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Rojo Resources Ltd (2)
Symbol RJ
Shares Issued 4,890,086
Close 2017-11-30 C$ 0.40
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Rojo Resources to merge with Konnect Mobile in RTO

2017-12-11 14:11 ET - News Release

Mr. Allen Morishita reports


Rojo Resources Ltd. has entered into a letter of intent dated Nov. 30, 2017, with Konnect Mobile Communications Inc. (KMC). Pursuant to the letter of intent, it is proposed that Rojo, Konnect and, if applicable, the securityholders of Konnect will enter into a definitive agreement in respect of a business combination of Rojo and Konnect, which is anticipated to constitute a reverse takeover (as that term is defined in the policies of the TSX Venture Exchange) of Rojo. In connection with the completion of the transaction, the corporation intends to delist its securities from the TSX-V and list same on the Canadian Securities Exchange as a technology issuer. The final structure of the definitive agreement is subject to applicable corporate, securities and tax considerations. The transaction is an arm's-length transaction.

Prior to the completion of the transaction, Konnect will complete a 4:1 forward split of its securities. Konnect currently has 15,579,000 shares issued and outstanding, and an additional 550,000 shares have been reserved for issuance in connection with a private placement financing currently being conducted by Konnect to be completed before the split. On completion of the private placement (and assuming full take-up of the private placement), it is anticipated that Konnect will have 16,129,000 shares issued and outstanding, such that after the split and prior to the conversion of subscription receipts and the issuance of finder shares described as follows, there will be 64,516,000 Konnect shares issued and outstanding. The postsplit Konnect shares, together with additional securities of Konnect derived from the conversion of subscription receipts and finder shares, will be exchanged on a 1:1 ratio for shares in Rojo.

In consideration of introducing Konnect to Rojo, Mackie Research Capital Corp. shall be issued, immediately prior to the transaction's closing, such number of shares in the capital of Konnect, as is equal to 5 per cent of the number of postsplit Konnect shares, which finder shares shall also be exchanged on a 1:1 basis into shares of Rojo on the transaction's closing.

On the transaction's closing, it is anticipated that Rojo will change its name to Konnect Mobile Communications Corp. and will carry on with the development of Konnect's business, as more particularly described as follows. Prior to or in conjunction with the transaction's closing, the corporation or Konnect will create a share compensation plan for key management, directors and employees of up to 20 million posttransaction Rojo shares, in addition to the rolling stock option plan of the company. Such incentive shares shall be released based on pre-established criteria to be determined by the management of Rojo from time to time.

Pursuant to the terms of certain consulting agreements, Konnect is required to pay an aggregate amount equal to 15 per cent of the pretax profits of Konnect as a bonus, which amount may be convertible at the option of the consultants into an aggregate of 15 per cent of the common shares of Konnect, valid for a five-year period and, in any event, shall result in the issuance of no less than 3.3 million shares of Konnect to the consultants. Konnect intends to negotiate a buyout of these payment obligations prior to the transaction's closing, or, in the alternative, Rojo will assume these obligations subject to compliance with applicable regulatory and exchange rules.

In connection with the transaction, the corporation may convert outstanding debt (if any) at a price of 50 cents per common share and will have a maximum debt capped at $200,000 payable to accountants and auditors and for expenses associated with the transaction, and otherwise shall be debt-free prior to the transaction.

About Konnect Mobile Communications Inc.

Konnect is an emerging-growth Canadian technology company focused on developing technology-based products and services routinely used by the general public when conducting personal financial activities over the Internet.

Konnect's flagship product is called Paysocial. Paysocial is a new Canadian fintech (financial technology) disruptor mobile app that offers some of the traditional expensive services of banks, Western Union, PayPal, Interac and Aeroplan at a fraction of the cost and, in many instances, at nominal or no cost. Paysocial gives users the choice to waive any transaction fee, including fees for bill payments, money transfers, withdrawals and deposits, simply by viewing an in-app targeted sponsored advertisement, similar to the YouTube, Facebook and Google Web advertising revenue model. Paysocial gives users the ability to earn up to 5-per-cent cashback on every purchase made using Paysocial at participating merchants simply by allowing users to share their purchases through their social media profiles such as Facebook and providing a positive testimonial for the merchant. Paysocial has an affiliate program as well, whereby users can refer their friends and receive up to $5 per fully registered user. Additionally, users of Paysocial who back up the social media shares of their referrals will receive up to 1.5-per-cent cashback on all their shared purchases.

Konnect is working with Hitachi Security and Deloitte for system security and auditing purposes. It has filed two PCT (Patent Cooperation Treaty) patents related to Paysocial's competitive advantages described herein. The beta geographic launch territory for Paysocial will be Canada, starting with the city of Montreal, with an expected launch within Q1 2018. Konnect's goal is to reach one million Canadian downloads within 48 months.

The target markets for Paysocial are: (i) the millennial market (which dominates the use of the economy's spending power at the retail point of sale and on-line); (ii) the migrant worker market (seven million people in Canada are underbanked/unbanked); and (iii) the small-to-medium-sized merchant market (which is being charged excessive fees by financial institutions for processing fees and loyalty rewards program fees, in some cases upward of 10 per cent per transaction).

Konnect is also working in the longer-term horizon on a new product called Ecurnc (pronounced e-currency) but stands for "entertainment currency." Ecurnc is a proposed new cryptocurrency to be created for the purpose of rewarding fans and superfans who purchase goods and services from their favourite celebrities, artists, bands and major brands they love. Konnect's goal is to get Ecurnc endorsed and backed by major A-list celebrities and social media influencers and to eventually launch an initial coin offering (ICO) presale. The Ecurnc product is in the very early stages of development with management currently working on ensuring that the legal structure and jurisdiction of Ecurnc will be compliant with all applicable Canadian and U.S. securities laws; consequently, management is not able to determine the timing of the proposed ICO launch or if the ICO will occur.

Finally, Konnect is also engaged in the early-stage development of an artificial intelligence big data collection and organization engine, which will be designed to analyze data from both the Paysocial and Ecurnc programs. Konnect's goal is to create a new credit score system to be called the Consumer Spending Score, which will be used by microfinancing companies in developing markets where there are no credit cards, allowing them to make better lending decisions. No specific release date has been established for the Consumer Spending Score business segment as this product is currently in the early stages of development.

Konnect was incorporated as Hitlab Promoter Inc. in June, 2011, and changed its name to Konnect Mobile Communications in May, 2015. Since 2016, its focus has been on mobile applications and fintech. Since incorporation, Konnect has raised approximately $7.4-million and deployed such funds into the development of its various technologies to date. Konnect is now ready to open its doors to the public markets pursuant to the proposed transaction with Rojo.

Proposed directors and officers of the corporation

Upon completion of the transaction, it is anticipated that Rojo's current management and board of directors will resign and that representatives of Konnect with the requisite experience to manage the corporation in connection with the completion of the transaction will be appointed as follows.

President, chief executive officer and director -- William Lee Coyle

Mr. Coyle is the founder of Konnect with over 15 years of entrepreneurial experience in the areas of banking, direct sales, marketing, mobile money transfer and mobile application development

Executive chairman and director -- Richard T. Groome

Mr. Groome graduated from McGill University in 1981 with a bachelor of arts in economics. Mr. Groome is currently president and managing partner at Notre-Dame Capital Inc. and a director of Hitlab Inc. Mr. Groome has been involved in the capital markets across Canada for over 30 years, and, in addition to financing several hundred companies, Mr. Groome was formerly a director of the CDNX Exchange, the predecessor exchange to the TSX Venture Exchange.

Director -- Tomas Gauthier

Mr. Gauthier combines an unrivalled passion for innovation creation with more than 15 years of technology start-up experience. He is using his accumulated expertise to create an automated value creation ecosystem with the purpose of bringing out the best in the entrepreneurs he works with. Graduating in finance, Mr. Gauthier has financed, developed, launched and operated multiple technology products in the social media, artificial intelligence, fintech and blockchain sectors. Mr. Gauthier has a degree in finance from the business administration program at Bishop's University.

Director -- Dominique-Sebastien Forest

Mr. Forest works with chief executive officers and executive teams with a comprehensive approach, supporting his clients by taking an active role within the organization, generating revenues, raising capital, finding fitting talent and creating the appropriate communication channels.

Director -- Andre Halley

Mr. Halley has a career spanning 45 years in the telecommunications industry and is currently involved in various advisory and management functions, including acting as chairman, director or adviser to various private and public companies, including Cassiot, Mobi724 Global Solutions, Inno-Centre and Prevtec Microbia Inc. In addition, Mr. Halley is a partner at TG Consulting and DJM Asia. Mr. Halley has previously held senior executive, board or executive positions in a variety of telecom companies, including Ooreedoo Algeria, Skywave, European Data Communication, International Advisory Services Ltd., TIW Asia, Orbcomm, Teleglobe Canada, Bell Mobility and Bell Canada.

In addition to the foregoing, the existing management of Rojo intends to nominate one additional director for appointment in connection with the transaction. Details in respect of the identity and qualifications of such director will be provided when available.

Financial information of Konnect

Konnect is currently preparing its audited financial information, which will be disclosed, once completed, in an updated news release.

Subscription receipt offering

In connection with the transaction, Konnect intends to complete a brokered private placement offering of subscription receipts led by Mackie Research Capital Corp. for minimum gross proceeds of $3.5-million and maximum gross proceeds of $4.5-million, or such other amount as the parties may agree upon in writing. The proposed issue price of each subscription receipt shall be 50 cents. Immediately prior to the transaction's closing but after the split, each subscription receipt shall be exchanged automatically, for no additional consideration, into one unit of KMC upon the escrow release conditions (defined as follows) being satisfied, and each KMC unit will then be immediately replaced with one unit of the company on the transaction's closing. Mackie Research expects to begin the offering process in December, 2017, with a view toward completion of the offering in January, 2018, or at such other time as Mackie Research, KMC and the corporation may agree upon.

Each KMC unit shall comprise one postsplit KMC share and one postsplit KMC share purchase warrant. Each full KMC warrant is exercisable into one postsplit KMC share at $1 for 12 months following the transaction's closing, subject to accelerated exercise (defined as follows).

Each Rojo unit shall comprise one Rojo share and one Rojo share purchase warrant of Rojo. Each full Rojo warrant is exercisable into one Rojo share at $1 for 12 months following the transaction's closing, provided, however, that in the event that the closing price of the outstanding Rojo shares on the CSE is greater than $1.50 for a period of 20 consecutive trading days at any time after the transaction's closing, the corporation may, at its option, accelerate the expiry date of the Rojo warrants by giving notice to the holders thereof, and, in such case, the Rojo warrants will expire at 5 p.m. Toronto time on the date that is the earlier of: (i) the 30th day after the date on which such notice is given by the corporation; and (ii) 12 months from the offering's closing date (the accelerated exercise).

On the offering's closing date, the agent will be paid 50 per cent of the commission (defined as follows) and all expenses (defined as follows) from the gross proceeds of the offering.

The net proceeds of the offering (less $500,000 that is to be forwarded to KMC) shall be deposited into an interest-bearing escrow account through an escrow agent mutually acceptable to the parties. The escrowed funds will be released from escrow to the corporation upon the escrow release conditions (defined as follows) having been satisfied or waived to the satisfaction of the agent, acting reasonably. This will be done on the delivery by Mackie Research of a notice to the escrow agent confirming that the escrow release conditions have been met and directing the escrow agent to release the escrowed funds to KMC or the corporation, along with any interest accrued thereon.

The escrow release conditions shall include, but will not be limited to: (i) all the necessary regulatory and shareholder approvals for the transaction, including approval of the TSX-V and CSE, as applicable; (ii) written confirmation from each of KMC and the corporation that all conditions to the transaction have been satisfied, other than release of the escrowed funds, and that the transaction shall be completed forthwith upon release of the escrowed funds; and (iii) the distribution of the subscription receipts and underlying securities being exempt from applicable prospectus and registration requirements of applicable securities laws.

In the event that the escrow release time occurs between 181 days from the offering's closing date and 239 days from the offering's closing date, each subscription receipt shall thereafter entitle the holder to receive upon deemed exercise, for no additional consideration, 1.1 KMC units (in lieu of one KMC unit).

In the event that the escrow release time does not occur prior to 5 p.m. Toronto time on that date which is 240 days following the offering's closing date, the escrow agent shall refund the escrowed funds, together with the accrued interest, to the subscribers to the offering. In such instance, it shall be the sole responsibility of KMC to make the subscribers to the offering whole on their investment amounts and paying any shortfall.

The subscription receipts will be offered by way of private placement exemptions from prospectus requirements in all the provinces of Canada and such other jurisdictions as the parties may agree upon and where the offering can be lawfully made. The subscription receipts will be subject to a statutory hold period of four months and one day from closing of the offering.

KMC will also grant to the agent an option to offer up to an additional 15 per cent in subscription receipts of KMC by giving written notice of the exercise of the agent's option, or a part thereof, to KMC at any time up to 48 hours prior to the offering's closing date. All subscription receipts sold on exercise of the agent's option will be subject to the escrow release conditions.

If the offering is successfully completed, subject to the president's list, the agent will receive a cash commission equal to 8 per cent of the gross proceeds arising from the offering, including the gross proceeds arising from the exercise, where any such exercise takes place in whole or in part, of the agent's option, together with warrants entitling the agent to purchase such number of KMC units or, upon completion of the transaction, Rojo units, as is equal to 8 per cent of the subscription receipts issued in the offering (including upon exercise of the agent's option) at an exercise price equal to the issue price for a period of 12 months following the transaction's closing, subject to the accelerated exercise. Subject to applicable law and the rules of the exchange, in addition, immediately prior to the transaction's closing, Mackie Research shall receive such number of postsplit KMC shares equal to 5 per cent of the outstanding KMC shares, with certain exclusions.

Transaction conditions

The completion of the transaction is subject to a number of conditions, including, but not limited to, the execution of the definitive agreement, completion of satisfactory due diligence, including the delivery and satisfactory review of the audited financial statements of Konnect, completion of the offering, completion of the name change, completion of the split, approval of the listing of the Rojo shares on the CSE and approval to delist the Rojo shares from the TSX-V, and the approval of the transaction by each of the TSX-V, CSE, and the boards of directors and shareholders of each of Rojo and Konnect (if and as applicable).

Miscellaneous terms

Unless agreed between the corporation and Konnect, the letter of intent will terminate on the earlier of: (i) execution of the definitive agreement; (ii) Sept. 1, 2018; or (iii) 240 days following the closing of the offering.

About Rojo Resources Ltd.

The corporation's historical business activity has been related to the exploration and development of mineral resource properties. Subsequent to completing the transaction, the corporation will not pursue mineral resource exploration or development, but will continue with the development of Konnect's business.

Trading update

Trading of the corporation's shares will remain halted until completion of the transaction or until satisfactory documentation is filed with the TSX-V. Additional information about the transaction will be provided by way of a subsequent news release.

We seek Safe Harbor.

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