Calgary, Alberta CANADA, Dec 23, 2013 (Filing Services Canada via COMTEX) — Morro Bay Capital Ltd. (MRW.P – TSX Venture), a capital pool company (“Morro Bay”) is pleased to announce that it has received conditional acceptance from the TSX Venture Exchange (the “Exchange”) for its Qualifying Transaction (as that term is defined in Policy 2.4 – Capital Pool Companies of the Exchange) with Sierra Madre Developments Inc. (“Sierra Madre”), previously announced on October 22, 2013 (the “Transaction”). The conditional approval of the Transaction by the Exchange is subject to a number of conditions, including the completion of a private placement financing resulting in gross proceeds of not less than $500,000, receipt of a satisfactory title opinion in relation to the Penoles Project (as defined below), confirmation from Richardson GMP, agent for the private placement Morro Bay must complete, that it has completed appropriate due diligence in relation to the Transaction and the Morro Bay Information Circular (as defined below), satisfactory completion of background searches of the proposed directors of Morro Bay, and disinterested shareholder approval. Additional conditions common for transactions of this nature must also be satisfied.
A more detailed description of the Transaction is contained in the Morro Bay Management Information Circular dated December 18, 2013 (the “Information Circular”) which has been filed on SEDAR. At the date of the Information Circular Morro Bay had not obtained conditional acceptance from the Exchange, which conditional acceptance, as described above, has now been obtained.
On October 22, 2013, Morro Bay, Riverside Resources Inc. (“Riverside”) and Sierra Madre announced that they had entered into a letter of intent which constituted an agreement in principle whereby Morro Bay would acquire: (a) the rights of Sierra Madre to earn up to a 65% interest in mining concessions owned by Riverside Resources Inc. (“Riverside”) in the State of Durango, Mexico under an option agreement (the “Option Agreement”) with Riverside; and (b) a drill rig located in Mexico owned by Sierra Madre’s Mexican subsidiary (the “Asset”) that has been used on the mining concessions, all as more particularly described below (the foregoing mining concessions are referred to herein as the “Penoles Project”).
On November 28, 2013, Morro Bay, Sierra Madre and Minera Sierra Madre S.A. de C.V. (the Mexican subsidiary of Sierra Madre) entered into an asset purchase agreement (the “Asset Purchase Agreement”) in respect of the purchase by Morro Bay of (a) Sierra Madre’s rights under the Option Agreement and (b) the Asset. In addition, Morro Bay also entered into a reorganization agreement (the “Reorganization Agreement”) with Riverside and Sierra Madre dated November 28, 2013 in respect of which, among other things, Riverside agreed to the assignment of Sierra Madre’s rights and obligations under the Option Agreement and agreed to the amendment of certain terms under the Option Agreement. Copies of the Asset Purchase Agreement and the Reorganization Agreement have been filed by Morro Bay on SEDAR.
Pursuant to the terms of the Asset Purchase Agreement and the Reorganization Agreement, Morro Bay will issue to Sierra Madre 16,000,000 common shares (“Shares”) and 8,000,000 share purchase warrants, each exercisable into one Share at a price of $0.15 until June 15, 2014 and thereafter at a price of $0.25 until their expiry on the first anniversary of the date of their issuance (the “Warrants”), at closing of the Asset Purchase Agreement (the “Closing”) in satisfaction of the purchase price for the acquisition of the Asset from Sierra Madre and the assignment of the Option Agreement from Sierra Madre to Morro Bay and Morro Bay’s Mexican subsidiary (“Morro Bay Mexico”). The 16,000,000 Shares will have a deemed value of $0.10 per Share for an aggregate deemed value of $1,600,000.
Sierra Madre has agreed pursuant to the Asset Purchase Agreement and Reorganization Agreement that at Closing or as soon as possible thereafter it will distribute all of the 16 million Shares and 8 million Warrants issued to it to its shareholders as a dividend in kind distribution (the “Dividend in Kind”). All of the Shares and Warrants distributed under the Dividend in Kind will be subject to a four month and one day hold period by Sierra Madre shareholders commencing from the date of Closing, all as more particularly described in the Information Circular. Riverside has agreed that 70% of the Morro Bay shares it receives from the Dividend in Kind will be held in escrow until December 31, 2014 and the directors and certain officers of Sierra Madre have agreed that 100% of the Morro Bay shares they receive from the Dividend in Kind will be held in escrow until December 31, 2014, all pursuant to a voluntary escrow agreement to be entered into at Closing (the “Voluntary Escrow Agreement”). Subject to any change in the share ownership of the parties, prior to the record date for the Dividend in Kind, approximately 3.97 million (25%) of the 16 million Morro Bay shares to be delivered to Sierra Madre will be held in escrow until December 31, 2014 under the Voluntary Escrow Agreement.
All of the directors and officers of the resulting issuer (i.e. Morro Bay upon completion of the Transaction) who receive Shares under the Dividend in Kind distribution will also have their Shares held in escrow under Exchange Form 5D Escrow Agreements which will result in some of their Shares remaining in escrow notwithstanding their release under the Voluntary Escrow Agreement. There will be approximately 1.3 million Shares held in escrow under such Exchange Form 5D Escrow Agreements following Closing.
Concurrently with completion of the transactions contemplated under the Asset Purchase Agreement, the terms of the Option Agreement will be amended and Morro Bay, Morro Bay Mexico and Riverside will enter into an amended and restated option agreement (“Amended and Restated Option Agreement”). The Amended and Restated Option Agreement will allow Morro Bay Mexico to exercise an initial option (the “Initial Option”) to acquire a 51% interest in the Penoles Project in the event that Morro Bay or Morro Bay Mexico: (a) incur $750,000 in exploration expenditures by March 31, 2014 on the Penoles Project; (b) make cash payments to Riverside in the amount of $100,000 and USD$1,250,000 on or before June 30, 2014; and (c) make a payment of $1,500,000 to Riverside on or before June 30, 2014 (payable in cash, Shares or a combination of cash and Shares at Morro Bay’s election, provided that the 30 day VWAP of the Shares is equal to or greater than $0.05). In order to ensure that such $1,500,000 payment may be made through the issuance of Shares, Morro Bay is seeking shareholder approval of a share consolidation (in a range in between two to one to five to one) which will only be effected if the 30 day VWAP at the time the $1,500,000 payment is due is less than $0.05.
Morro Bay Mexico can acquire a further 14% interest (the “Additional Option”) in the Penoles Project in the event that Morro Bay or Morro Bay Mexico: (a) make a cash payment of $30,000 on or before the first anniversary date of the exercise of the Initial Option; (b) incur additional expenditures on the Penoles Project of not less than $5,000,000, half of which are to be incurred within 12 months from the date of the exercise of the Initial Option (i.e. 51%) and half of which shall be incurred within 24 months from the date of the exercise of the Initial Option; and (c) make a payment of $750,000 to Riverside on or before the date that is 24 months from the exercise by Morro Bay Mexico of the Initial Option (payable in cash, Shares or a combination of cash and Shares at Morro Bay’s election, provided that the 30 day VWAP of the Shares is equal to or greater than $0.05).
Closing and Conditions Precedent
Closing of the Transaction is expected to occur in mid-January, 2014. The completion of the transactions contemplated by the Asset Purchase Agreement is subject to a number of conditions being satisfied or waived by any or all of Morro Bay, Riverside, Sierra Madre Mexico and Sierra Madre at or prior to the Closing Date, including approval of the proposed Qualifying Transaction by Morro Bay’s shareholders and the TSX-V.
Additional Information Concerning the Transaction
Additional information concerning the Transaction is provided in the news release dated October 22, 2013 and in the following documents which have been filed on SEDAR:
1. The Information Circular;
2. Review of Technical Information and Proposed Exploration Program for the Penoles Project dated November 15, 2013;
3. The Asset Purchase Agreement; and
4. The Reorganization Agreement.
Meeting of Shareholders and Annual Financial Statements
The Annual and Special Meeting of Shareholders of Morro Bay will be held at the offices of Osler, Hoskin, & Harcourt LLP, 2500 TransCanada Tower, 450 -1st Street SW, Calgary, Alberta on Tuesday, January 14, 2014 commencing at 10:00 a.m. (Calgary time). The business of the meeting is as set out in the Notice of Meeting included with the Information Circular and includes:
1. The election of directors;
2. The appointment of auditors;
3. The amendment and approval of Morro Bay’s stock option plan;