Pursuant to the terms of the Letter Agreement, American Bonanza and Kerr Mines have agreed to enter into a definitive agreement for the Transaction.
Under the terms of the Transaction, each American Bonanza Shareholder (other than an American Bonanza shareholder that exercises dissent rights) will be entitled to receive 0.53 of a Kerr Mines common shares (a "Kerr Mines Share") for approximately every one common share of American Bonanza (an "American Bonanza Share") held by such shareholder (the "Exchange Ratio"), subject to adjustment.
Currently, Kerr Mines has approximately 392 million Kerr Mines Shares outstanding and American Bonanza has approximately 234 million American Bonanza Shares outstanding. In addition, each holder of the outstanding stock options and share purchase warrants of American Bonanza (the "American Bonanza Options") will receive such number of replacement options or warrants of Kerr based upon the Exchange Ratio.
Further, pursuant to the terms of the Letter Agreement, Kerr Mines has advanced $1,000,000 (the "Loan") at an annual interest rate equal to the prime rate plus 1%, to American Bonanza to satisfy certain amounts and payables outstanding of American Bonanza. The Loan and a break fee of $500,000 are payable by American Bonanza in the event of termination of the Transaction in certain circumstances.
In connection with the Transaction, American Bonanza may settle certain outstanding unsecured indebtedness through the issue of American Bonanza Shares. The terms of the settlements have not yet been determined, but are expected to result in the issue of approximately 337 million American Bonanza Shares prior to completion of Transaction. American Bonanza Shares issued to settle this indebtedness will be exchanged for Kerr Mines shares based upon the Exchange Ratio.
Upon completion of the Transaction, the Kerr Mines board will be reconstituted to consist of five nominees of the Kerr Mines shareholders and two nominees of the American Bonanza shareholders. Such directors will hold office until the next annual meeting of shareholders of Kerr Mines, or until their successors are elected or appointed.
