
TSX Venture Exchange Application
Lomiko Metals has filed its application for approval of the
Asset Sale Transaction with the TSX Venture Exchange and has
received conditional approval.
Effect of the Asset Sale Transaction on the Corporation
and Plans of the Corporation Post-Closing
Assuming that the Asset Sale Transaction is approved at the
Meeting and subsequently completed according to the terms disclosed
herein, Lomiko Metals will still continue its exploration in the
mining sector.
Summary of Anticipated Tax Consequences of Asset Sale
Transaction
Lomiko Metals did not retain any formal tax opinion on the
transaction but is of the view that there are no anticipated tax
consequences passed on to the shareholders.
Anticipated Ramifications of Failure to Approve the
Asset Sale Transaction
If the Asset Sale Transaction resolution is not approved
by shareholders at the meeting, Lomiko Metals shall continue with
its current operations. The Committee will continue to evaluate and
consider strategic alternatives going forward but has unanimously
recommended that shareholders vote in favour of the Asset Sale
Transaction as they believe it is in the best interests of
Lomiko Metals for the reasons set out herein.
Required Shareholder Approvals for the Asset Sale
Transaction
Canada Business Corporations Act
Although the Asset Sale Transaction is in the ordinary
course of business, it is a non-arm’s length transaction that
requires that the Asset Sale Transaction resolution must be
approved by disinterested shareholder approval.
TSX Venture Exchange Policy 5.9 and MI 61-101
Multilateral Instrument 61-101 – Protection of Minority
Security Holders in Special Transactions (“MI 61-101”) is intended
to regulate certain transactions to ensure equality of treatment
among security holders, generally requiring enhanced disclosure,
approval by a majority of security holders (excluding interested or
related parties), independent valuations and, in certain
circumstances, approval and oversight of the transaction by a
special committee of independent directors.
Lomiko Metals is subject to the provisions of MI 61-101
because the common shares are listed on the TSX Venture Exchange
and Policy 5.9 of the TSX-V Corporate Finance Manual (the “Policy
5.9”) incorporates MI 61-101 into the policies of the TSX Venture
Exchange and Policy 5.9 applies to all issuers listed on the TSX
Venture Exchange.
Lomiko Metals is a 20% holder of the Purchaser and this
creates a requirement for review under MI 61-101. MI 61-101
states that a “related party transaction” means, for an issuer, a
transaction between the issuer and a person that is a related party
of the issuer at the time the transaction is agreed to, whether or
not there are also other parties to the transaction, as a
consequence of which, either through the transaction itself or
together with connected transactions, the issuer directly or
indirectly (a) purchases or acquires an asset from the related
party for valuable consideration, (b) purchases or acquires, as a
joint actor with the related party, an asset from a third party if
the proportion of the asset acquired by the issuer is less than the
proportion of the consideration paid by the issuer, (c) sells,
transfers or disposes of an asset to the related party,….”.
Pursuant to MI 61-101 this is a “related party transaction” and
minority approval will be sought at the Meeting.
Further, the Purchaser’s directors are A. Paul Gill and
Sat Samra. Mr. Gill is a director and officer of Lomiko Metals and
LTI. Mr. Samra is a director and officer of SHD and a shareholder
of Lomiko Metals. Therefore, Mr. Gill’s and Mr. Samra’s
common shares will be excluded from voting on such matters for
purposes of determining whether the required “minority approval”
has been obtained as provided by MI 61-101. Mr. Gill
currently holds 5,725,910 common shares of Lomiko Metals, directly
and indirectly. Mr. Samra holds 1,976,474 common shares of Lomiko
Metals, directly and indirectly.
Based upon the Committee’s consideration of, among other things,
the current market conditions and other relevant matters as set
forth herein, the Committee has unanimously determined that the
terms and conditions of the Asset Sale Transaction contemplated
thereby are fair to the shareholders and in the best interests of
Lomiko Metals and the shareholders.
A resolution shall be placed before shareholders at the Meeting
scheduled for November 29, 2019 at 11:00 am (Vancouver time) at
Suite 1400, 885 West Georgia Street, Vancouver, BC, V6C 3E8.
For more information on this transaction please contact Gabriel
Erdelyi at info@lomiko.com.
On Behalf of the Board,
LOMIKO METALS INC.
“Gabriel Erdelyi”
Gabriel Erdelyi
Director
We seek safe harbor.
Neither 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.
This news release does not constitute an offer to sell, or the
solicitation of an offer to buy securities in any jurisdiction in
which such offer or solicitation would be unlawful prior to
registration or qualification under the securities laws of such
jurisdiction. The securities offered under the offering have not
been and will not be registered under the United
States Securities Act of 1933, as amended (the "Securities
Act"), or the securities laws of any state of the United
States, and may not be offered or sold in the United
States or to, or for the account or benefit of, any U.S.
Person (as defined in Regulation S of the Securities Act) or a
person in the United States, unless an exemption from such
registration requirements is available.
Forward-Looking Statements
This release includes forward-looking statements regarding
Lomiko and its business. Such statements are based on the
current expectations and views of future events of Lomiko’s
management. In some cases, the forward-looking statements can
be identified by words or phrases such as “may”, “will”, “expect”,
“plan”, “anticipate”, “intend”, “potential”, “estimate”, “believe”
or the negative of these terms, or other similar expressions
intended to identify forward-looking statements. The
forward-looking events and circumstances discussed in this release
may not occur and could differ materially as a result of the
failure to consummate the project financing, the economic
feasibility of the La Loutre Project, known and unknown risk
factors and uncertainties affecting Lomiko, including risks
regarding the resource industry, economic factors and the equity
markets generally and many other factors beyond the control of
Lomiko. No forward-looking statement can be guaranteed.
Forward-looking statements and information by their nature are
based on assumptions and involve known and unknown risks,
uncertainties and other factors which may cause our actual results,
performance or achievements, or industry results, to be materially
different from any future results, performance or achievements
expressed or implied by such forward-looking statement or
information. Accordingly, readers should not place undue
reliance on any forward-looking statements or information.
Forward-looking statements speak only as of the date on which they
are made and Lomiko undertakes no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, future events, or otherwise, except as required by
applicable securities laws.
A. Paul Gill
Lomiko Metals Inc. (TSX-V: LMR)
6047295312
apaulgill@lomiko.com
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