Serabi/Kenai -- summary under Canadian Buyco

Summary Under
Tax Topics - Public Transactions - Mergers & Acquisitions - Cross-Border Acquisitions - Inbound - Canadian Buyco
Serabi plc acquisition of Kenai Resources
Overview

Under a B.C. plan of arrangement, shareholders of Kenai will receive ordinary shares (and no deferred shares) of Serabi (representing an 87% premium). The Kenai shares will be acquired by Subco prior to Kenai and Subco amalgamating, with Amalco being a wholly-owned subsidiary of Serabi. Kenai shareholders will hold approximately 19.82% of Serabi's fully diluted shares outstanding. Serabi will lend up to US$2.75M to Kenai before the effective date of the arrangement to fund obligations of, and work on, Kenai's Brazilian property.

Kenai

A TSXV-listed B.C. corporation with a Brazilian gold property held through a wholly-owned Brazilian subsidiary and shareholders' equity of US$8.3M.

Serabi

A U.K. company listed on the TSX and the AIM Market, holding a Brazilian gold property through an indirect Brazilian subsidiary and with shareholders' equity of US$63.9M. Two private companies (Fratelli Investments Limited and Anker Holding AG) hold 51.1% and 11.1% of its shares.

Plan of Arrangement

Under the Plan of Arrangement:

  • Each common share of a dissenter will be transferred for its fair value to Subco
  • Each common share of Kenai, other than of a dissenter, will be transferred to Subco in consideration for the right to cause the delivery of .85 of an ordinary Serabi share
  • As consideration for the issuance of each such ordinary Serabi share, Subco will issue one Subco share and add its fair market value to its stated capital account
  • The Kenai warrants will be amended so that they apply to Serabi shares, with the exercise price and number of covered shares adjusted accordingly
  • Each Kenai stock option will be exchanged for a replacement option on a Serabi share, with a view to s. 7(1.4) applying
  • Subco and Kenai will amalgamate under the name Kenai Resources Ltd., with each Subco share continuing as an Amalco share, and with the stated capital of the shares of Amalco being the stated capital of the Subco shares issued under the arrangement plus the amount of cash to fund payments to dissenters
U.S. Securities Laws

The Serabi shares to be issued will not be registered under the U.S. Securities Act, and reliance will be placed on the s. 3(a)(10) exemption.

Canadian tax consequences

The acquisition will occur on a taxable basis. Standard taxable Canadian property disclosure.