Under the terms of the Share Arrangement, each Cerro shareholder will receive 0.023 of a Primero common share for each Cerro ordinary share held (the "Share Consideration"). Cerro shareholders will also receive 80.01% of the ordinary shares of a newly incorporated company ("Spinco"). Spinco will own Cerro's interests in the Namiquipa, Espiritu Santo, Mt Philp, the Kalman joint venture interest, shares in Syndicated Metals and approximately $4 million in cash. Primero will receive a 19.99% stake in Spinco with anti-dilution rights for two years. Primero will also be entitled to appoint a board member to sit on the board of directors of Spinco. Cerro's outstanding options and its option plan will be substantially assumed by Primero, subject to adjustment to reflect the Share Ratio and adjusted exercise price.
The transaction includes a loan for USD 5 million from Primero to Cerro ("Loan") to fund the ongoing development of the Cerro del Gallo project pending completion of the merger. Subject to termination or repayment after the maturity date, the interest rate under the Loan will be 6%. The maturity date for the loan will be 24 months from the date of the Agreement unless terminated early in accordance with its terms.
The transaction will be carried out by way of two court-approved schemes of arrangement (the Share Arrangement and the Option Arrangement). Each of the Share Arrangement and the Option Arrangement will require the approval of Cerro's shareholders and optionholders respectively. The transaction is subject to these approvals being obtained and also the Cerro shareholders approving at general meeting aspects of the deal with Spinco.
The transaction is also subject to applicable regulatory approvals and the satisfaction of certain other closing conditions customary in transactions of this nature. It is anticipated that the Cerro securityholder meetings will be held in April 2013. Primero does not require a shareholder vote to complete the transaction.
The Share Arrangement also includes customary provisions, including no solicitation of alternative transactions, right to match superior proposals, a reimbursement fee payable by Cerro in certain events and fiduciary-out provisions.
Cerro will engage an independent expert to provide a report to securityholders on the transaction to assist them in determining their vote at the relevant meeting(s) to approve the transaction. Each of the directors of Cerro have agreed to enter into voting support agreements and have agreed to vote in favour of the transaction, subject to receipt of a 'Superior Proposal'.
Primero is listed on TSX and NYSE and will provide for listing of the Primero shares issued on the merger on ASX as CHESS Depository Interests.
Securityholders will receive a booklet on the transaction and the Share Arrangement and the Option Arrangement (Scheme Booklet). The Scheme Booklet will contain full details of the proposed Share Arrangement and the Option Arrangement, including the basis for the recommendation of the Directors.
It is anticipated that Cerro will send the Scheme Booklet to Securityholders in late February or early March 2013. The relevant meetings to approve the transaction and the Share Arrangement and the Option Arrangement are expected to be held in March or early April 2013, with the transaction expected to close in early May 2013 subject to all approvals being obtained and conditions precedent being satisfied.
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