Five STAR Diamonds Ltd. and Spirit Banner Ii Capital Corp. Enter into Letter of Intent to Complete Spin-Off and Qualifying Transaction
FIVE STAR DIAMONDS LTD. AND SPIRIT BANNER II CAPITAL CORP. ENTER INTO LETTER OF INTENT TO
COMPLETE SPIN-OFF AND QUALIFYING TRANSACTION
TORONTO, March 25, 2019 – Five Star Diamonds Ltd. (TSX.V:STAR) (“Five Star”) and Spirit Banner II Capital
Corp (TSX.V:SBCC.P) (“Spirit Banner II ” or the “ Corporation”) are pleased to announce that they have
entered into a binding letter of intent dated March 20, 2019 which outlines the terms and conditions
pursuant to which Five Star and Spirit Banner II will complete a transaction that will result in Spirit Banner
II acquiring all of Five Star’s diamond projects in Brazil and Five Star continuing as a royalty and stream
company (the “Proposed Transaction”). The Proposed Transaction will, if completed, constitute Spirit
Banner II’s “Qualifying Transaction” as such term is defined in Policy 2.4 (“Policy 2.4”) of the TSX Venture
Exchange (the “TSXV”).
Five Star Ltd.
Five Star is a company incorporated under the Business Corporations Act (British Columbia) and its
common shares are listed on the TSXV under the ticker symbol STAR. Five Star has been engaged in the
identification, exploration and development of diamond properties in Brazil.
Five Star owns six diamond projects (the “ Diamond Projects”) in Brazil comprising an aggregate of 6
exploration licences and applications across 7,786 hectares. To date, Five Star has conducted exploration
programs on each of the projects with the Catalao, Verissimo, Riachao, Jaibaras and Maravilha projects
showing diamond bearing kimberlites. The Company is focused on the development of sustainable
kimberlite pipes and is not involved in alluvial diamond mining with its associated environmental issues.
Spirit Banner II Capital Corp.
Spirit Banner II was incorporated under the Business Corporations Act (Ontario) on September 29, 2017
and is a Capital Pool Company (as defined in the policies of the TSXV) listed on the TSXV. Spirit Banner II
has no commercial operations and no assets other than cash.
The principal business of Spirit Banner II is to identify and evaluate businesses and assets with a view to
completing a Qualifying Transaction, and, once identified and evaluated, to negotiate an acquisition or
participation in such assets or businesses. Until the completion of the Proposed Transaction, Spirit Banner
II will not carry on business other than the identification and evaluation of assets or businesses in
connection with a potential Qualifying Transaction. The Proposed Transaction is intended t o be Spirit
Banner II’s Qualifying Transaction.
As of the date of this news release, the outstanding securities of Spirit Banner II consists of 11,615,000
common shares (“Spirit Banner II Shares”), 1,161,500 stock options and 501,500 broker warrants, with
each stock option and broker warrant exercisable to acquire one common share at $0.10 per common
share.
The Qualifying Transaction
The Proposed Transaction is expected to involve the acquisition by Spirit Banner II of all of the issued and
outstanding shares of FSD Brazil Ltd., all of which are owned by Five Star Holdings Ltd. (“ FS Holdings”), a
direct wholly-owned subsidiary of Five Star, in exchange for an aggregate of 100,000,000 Spirit Banner II
Shares (the “Consideration Shares”), $250,000 in cash, a 3% net smelter returns royalty over the Catalao
Project and a 1.5% net smelter returns royalty over all other diamond projects acquired. It is currently
planned that the Consideration Shares will be subsequently distributed on a pro rata basis to the
shareholders of Five Star (the “Five Star Shareholders”). Five Star’s outstanding securities exercisable or
exchangeable for, or convertible into, or other rights to acquire common shares of Five Star (“Five Star
Shares”) will be adjusted according to their terms to reflect the distribution of the Consideration Shares
to Five Star Shareholders.
The Proposed Transaction will result in Spirit Banner II continuing the diamond business in Brazil currently
carried on by Five Star, Five Star Shareholders holding a majority of the Spirit Banner II Shares and the
listing for trading of the Spirit Banner II Shares on the TSXV on completion of the Proposed Tran saction.
Five Star will continue as a royalty company and the Five Star Shares will continue to be listed on the TSXV.
The Transaction is expected to be effected by way of a share exchange, amalgamation, arrangement, or
other similar form of transaction. The parties agree, however, that the final structure of the Proposed
Transaction is subject to receipt of tax, corporate and securities law advice for both Spirit Banner II and
Five Star.
Subject to TSXV approval, Spirit Banner II has agreed to advance to Five Star as soon as possible after the
date hereof a refundable deposit of $225,000, which will be credited towards the cash portion of the
purchase price on the closing of the Proposed Transaction.
Upon completion of the Proposed Transaction, Spirit Banner II will be the parent and sole shareholder of
FSD Brazil Ltd., which in turn owns Five Star Minercao Ltda., the Brazilian operating company that holds
title to the Diamond Projects and thus will indirectly continue to carry on the business currently conducted
by Five Star . Spirit Banner II after completion of Proposed Transaction is referred to herein as the
“Resulting Issuer”.
The Proposed Transaction does not constitute a Non -Arm’s Length Qualifying Transaction under Policy
2.4 and is not a “related party transaction” as defined in Multilateral Instrument 61-101, although certain
directors of Spirit Banner II are also directors of Five Star. Matthew Wood is a director of Spirit Banner II
as well as the President, CEO and a director of Five Star. Mr. Wood currently holds 10.34% of the issued
and outstanding common shares of Spirit Banner II and 6.32% of the issued and outstanding Five Star
Shares.
Following completion of the Proposed Transaction, it is anticipated that the Resulting Issuer will be listed
on the Exchange as a Tier 2 mining issuer and that Five Star will continue to be listed on the Exchange as
a Tier 2 mining issuer.
Name Change
Five Star intends to change its name to " Star Royalties Ltd ." or such other name as determined by the
board of directors of Five Star and acceptable to the regulators. The board of directors of Five Star can
authorize the proposed name changed and the approval of the Five Star Shareholders is not required.
Concurrent Financings
Concurrent with the completion of the Proposed Transaction, both Spirit Banner II and Five Star intend to
complete a brokered and/or non‐brokered private placement financing on terms to be determined (the
“Concurrent Financings”). The net proceeds of the Concurrent Financing to be completed by Spirit Banner
II will be used for financing Spirit Banner II’s obligations in connection with the completion of the Proposed
Transaction, a recommended work program on the Catalao Project and for general working capital
requirements. The net proceeds of the Concurrent Financing to be completed by Five Star will be used to
identify and complete acquisition of royalty interests and metal streams and for general working capital
requirements. Details of the terms and conditions of the Concurrent Financings will be disclosed when
they become available.
Sponsorship
Spirit Banner II intends to make an application to the TSXV for a waiver from sponsorship requirements,
but there is no assurance that such waiver will be granted.
Shareholder Approval and Filing Statement/Information Circular
It is expected that the approval of the Proposed Transaction by the shareholder s of Spirit Banner II will
not be required. In connection with the Proposed Transaction and pursuant to the requirements of the
TSXV, Spirit Banner II will file a filing statement or a management information circular on its issuer profile
on SEDAR (www.sedar.com), which will contain details regarding the Proposed Transaction, Concurrent
Financing, Spirit Banner II, Five Star and the Resulting Issuer.
It is expected that the Proposed Transaction will be required to be approved by the Five Star Shareholders.
In connection with such approval, Five Star will prepare and file an information circular on its issuer profile
on SEDAR (www.sedar.com), which wil l contain details regarding the Proposed Transaction, Concurrent
Financing and the business of Five Star following completion of the Proposed Transaction.
Trading in Spirit Banner II and Five Star Common Shares
Trading in both Spirit Banner II Shares and Five Star Shares has been halted in compliance with the policies
of the TSXV and will remain halted pending the review of the Proposed Transaction by the TSXV and
satisfaction of the conditions of the TSXV for resumption of trading. It is likely that trading in Spirit Banner
II Shares and Five Star Shares will not resume prior to the closing of the Proposed Transaction.
Conditions of Closing of the Qualifying Transaction
Satisfaction of the following conditions are required for completion of the Proposed Transaction:
a) Spirit Banner II must be satisfied in its sole discretion, with its due diligence review of Five Star,
including the title, nature and value of the Diamond Projects and the nature and extent of Five
Star’s financial position, liabilities and obligations;
b) Five Star must have delivered to Spirit Banner II an independent geological report in accordance
with National Instrument 43-101 – Standards of Disclosure for Mineral Projects;
c) The Proposed Transaction must receive any third-party consents and approvals by all regulatory
bodies having jurisdiction in connection therewith including, the TSXV; and
d) The Concurrent Financings must be completed.
Directors and Management of the Resulting Issuer and Five Star
Subject to applicable approvals, it is anticipated that the existing directors and officers of Five Star and
Spirit Banner II will continue as the directors and officers of Five Star and the Resulting issuer following
completion of the Proposed Transaction.
For further information, contact:
Five Star Diamonds Ltd.
Matthew Wood, President and CEO
+1.647.981.1703
Spirit Banner II Capital Corp.
Ali Haji, President and CEO
+1.647.951.6508
Information set forth in this news release contains forward ‐looking statements. These statements reflect
management’s current estimates, beliefs, intentions and expectations; they are not guarantees of future
performance. Spirit Banner II and Five Star caution that all forward-looking statements are inherently
uncertain and that actual performance may be affected by a number of material factors, many of which
are beyond their control. Such factors include, among other things: risks and uncertainties relating to the
ability to complete the proposed Qualifying Transaction, including those described in Spirit Banner II ’s
Prospectus dated May 7, 2018, available on the Corporation’s SEDAR profile at www.sedar.com.
Accordingly, actual and future events, conditions and results may differ materially from the estimates,
beliefs, intentions and expectations expressed or implied in the forward‐looking information. Except as
required under applicable securities legislation, Spirit Banner II undertakes no obligation to publicly update
or revise forward‐looking information.
Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange
acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder
approval. Where applicable, the transaction cannot close until the required shareholder approval is
obtained. There can be no assurance that the transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the management information circular or filing
statement to be prepared in connection with the transaction, any information released or received with
respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the
securities of a capital pool company should be considered highly speculative.
The TSX Venture Exchange Inc. has in no way passed upon the merits of the proposed transaction and has
neither approved nor disapproved the contents of this press release. A halt in trading shall remain in place
until after the Qualifying Transaction is completed or such time that acceptable documentation is filed
with the TSX Venture Exchange.
The information contained in this press release relating to Five Star and the Diamond Projects has been
furnished by Five Star. Although Spirit Banner II has no knowledge that would indicate that any statements
contained herein concerning Five Star and the projects are untrue or incomplete, neither Spirit Banner II
nor any of its directors or officers assumes any responsibility for the accuracy or completeness of such
information or for any failure by Five Star to ensure disclosure of events or facts that may have occurred
which may affect the significance or accuracy of any such information.
NEITHER TSX VENTURE EXCHANGE NOR ITS REGULATION SERVICES PROVIDER (AS THAT TERM IS DEFINED
IN THE POLICIES OF THE TSX VENTURE EXCHANGE) ACCEPTS RESPONSIBILITY FOR THE ADEQUACY OR
ACCURACY OF THIS RELEASE.