redCity Search Company Inc.

redCity Search Company Inc.

May 25, 2006 15:23 ET

redCity Search Company Announces $7 Million Private Placement

TORONTO, ONTARIO--(CCNMatthews - May 25, 2006) -


REDCITY SEARCH COMPANY INC. (TSX VENTURE:RDC) ("redCity" or the "Company"), a local internet search engine company, announces that it intends to offer for sale, on a private placement basis, common shares for gross proceeds of a minimum of $7,000,000. The proposed offering price for each common share is $0.0825. Closing of this arm's length private placement is expected to occur by the end of June, 2006.

Two of the proposed investors, J.L. Albright IV Venture Fund L.P. and J.L. Albright IV Parallel Venture Fund L.P. (collectively, "JLA Ventures"), have entered into a non-binding letter agreement setting out the terms of the proposed private placement (the "Term Sheet"). Pursuant to the Term Sheet, JLA Ventures has agreed to purchase approximately 36,363,636 common shares for gross proceeds of $3,000,000 subject to certain conditions. The conditions include (i) conversion of outstanding shareholder loans and other indebtedness in the aggregate amount of approximately $5,046,996 into common shares of redCity at a price of $0.25 per share; (ii) conversion of all outstanding preference shares valued at their redemption price plus accrued cumulative dividends into common shares at a price of $0.35 per common share; (iii) changes to the payment terms of redCity's previously announced proposed acquisition of Zip411 Enterprises Inc. ("Zip411") and completion of the acquisition; (iv) final documentation; (v) changes to redCity's board of directors to provide for a total of seven directors, including four directors designated by the investors; (vi) the submission to redCity's shareholders for approval, at its next meeting of shareholders, of a consolidation of its outstanding common shares on the basis of one new common share for every 10 common shares outstanding; (vii) the purchase of approximately 48,484,848 common shares for gross proceeds of $4,000,000 by other investors; (viii) satisfactory due diligence; (ix) support agreements being entered into with shareholders owning over 10% of the issued and outstanding common shares of the Company; and (x) receipt of all necessary approvals from shareholders and regulatory agencies, including the TSX Venture Exchange.

The binding provisions of the Term Sheet include an exclusivity period until June 30, 2006 and a break fee of $500,000 payable to JLA Ventures if an alternate transaction, such as a debt or equity financing in excess of a total of $500,000, is completed by the Company.

Upon completion of the private placement, the shares for debt settlements, the conversion of the preference shares and the acquisition of Zip411, but before the contemplated share consolidation, redCity will have approximately 152,005,323 issued and outstanding common shares (182,202,745 on a fully diluted basis). JLA Ventures will hold approximately 23.9% of redCity's issued and outstanding common shares (19.96% on a fully diluted basis) and, as a result, will become an insider and will be deemed to be a control person of redCity under applicable securities laws and regulatory policies. Completion of the private placement and the acquisition of Zip411 will constitute a change of control of redCity under the policies of the TSX Venture Exchange and will require shareholder approval. The Company intends to seek the written consent of shareholders holding at least 50% of the issued and outstanding common shares in order to complete the private placement and the acquisition of Zip411.

redCity intends to use the proceeds of the private placement to fund payment of the cash portion of the purchase price for Zip411, to repay certain outstanding indebtedness, to pay the expenses of the private placement and the related transactions, and for general working capital purposes and growth-related activities.

In related news, redCity announces that the principals of Zip411 have agreed to amend the payment terms of redCity's previously announced acquisition of Zip411. The cash portion of the purchase price has been reduced to $2,000,000 (from $3,000,000) and the aggregate number of securities to be issued by redCity has been increased to 13,600,000 common shares (up from 9,600,000) and 3,600,000 options/warrants (up from 2,600,000) respectively. All other terms of the proposed acquisition, including the issue price of redCity's common shares and the terms of the warrants, are unchanged.

redCity also announces that ABM Investments Limited ("ABM"), a creditor and shareholder of redCity, has agreed to make a $250,000 bridge loan available to redCity. The bridge loan, and all accrued interest, is repayable concurrently with closing of the private placement. Owen B. Menzel (a director of redCity) is a principal of ABM and, as a result, the bridge loan is considered to be a related party transaction under applicable securities laws. redCity has relied upon exemptions in respect of the formal valuation and minority shareholder approval requirements that are available under applicable securities laws due to its financial circumstances. In accordance with applicable laws, redCity's independent directors have approved the bridge loan.

redCity will file a material change report relating to the bridge loan less than 21 days before the advance date to ensure redCity can continue to meet its obligations as they become due.

All common shares issued pursuant to the private placement and related transactions will be subject to the four-month hold period prescribed under applicable securities laws and the policies of the TSX Venture Exchange.

The common shares offered pursuant to the private placement and related transactions will not be registered under the United States Securities Act of 1933, as amended, and may not be offered or sold in the United States or to, or for the benefit of, U.S. persons except in certain transactions exempt from the registration requirements of such Act. This news release does not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of the securities in any state in which such offer, solicitation or sale would be unlawful.

The common shares of redCity are listed on the TSX-Venture Exchange. redCity currently has 30,789,966 outstanding common shares.

All currencies are stated in Canadian dollars.

About redCity Search Company Inc.

redCity Search Company Inc. ( operates local search engines that allow users to find local businesses quickly and easily. It was established in 2003 and is Toronto's first publicly listed local search company (RDC-V). Its search sites include, and All Canadian businesses are entitled to a complimentary listing and website link as the service is supported by advertising revenue.

About J.L. Albright Venture Partners

J.L. Albright Venture Partners ("JLA Ventures"), a private venture capital firm, is a leading investor in technology companies at all stages of growth. The firm has offices in Toronto, Ontario and Montreal, Quebec. JLA Ventures' past and current portfolio companies include: Triple G Systems (acquired by General Electric), Pixstream (acquired by Cisco), Basis100 (acquired by First American Corporation), Fun Technologies (acquired by Liberty Media Corporation), Servicesoft Technologies (acquired by Broadbase), Isolation Systems (acquired by Shiva), Descartes Systems Group (NASDAQ:DSGX), Bioscrypt (TSX:BYT), Q9 Networks (TSX:Q), Quickplay Media, MusicIP, HealthUnity, and Planeteye. For more information please visit


This news release may contain forward-looking statements based on management's current projections, beliefs and opinions at the date of this news release. Actual results could differ materially from those anticipated in the statements due to risks and uncertainties which affect the Company's business and operations. Reference should be made to the Company's continuous disclosure documents filed from time to time with Canadian securities regulatory authorities for a detailed description of such risks and uncertainties. The Company takes no responsibility to update forward-looking statements if circumstances or management's projections, beliefs or opinions change.

The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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