CMCL Caledonia Mining Corporation Plc

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FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

Report of Foreign Private Issuer

Pursuant to Rule 13a-16 or 15d-16

Of the Securities Exchange Act of 1934

 

 

For the month of January 2016

 

Commission File Number: 000-13345

 

 

CALEDONIA MINING CORPORATION

(Translation of registrant's name into English)

 

 

Suite 1000

36 Toronto Street

Toronto, ON, M5C 2C5

Canada

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F

 

Form 20-F      x       Form 40-F ______

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ______

 

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ______

 

Indicate by check mark whether by furnishing the information contained in this Form, the registrant is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

 

Yes ______   No        x       

 

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ______

 

Signatures

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

 

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DATED as of the 31st day of December, 2015.
	By order of the Board of Directors
	CALEDONIA MINING CORPORATION
	(signed) "Steve Curtis"
	Steve Curtis
	Chief Executive Officer On behalf of the Board of Directors

 

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CALEDONIA MINING CORPORATION

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

AND

MANAGEMENT INFORMATION CIRCULAR – SOLICITATION OF PROXIES

December 31, 2015

A copy of this document has been delivered to the Jersey registrar of companies in accordance with Article 5 of the Companies (General Provisions) (Jersey) Order 2002, and he has given, and has not withdrawn, his consent to its circulation.  The Jersey Financial Services Commission has given, and has not withdrawn, its consent under Article 8 of the Control of Borrowing (Jersey) Order 1958 to the circulation of this document in Jersey.  The Jersey Financial Services Commission is protected by the Control of Borrowing (Jersey) Law 1947, as amended, against any liability arising from the discharge of its functions under that Law.  It must be distinctly understood that, in giving these consents, neither the Jersey registrar of companies nor the Jersey Financial Services Commission takes any responsibility for the financial soundness of the Company or for the correctness of any statements made, or opinions expressed, with regard to it.  If you are in any doubt about the contents of this document you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser.  The directors of the Company have taken all reasonable care to ensure that the facts stated in this document are true and accurate in all material respects, and that there are no other facts the omission of which would make misleading any statement in the document, whether of facts or of opinion. All the directors accept responsibility accordingly.

CALEDONIA MINING CORPORATION

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS AND MANAGEMENT INFORMATION CIRCULAR

TABLE OF CONTENTS

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS	i
FORWARD LOOKING INFORMATION	1
PART I - VOTING	1
SOLICITATION OF PROXIES	1
APPOINTMENT AND REVOCATION OF PROXIES	1
EXERCISE OF DISCRETION BY PROXIES	2
VOTING SHARES AND PRINCIPAL HOLDERS OF VOTING SHARES	2
RECORD DATE	2
QUORUM REQUIREMENTS	2
VOTING BY REGISTERED SHAREHOLDERS	2
VOTING BY NON REGISTERED SHAREHOLDERS	3
VOTES NECESSARY TO PASS THE RESOLUTION	4
PART II – APPROVAL OF THE CONTINUANCE RESOLUTION	4
PROCEDURE FOR THE CONTINUANCE	4
EFFECT OF THE CONTINUANCE	5
REASONS FOR THE CONTINUANCE	6
COMPARISON BETWEEN CANADA AND JERSEY CORPORATE LAW	7
OTHER IMPLICATIONS AFFECTING THE COMPANY AND SECURITYHOLDERS	13
SECURITIES MATTERS	17
CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS	18
CERTAIN JERSEY TAX CONSIDERATIONS	20
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS	22
RISK FACTORS	29
RIGHTS OF DISSENT TO THE CONTINUANCE	30
SHAREHOLDER APPROVAL OF THE CONTINUANCE RESOLUTION	32
RECOMMENDATION OF THE BOARD	32
PART III - MISCELLANEOUS	32
INTERESTS OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON	32
INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS	32
OTHER MATTERS TO BE ACTED UPON	32
AUDITORS	32
LEGAL ADVISORS	32
PRINCIPAL BANKERS	33
STATED CAPITAL	33
ADDITIONAL INFORMATION	33
APPROVAL	34
SCHEDULE A – MEMORANDUM AND ARTICLES OF ASSOCIATION	35
SCHEDULE B – CONTINUANCE RESOLUTION	36
SCHEDULE C – HOLDERS OF OPTIONS OF THE COMPANY	37
SCHEDULE D – DISSENT RIGHTS	39

CALEDONIA MINING CORPORATION

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS

NOTICE IS HEREBY GIVEN that a special meeting (the "Meeting") of the shareholders ("Shareholders") of Caledonia Mining Corporation (the "Company") will be held on February 18, 2016 at 10:00 a.m. (Toronto local time) at the offices of the Company's Toronto solicitors, Borden Ladner Gervais LLP, Scotia Plaza, 40 King Street West, 44th Floor, Toronto, Ontario, to consider and, if deemed advisable, pass, with or without variation, a special resolution (the "Continuance Resolution"), the full text of which is set out in the accompanying Circular (as defined below), to approve the continuance (the "Continuance") of the Company into Jersey, Channel Islands, pursuant to the provisions of the Companies (Jersey) Law 1991 (as amended) (the "CJL"), to adopt new charter documents of the Company upon the Continuance, which shall include amendments to the existing charter documents of the Company including a change of the Company's name to "Caledonia Mining Corporation Plc," all as more particularly described in the accompanying management information circular (the "Circular").

January 18, 2016 has been chosen as the record date for determining those Shareholders entitled to receive notice of and to vote at the Meeting.  The accompanying Circular provides additional information relating to the matter to be dealt with at the Meeting and forms part of this notice.

In order to ensure representation at the Meeting, registered Shareholders must complete the enclosed form of proxy and submit it as soon as possible but not later than 5:00 p.m. (Toronto time) on February 16, 2016 or 48 hours prior to the time of any adjournment or postponement of the Meeting (or such earlier time as required by the applicable nominee) as set out in the accompanying Circular.

Non‑registered Shareholders or Shareholders that hold their shares in the name of a "nominee", such as a bank, trust company, securities broker or other financial institution, must seek instructions from their nominee as to how to complete their form of proxy and vote their shares. Non‑registered Shareholders will have received the accompanying Circular in a mailing from their nominee, together with the appropriate form of proxy or voting instruction form. It is important that non‑registered Shareholders adhere to the voting instructions provided to them by their nominee.

CALEDONIA MINING CORPORATION

MANAGEMENT INFORMATION CIRCULAR

FORWARD LOOKING INFORMATION

This Circular contains "forward-looking information" within the meaning of Canadian securities laws, which may include, but is not limited to, statements relating to the possible receipt of a letter of satisfaction to complete the Continuance and a certificate of discontinuance from the CBCA Director (as defined below) and the possible receipt of a Certificate of Continuance (as defined below) from the Jersey Registrar (as defined below). Such forward-looking information reflects the Company's views with respect to future events and is subject to risks, uncertainties and assumptions, including the risk that the CBCA Director will not issue a letter of satisfaction to complete the Continuance and the risk that the Jersey Registrar will not issue a Certificate of Continuance.

Although the Company believes the assumptions inherent in forward-looking statements are reasonable, any forward-looking information in this Circular represents the Company's views as of the date of this Circular and such information should not be relied upon as representing the Company's views as of any date subsequent to the date of this Circular.  There can be no assurance that any forward-looking information will prove to be accurate, as actual results and future events could differ materially from those expected or estimated in such statements.  Accordingly, readers should not place undue reliance on any such forward-looking information. The Company expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except in accordance with applicable securities laws.

PART I - VOTING

SOLICITATION OF PROXIES

This management information circular (this "Circular") is provided in connection with the solicitation of proxies to be used at the special meeting of shareholders ("Shareholders") of Caledonia Mining Corporation (the "Company") to be held on February 18, 2016 at 10:00 a.m. at Scotia Plaza, 40 King Street West, 44^th Floor, Toronto, Ontario (the offices of the Company's Toronto solicitors, Borden Ladner Gervais LLP), or at any adjournment thereof (the "Meeting") for the purposes set forth in the Company's notice of special meeting dated as of December 31, 2015 (the "Notice of Meeting").

The enclosed proxy is being solicited by the management of the Company. The solicitation is being made primarily by mail, but proxies may also be solicited by telephone, by facsimile, by the internet, by advertisement or by other personal contact by directors, officers and other employees of the Company. The entire cost of the solicitation will be borne by the Company.

Unless otherwise indicated, the information contained in this Circular is given as at December 31, 2015.

APPOINTMENT AND REVOCATION OF PROXIES

The persons named in the enclosed form of proxy are directors of the Company.  A Shareholder desiring to appoint some other person to represent him, her or it at the Meeting may do so by inserting such person's name, who need not be a Shareholder, in the blank space provided in the form of proxy and striking out the names of the persons specified or by completing another proper form of proxy.  Proxies may also be submitted electronically pursuant to the instructions which accompany this Circular.  In all cases, the completed proxy is to be deposited at, or supplied to, the offices of Computershare Investor Services Inc. ("Computershare"), 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada M5J 2Y1 by not later than 5:00 p.m. (Toronto time) on February 16, 2016.

A Shareholder giving a proxy has the right to revoke the proxy by an instrument in writing executed by the Shareholder or by the Shareholder's attorney authorized in writing and deposited at the registered office of the Company, being Suite 4009, 1 King Street West, Toronto, Ontario, Canada M5H 1A1, at any time up to and including the last business day preceding the date of the Meeting, or any adjournment of the Meeting, at which the proxy is to be used, or with the chairman of the Meeting on the date of the Meeting, or any adjournment of the Meeting, or in any other manner permitted by law.

EXERCISE OF DISCRETION BY PROXIES

The persons named in the enclosed form of proxy will vote the Common Shares (as defined below) in respect of which they are appointed in accordance with the direction of the Shareholders appointing them.  In the absence of such direction, such Common Shares will be voted FOR the Continuance Resolution.

The enclosed form of proxy confers discretionary authority upon the persons named in the form of proxy with respect to any amendments or variations to matters identified in the Notice of Meeting and with respect to other matters which may properly come before the Meeting.  At the time of printing this Circular, management of the Company knows of no such amendments, variations or other matters to come before the Meeting.

VOTING SHARES AND PRINCIPAL HOLDERS OF VOTING SHARES

On December 31, 2015, the Company had issued and outstanding 52,078,946 common shares (collectively, the "Common Shares" and individually, a "Common Share"), each carrying the right of one vote per share.

To the knowledge of the directors and officers of the Company, other than as set out below, no person beneficially owns, directly or indirectly, or exercises control or direction over, shares carrying more than 10% of the votes attached to all Common Shares.  Allan Gray Proprietary Limited, a South African investment fund manager, has disclosed that two funds of which it is the manager beneficially own, directly or indirectly, and that it exercises control or direction over, 7,039,500 Common Shares representing 13.5% of the issued and outstanding Common Shares.

RECORD DATE

The Board of Directors of the Company (the "Board") has fixed the record date as January 18, 2016 for the purpose of determining who is entitled to receive the Notice of Meeting.  Shareholders entitled to vote at the Meeting will be the Shareholders of record at 5:00 p.m. (Toronto time) on January 18, 2016.  The failure of any Shareholder to receive the Notice of Meeting will not deprive the Shareholder of the right to vote at the Meeting.

QUORUM REQUIREMENTS

The quorum requirement for the Meeting is that there be two members present in person or by proxy and that there be representation in person or by proxy of shareholders holding at least 5% of the issued Common Shares.  As the Company has 52,078,946 Common Shares issued, the requirement for the Meeting will be that there be shareholder representation of at least 2,603,946 Common Shares.

VOTING BY REGISTERED SHAREHOLDERS

A registered Shareholder is a person Common Shares are registered directly in its own name in the records of registered shareholders maintained for the Company by the transfer agent and registrar, Computershare (a "Registered Shareholder").

In order to ensure representation at the Meeting, Registered Shareholders must complete, date and sign the enclosed form of proxy, or other appropriate form of proxy and, in either case: (i) deliver the completed form of proxy to the Company's transfer agent, Computershare Investor Services Inc., 100 University Avenue, 8^th Floor, Toronto, Ontario, Canada M5J 2Y1 in the addressed envelope enclosed; or (ii) submit the completed form of proxy to Computershare, facsimile number (416) 263‑9524 or 1‑866‑249‑7775, by no later than 5:00 p.m. (Toronto time) on February 16, 2016 or 48 hours prior to the time of any adjournment or postponement of the Meeting.

VOTING BY NON‑REGISTERED SHAREHOLDERS

Only Registered Shareholders or duly appointed proxy holders are permitted to vote at the Meeting. Most Shareholders are "non‑registered" shareholders because the Common Shares they own are not registered in their names but are instead registered in the name of the brokerage firm, bank or trust company through which they purchased the Common Shares.  More particularly, a person is not a Registered Shareholder in respect of Common Shares which are held on behalf of that person (the "Non‑Registered Shareholder") but which are registered either: (a) in the name of an intermediary (an "Intermediary") that the Non‑Registered Shareholder deals with in respect of the Common Shares (Intermediaries include, among others, banks, trust companies, securities dealers or brokers and trustees or administrators of self‑administered RRSP's, RRIF's, RESPs and similar plans); or (b) in the name of a clearing agency (such as CDS & Co., the nominee of CDS Clearing and Depository Services Inc.) of which the Intermediary is a participant.  Non‑Registered Shareholders are advised that only proxies from Shareholders of record will be recognized and voted at the Meeting.  In accordance with the requirements as set out in National Instrument 54‑101 – Communication with Beneficial Owners of Securities of a Reporting Issuer, the Company has distributed copies of the Notice of Meeting, this Circular and the form of proxy (collectively, the "Meeting Materials") to the clearing agencies and Intermediaries for onward distribution to Non‑Registered Shareholders.

Intermediaries are required to forward the Meeting Materials to Non‑Registered Shareholders unless a Non‑Registered Shareholder has waived the right to receive them.  Company management does not intend to pay for Intermediaries to forward the Meeting Materials to objecting beneficial owners, as described in National Instrument 54-101 - Communication with Beneficial Owners of Securities of a Reporting Issuer, such that objecting beneficial owners will not receive the Meeting Materials unless the objecting beneficial owner's Intermediary assumes the cost of delivery.  Very often, Intermediaries will use service companies to forward the Meeting Materials to Non‑Registered Shareholders.  Generally, Non‑Registered Shareholders who have not waived the right to receive Meeting Materials will either:

(a)

be given a form of proxy which has already been signed by the Intermediary (typically by a facsimile, stamped signature), which is restricted as to the number of Common Shares beneficially owned by the Non‑Registered Shareholder but which is otherwise not completed.  Because the Intermediary has already signed the form of proxy, this form of proxy is not required to be signed by the Non‑Registered Shareholder when submitting the proxy. In this case, the Non‑Registered Shareholder who wishes to submit a proxy should otherwise properly complete the form of proxy and deposit it with Computershare as provided above; or

(b)

more typically, be given a voting instruction form which is not signed by the Intermediary, and which, when properly completed and signed by the Non‑Registered Shareholder and returned to the Intermediary or its service company, will constitute voting instructions (often called a "proxy authorization form") which the Intermediary must follow. Typically, the proxy authorization form will consist of a one page pre‑printed form.  Sometimes, instead of the one page pre‑printed form, the proxy authorization form will consist of a regular printed proxy form accompanied by a page of instructions, which contains a removable label containing a bar‑code and other information.  In order for the form of proxy to validly constitute a proxy authorization form, the Non‑Registered Shareholder must remove the label from the instructions and affix it to the form of proxy, properly complete and sign the form of proxy and return it to the Intermediary or its service company in accordance with the instructions of the Intermediary or its service company.

In either case, the purpose of this procedure is to permit a Non‑Registered Shareholder to direct the voting of the Common Shares which they beneficially own.  Should a Non‑Registered Shareholder who receives one of the above forms wish to vote at the Meeting in person, the Non‑Registered Shareholder should strike out the names of the management proxy holders named in the form and insert the Non‑Registered Shareholder's name in the blank space provided. In either case, Non‑Registered Shareholders should carefully follow the instructions of their Intermediary, including those regarding when and where the proxy or proxy authorization form is to be delivered.

VOTES NECESSARY TO PASS THE RESOLUTION

In order to pass, the Continuance Resolution must be approved by at least 66 2/3% of the votes cast at the Meeting in person or by proxy.

PART II – APPROVAL OF THE CONTINUANCE RESOLUTION

The purpose of the Meeting is to consider and, if thought advisable, to approve a special resolution which will result in the Company ceasing to be governed by the corporate law of Canada and to be governed instead by the corporate law of Jersey, Channel Islands.  As a result of this change, the Company will cease to be domiciled in Canada, its head and registered office will be in Jersey and the name of the Company will be changed to "Caledonia Mining Corporation Plc."

The process by which migration will be accomplished, called a "continuance," the reasons for the continuance, and certain consequences that will result from the continuance are described below.

The Shareholders will be asked to consider and, if thought advisable, pass a special resolution (the "Continuance Resolution") authorizing the Board, in its sole discretion to apply for the discontinuance of the Company so it is no longer a company governed by the Canada Business Corporations Act (the "CBCA") and to continue the Company to be a company governed by the laws of Jersey, Channel Islands (the "Continuance"); and in connection therewith, to make an application (the "Continuance Application") to the Jersey Financial Services Commission (the "JFSC") pursuant to the provisions of the Companies (Jersey) Law, 1991 ("CJL"). Upon the Continuance, the Company will adopt the proposed Memorandum of Association and Articles of Association (the "Articles") pursuant to the CJL (together, the "M&A") and repeal the current CBCA articles and by-law and the name of the Company will become "Caledonia Mining Corporation Plc" in order to comply with the naming requirements for public companies under Jersey law. The M&A are set out in "Schedule A – Memorandum and Articles of Association" and the text of the Continuance Resolution is set out in "Schedule B – Continuance Resolution."

The Continuance will affect certain of the rights of the Shareholders as they currently exist under the CBCA. Shareholders should consult their legal and other advisors regarding implications of the Continuance which may be of particular importance to them.

PROCEDURE FOR THE CONTINUANCE

For the Continuance to be effective, the following procedure will be followed:

Shareholder Authorization

1.	By special resolution, the Shareholders must authorize the Company to make the Continuance Application to the JFSC, requesting that the Company be continued as a company under the CJL.

Application to the CBCA Director

2.

The Company must make an application to the director appointed under the CBCA (the "CBCA Director") for the CBCA Director's letter of satisfaction to permit the Continuance, and the Company must establish to the satisfaction of the CBCA Director that the proposed Continuance will not adversely affect creditors or Shareholders.

Necessary CBCA Conditions for Continuance

3.	According to the CBCA, the continuation of the Company as a body corporate to another jurisdiction, such as Jersey, cannot be completed unless the laws of that jurisdiction provide in effect that:

(a)

the property of the Company continues to be the property of the body corporate;

(b)

the body corporate continues to be liable for the obligations of the Company;

(c)

an existing cause of action, claim or liability to prosecution is unaffected;

(d)

a civil, criminal or administrative action or proceeding pending by or against the Company may be continued to be prosecuted by or against the body corporate; and

(e)

a conviction against, or ruling, order or judgment in favour of or against the Company may be enforced by or against the body corporate.

The Company believes that this requirement will be satisfied.

Jersey Certificate of Continuance

4.

Subject to compliance with all the requirements of the CJL (including, but not limited to, the delivery of all required documents to, and approval of, the JFSC), the registrar of companies in Jersey (the "Jersey Registrar") will issue to the Company a certificate of continuance (the "Certificate of Continuance").

Transition

5.	Upon the issue of the Certificate of Continuance by the Jersey Registrar, the Company will become a company governed under the CJL and the M&A will constitute the constitution of the Company, replacing the existing CBCA articles and by-law.

Consequences of Continuance

6.	The Certificate of Continuance will constitute conclusive evidence of the following matters:

(a)

that the Company is incorporated under the CJL;

(b)

that the requirements of the CJL have been complied with in respect of:

(i)

the continuance of the Company under the CJL;

(ii)

all matters precedent to its continuance as such a company;

(iii)

all matters incidental to its continuance as such a company; and

(c)

that it is a public company.

Discontinuance under the CBCA

7.	Pursuant to the CBCA, the Company must file the Certificate of Continuance with the CBCA Director and obtain a certificate of discontinuance. The Company will cease to be governed by the CBCA upon issuance of the certificate of discontinuance.

EFFECT OF THE CONTINUANCE

Assuming that the Continuance Resolution is approved by the Shareholders at the Meeting, it is expected that the Company will file the Continuance Application with the JFSC and the procedures outlined above will begin as soon as practicable, as determined by the Board in its sole discretion, in order to give effect to the Continuance.  The Company will also deliver a regulatory announcement through the London Stock Exchange's Regulatory News Service, which will be distributed no later than the time at which the same information is published elsewhere.

The Continuance, if approved, will effect a change in the legal domicile of the Company on the effective date thereof to the laws of Jersey, Channel Islands and the name of the Company will become "Caledonia Mining Corporation Plc" in order to comply with the naming requirements for public companies under Jersey law.  Upon the Continuance, the Company's registered office in Jersey will be at P.O. Box 218, 43/45 La Motte Street, St. Helier, Jersey, JE4 8SD.

On the effective date of the Continuance, Shareholders will continue to hold one Common Share of the Company (which will then be domiciled in Jersey) for each Common Share currently held. The existing share certificates or Direct Registration Statements representing Common Shares will not be cancelled and will continue to represent Common Shares following the Continuance; however, upon a transfer of Common Shares represented by an existing share certificate, a new share certificate in the form adopted by the Company following the Continuance will be issued to the transferee.  Furthermore, a new ISIN/CUSIP number will be assigned to the Common Shares following the Continuance. Holders of options of the Company on the effective date of the Continuance will continue to hold options to purchase, or otherwise acquire, an identical number of Common Shares on the same terms.  A list of all holders of options of the Company is set out in "Schedule C – Holders of Options of the Company" to this Circular.

The principal attributes of the share capital of the Company will be identical, before and after Continuance, other than differences in Shareholders' rights under the CJL as compared to the CBCA and as supplemented by the Articles, including those described below under the headings "Comparison between Canada and Jersey Corporate Law" and "Other Implications Affecting the Company and Securityholders."

Immediately following the Continuance, the directors and officers of the Company will remain unchanged; however, the election, duties, resignations and removal of the Company's directors and officers will be governed by the CJL and the Company will no longer be subject to the CBCA.

Upon completion of the Continuance, the Company's Common Shares will remain listed and traded on the Toronto Stock Exchange (the "TSX") and AIM, the market of that name operated by the London Stock Exchange plc ("AIM"), and will continue to be traded on the OTCQX.  The Continuance will, however, represent a readmission to AIM.

As noted above, on the effective date of the Continuance the property of the Company will continue to be the property of the Company, the Company will continue to be liable for the obligations of the Company, existing causes of action, claims or liabilities to prosecution of the Company will be unaffected, civil, criminal or administrative actions or proceedings pending by or against the Company may be continued to be prosecuted by or against the Company, convictions against the Company may be continued against the Company, and rulings, orders or judgments in favour of or against the Company may be enforced by or against the Company.

REASONS FOR THE CONTINUANCE

The Company's principal mineral property, the Blanket Gold Mine, is located in the south-west of Zimbabwe and, accordingly, the principal operations of the Company are outside of Canada. The Company has no business operations in Canada, nor does it own any assets there. While the Company's Common Shares are listed and traded on the TSX, and this is intended to continue, the continued listing does not require the Company to be incorporated in Canada.  The Continuance is expected to provide the Company with a number of benefits, including:

(a)

as Jersey is more conveniently located in relation to the Company's operations than Canada, it is expected there will be a reduction in the time and cost associated with international travel required to hold meetings of the Board;

(b)

Canadian withholding tax applicable to dividends paid to Shareholders outside Canada will be eliminated; and

(c)

since the Company has no commercial connections to Canada, there is no reason for it to be domiciled there and thereby subject to Canadian income and capital gains taxes or for it to bear the compliance costs associated with being a Canadian taxpayer.  By contrast, Jersey has generally lower rates of income tax, no capital gains tax and a somewhat simpler tax regime overall.

The Board recognizes, on the other hand, that Shareholders who are individuals resident in Canada will lose the benefit of the dividend tax credit in respect of dividends paid by the Company and corporate Shareholders resident in Canada will no longer be able to deduct such dividends in computing their taxable income.  The Board is of the view that the benefits outlined above outweigh this disadvantage, however, which is expected to affect a minority of Shareholders in any case.  Accordingly, the Board believes it is desirable for the Company to complete the Continuance and change the location of its corporate existence and domicile to Jersey, Channel Islands.

COMPARISON BETWEEN CANADA AND JERSEY CORPORATE LAW

The following is a summary of certain key differences between the CJL, the statute that will govern the corporate affairs of the Company upon the Continuance, and the CBCA.  Because the corporate laws of Canada and Jersey have many points of difference, the following summary does not purport to address all differences between such laws.  Shareholders should consult their legal and other advisors regarding implications of the Continuance which may be of particular importance to them.

The following sets out a brief summary of the key differences between the CJL and the CBCA, which are discussed in further detail in the narrative following this table.

 

 

 

 

Charter Documents

Under the CBCA, a corporation must have articles of incorporation, which require the name of the corporation, the province in which the corporation's registered office is located, the classes and the maximum amount of shares the corporation may issue, the rights, privileges and restrictions that attach to each class of shares (should multiple classes exist), the authority given to directors to fix the number of shares and determine the designation of rights, privileges, restrictions and conditions attaching to shares of each series, a statement that the issue, transfer or ownership of shares of the corporation is restricted if applicable (and a statement as to the nature of such restrictions), the number of directors or a minimum and maximum number of directors, and any restriction on business that the corporation may carry on. The articles of incorporation may also set out provisions permitted by the CBCA or other law that should be set out in the corporation's by-laws. The CBCA further provides that the records of the corporation shall be maintained at the registered office of the corporation, or at such other place in Canada designated by the directors. CBCA corporations such as the Company also generally have by-laws governing the management of the company, although these are not expressly required by the CBCA.

A company incorporated under the CJL has charter documents which consist of a "memorandum of association" and "articles of association" (collectively, the "Charter Documents"). The memorandum must state the name of the company, whether it is a public company or a private company, and, in respect of a no par value company (as is the case for the Company), the number and classes of shares which may be issued. The articles of association regulate the corporate business and affairs and management of the company. The Charter Documents are filed with Jersey Registrar and are publicly available. Any amendment to the Charter Documents must be approved by special resolution of the shareholders (called the "members") of the Company. In the case of the Company, the Articles to be adopted as part of the Continuance will provide that a special resolution is passed where not less than two-thirds of the Shareholders who vote in person or by proxy vote in favour of such resolution.  In compliance with the CJL, upon the completion of the Continuance, the Company will maintain at its new registered office in Jersey together with other corporate records (e.g. registers of directors and secretaries and minute books) and a duplicate of its share register in Toronto (which under the CJL will be known as an "overseas branch register" but, given that all of the Company's shares are to be registered on the Toronto register, the share register in Jersey will be for all intents and purposes just a copy of what is on the Toronto register).

The doctrine of ultra vires does not apply to Jersey companies and, accordingly, the capacity of such a company is not limited by anything in its Charter Documents or by any act of its members.

Amendments to the Charter Documents

As noted above, a company incorporated under the CJL may amend its Charter Documents by special resolution. The CJL also requires a special resolution to be passed for other fundamental changes, such as changing the name of a company, changing the status of a company (public to private or private to public), altering the share capital of a company, or approving a continuation to another jurisdiction. The CBCA has substantially similar requirements.

Sale of Corporation's Undertaking

Under the CBCA, the sale, lease, or exchange of all or substantially all the property of a corporation, other than in the ordinary course of business, requires shareholder approval by a special resolution and a shareholder is entitled to dissent and to be paid the fair value of its shares.

Although the CJL does not require the approval of shareholders in respect of a sale, lease, or exchange of all or substantially all of the property of a Jersey company, the Articles to be adopted as part of the Continuance will contain provisions requiring a special resolution and conferring a right of dissent.

Rule 15 of the AIM Rules for Companies (the "AIM Rules") (fundamental change of business) will continue to apply to the Company, which requires the Company to obtain the consent of the Shareholders on the disposal when aggregated with any other disposal(s) over the previous 12 months, which exceeds 75% in any of the class tests.

Rights of Dissent and Appraisal

The CBCA provides that shareholders have the right to dissent to certain actions being taken by the corporation and to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents. The dissent right is available to shareholders of any class if the corporation resolves to:

 

 

(a)

amend its articles to add, remove or change restrictions or constraints on the issue, transfer or ownership of shares of a class of the corporation;

(b)

amend its articles to add, remove or change any restriction upon the business or businesses that the corporation may carry on;

(c)

amalgamate with another corporation subject to certain exceptions under the CBCA;

(d)

be continued under the laws of another jurisdiction;

(e)

sell, lease or exchange all or substantially all of its property;

(f)

carry out a going-private or a squeeze-out transaction; or

(g)

amend its articles so as to modify, directly or indirectly, the rights of shareholders as provided in the articles.

The CJL does not grant a specific right of dissent to shareholders. However, the CJL: (i) requires that a special resolution be passed to change the articles of a company, approve a merger of companies, approve the continuance of a company in another jurisdiction or to convert from a public to a private company or a private to public company; (ii) permits an offeror who achieves 90% of acceptances to buy out minority shareholders and permits minority shareholders to oblige such an offeror to buy them out when a Jersey company is subject to takeover; and (iii) permits Shareholders to apply to the Royal Court of Jersey for remedies in various circumstances.  In addition, the Articles will confer a right of dissent substantially similar to the dissent right available under the CBCA.

Approval of Arrangement

Under the CBCA, approval of an arrangement generally requires approval by a special resolution. Pursuant to the CJL, a resolution approving a scheme of arrangement, to be binding on shareholders, must be passed by a majority in number representing at least 3/4ths of the voting rights of members and the arrangement must be sanctioned by the Royal Court of Jersey.

Oppression Remedies

Under the CBCA, a shareholder, former shareholder, director, former director, officer, former officer of a corporation or any of its affiliates, the CBCA Director, or any other person who, in the discretion of the court, is a proper person to seek an oppression remedy, may apply to the court for an order to rectify the matters complained of where, in respect of a corporation or any of its affiliates, any act or omission of the corporation or its affiliates effects a result, or the business or affairs of the corporation or its affiliates are or have been carried on or conducted in a manner, or the powers of the directors of the corporation or any of its affiliates are or have been exercised in a manner, that is oppressive or unfairly prejudicial to or that unfairly disregards the interest of any security holder, creditor, director or officer.

There is no oppression remedy under the CJL.  Pursuant to the CJL, a member of a company may apply to the Royal Court of Jersey for an order on the grounds that the company's affairs are being or have been conducted in a manner which is unfairly prejudicial to the interests of its members generally or of some part of its members (including at least the applicant member) or that an actual or proposed act or omission of the company (including an act or omission on its behalf) is or would be so prejudicial. These provisions under the CJL also apply to a person who is not a member of a company but to whom shares in the company have been transferred or transmitted by operation of law.

The Royal Court of Jersey has a wide power to grant an order to relieve the issue complained of, such as by regulating the conduct of the company's affairs, requiring the company to refrain from doing or continuing an act, or providing for the purchase of the rights of any members of the company by other members or by the company itself.

Shareholder Derivative Actions

Under the CBCA, a shareholder, former shareholder, director, former director, officer, former officer of a corporation or any of its affiliates, or any other person who, in the discretion of the court, is a proper person, may apply to the court  for leave to bring, defend or discontinue an action in the name and on behalf of a corporation or any of its subsidiaries (called a "derivative action") if the directors of the corporation do not bring, diligently prosecute or defend or discontinue the action, and it appears to be in the interests of the corporation that the action be brought, prosecuted, defended or discontinued.

The CJL does not provide shareholders the right to bring a derivative action.  However, Jersey's customary law follows English common law (but not statutory law, and not precedent derived from that statutory law) in respect of the ability of shareholders to bring derivative actions in certain situations although such situations are rare.

Requisition of Meetings

The CBCA provides that one or more shareholders of a corporation holding at least 5% of the issued voting shares in a corporation may give notice to the directors requiring them to call and hold a meeting of shareholders. Further, the CBCA generally provides that on receiving the requisition, the directors shall call a meeting of shareholders to transact the business stated in the requisition.

The CJL provides that one or more members of a company holding at least 10% of the total voting rights of the members who have the right to vote at the meeting requisitioned may give notice to the directors of the company requiring them to call and hold a meeting. The Articles will reduce this threshold to 5%, in line with the CBCA's provisions.  The requisition must state the business to be transacted at the meeting and shall be sent to the registered office of the company. If the Board does not, within 21 days after receiving the requisition, call a meeting to be held within two months from that date, the Shareholder(s) making the request, or any of them representing more than 50% of the total voting rights of all of them, may call the meeting, but such meeting cannot be held later than three months from that date.

Notice of Meetings

The CBCA provides that any meeting of shareholders may be convened upon no less than 21 days' notice.

The CJL provides that only 14 days' notice is necessary to convene a meeting of a company; however, the Articles will contain provisions requiring the Company to give the Shareholders at least 21 clear days' notice of any shareholder meeting.

Indemnification

The CJL allows companies to indemnify any current or former directors or liquidators against: (i) any liabilities incurred in defending any proceedings (whether civil or criminal) in which judgment is given in the person's favour or the person is acquitted, which are discontinued otherwise than for some benefit conferred by the person or on the person's behalf or some detriment suffered by the person, or which are settled on terms which include such benefit or detriment and, in the opinion of a majority of the directors of the company (excluding any director who conferred such benefit or on whose behalf such benefit was conferred or who suffered such detriment), the person was substantially successful on the merits in the person's resistance to the proceedings; (ii) any liability incurred otherwise than to the company if the person acted in good faith with a view to the best interests of the company; (iii) any liability incurred in connection with an application made under Article 212 of the CJL in which relief is granted to the person by the Royal Court of Jersey; or (iv) any liability against which the company normally maintains insurance for persons other than directors. The CBCA also provides substantially similar rights to past and present officers and directors of CBCA corporations, although the ability to make interim payments to indemnified persons is allowed under the CBCA, while it is not under the CJL.

Place of Shareholder Meetings

The CBCA provides that meetings of shareholders of a corporation shall be held at the place within Canada provided in the by-laws or, in the absence of such provision, at the place within Canada that the directors determine. A meeting of shareholders may be held outside Canada if the place is specified in the articles or all the shareholders entitled to vote at the meeting agree that the meeting is to be held at that place. The CJL does not impose any requirements with respect to the location of member meetings.

Directors and Company Secretary

The CBCA provides that a public company must have not fewer than three directors, at least two of whom are not officers or employees of the corporation or its affiliates.  Further, the CBCA requires that at least 25% of the directors of a corporation shall be resident Canadians and, if there are fewer than four directors, one of them must be a resident Canadian.

The CJL requires that a public company have at least two directors. The CJL does not impose any residency requirements on directors.

Upon the Continuance, the Company's existing Board comprised of seven directors (being Leigh Alan Wilson – Chairman, and Director, Steve Curtis – Chief Executive Officer and Director, James Johnstone – Director, Mark Learmonth – Chief Financial Officer and Director, John Lawson Kelly – Director, Johan Andries Holtzhausen – Director and David Henderson – Director, all of whom can be contacted at the registered office of the Company) will continue in office.  AIM and TSX rules regarding independent directors will continue to apply while the Company is listed on those exchanges.  For example, the TSX requires listed companies to have at least two independent directors.  The Company currently has five independent directors.

Minerva Trust & Corporate Services Limited will be appointed as Company Secretary, and may be contacted at the registered office of the Company following the Continuance.

Issuance of Shares at Fair Market Value

The CBCA provides that a share shall not be issued until the consideration for the share is fully paid in money or in property or past services that are not less in value than the fair equivalent of the money that the corporation would have received if the share had been issued for money.  Further, directors of a corporation who vote for or consent to a resolution authorizing the issue of a share for consideration other than money are jointly and severally, or solidarily, liable to the corporation to make good any amount by which the consideration received is less than the fair equivalent of the money that the corporation would have received if the share had been issued for money on the date of the resolution.

The CJL does not require shares to be issued at fair market value.  The Articles to be adopted as part of the Continuance, however, will contain provisions substantially similar to the provisions of the CBCA requiring shares to be issued for fair value.

The Company, where practicable, intends to follow the principles of the Pre-Emption Group guidelines that recommend that shares should not be issued for cash on a non-pre-emptive basis at a discount of more than 5% to the prevailing market price.

Shares to be Fully Paid and Non-Assessable

The CBCA provides that shares issued by a corporation are non-assessable and the holders are not liable to the corporation or to its creditors in respect thereof. In addition, the CBCA states that a share shall not be issued until the consideration for the share is fully paid in money or in property or past services.

The CJL does not require shares to be fully paid and non-assessable.  The Articles, however, will contain provisions substantially the same as the provisions of the CBCA.

 

 

Share Buybacks

Subject to certain solvency requirements, the CBCA permits corporations to redeem their redeemable shares and to purchase any of their shares for cancellation.

The CJL also permits Jersey companies to redeem redeemable shares and to purchase their own shares, if, in relation to a purchase, the purchase is sanctioned by a special resolution of shareholders and either the non-selling shareholders approve the purchase contract (in the case of private purchases) or the maximum number of shares to be purchased, the maximum and minimum purchase prices and the duration of the authority (which cannot be more than 5 years) are specified in the sanctioning resolution (in the case of purchases on a stock exchange) and also, in relation to both purchase and redemption, the directors approving the purchase or redemption make a 12 month forward looking solvency statement.

The Company, where practicable, intends to follow the Investment Association's Share Capital Management Guidelines, which recommend that an AIM listed company should only have a general authority to make on-market share buybacks of up to 10%, and in certain circumstances up to 15%, of such company's issued ordinary share capital.

OTHER IMPLICATIONS AFFECTING THE COMPANY AND SECURITYHOLDERS

The following table sets out further differences between Canadian and Jersey law and practice, which may affect the Company and the Shareholders and which are discussed in further detail in the narrative following the table.

 

 

 

 

Form of Proxy and Information Circular for Reporting Companies

In Canada, the CBCA together with provincial securities legislation requires that reporting issuers provide a notice of a general meeting, a form of proxy and an information circular containing prescribed information regarding the matters to be considered at the meeting.  As the Company will continue to be listed on the TSX, these proxy requirements will continue to apply.

The CJL requires companies to include in a notice of meeting a statement that a member entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of the member, and that a proxy need not also be a member.

Entitlement to Information

National Instrument 54‑101 – Communication with Beneficial Owners of Securities of a Reporting Issuer of the Canadian Securities Administrators applies to Canadian public companies and sets out a scheme pursuant to which such companies, including the Company, shall communicate with both registered and non-registered beneficial shareholders of a company.

 

The Articles will provide for the Company's communication with not only Registered Shareholders, but also their nominees who have beneficial rights to the shares held by the Registered Shareholders.  The Articles will provide members of the Company with information rights comparable to those granted to English companies pursuant to the United Kingdom's Companies Act 2006.  Specifically, members will have the right to nominate another person, on whose behalf such member holds shares, to enjoy information rights, which include the right to receive a copy of all communications that the Company sends to its members generally or to any class of members that includes the member making the nomination.

Dividends

The CBCA permits directors alone to declare dividends.  Pursuant to Jersey standard practice, however, members may also (but do not have to) declare dividends provided they do not exceed the amount recommended by the board of directors.  The Articles will reflect standard Jersey practice and allow Shareholders to declare dividends, notwithstanding that the Board will still be able to approve the payment of interim dividends and therefore the Company does not expect any change in its current dividend policy.

When Payment of Dividends Need Not be Made

The Articles will provide that the Company may cease to make payment for any dividend or other monies payable in respect of a share if, in respect of at least two consecutive dividends payable on that share, payment, through no fault of the Company, has not been effected (or, following one such occasion, reasonable enquiries have failed to establish any new address of the holder).  However, the Articles will require the Company to recommence payments in respect of dividends or other monies payable on that share if the holder claims the arrears of the dividend and does not instruct the Company to pay future dividends in some other way.  No comparable provision is found in the Company's current constating documents but it is considered sensible to include this provision, which is typical for AIM listed companies, in order to reduce the administrative burden on the Company.

Borrowing

The CBCA provides that, without shareholder authorization, directors of a corporation may borrow money on the credit of the corporation, may issue, reissue, sell, pledge or hypothecate a debt obligation of the corporation, may give a guarantee on behalf of the corporation to secure performance of an obligation of any person and may mortgage, hypothecate, pledge or otherwise create a security interest in all or any property of the corporation, owned or subsequently acquired, to secure any obligation of the corporation.

The Articles will include provisions consistent with market practice in the United Kingdom for listed companies restricting the Board's ability to borrow substantial sums of money without Shareholder approval.  Specifically, in the absence of approval by an ordinary resolution of the Shareholders, the Board shall restrict borrowings of the Company so as to secure that the aggregate principal amount from time to time outstanding of all borrowings by the Company and any subsidiaries shall not at any time exceed an amount equal to three times the adjusted capital and reserves of the Company.

The City Code on Takeovers

Before the Continuance, the takeover rules imposed by Canadian provincial securities legislation apply in respect of any proposed takeover of the Company.  Following the Continuance, however, The City Code on Takeovers and Mergers (the "City Code") will apply to takeovers.  The Canadian takeover rules are also expected to continue to apply following the Continuance unless Canadian registered shareholders cease to hold at least 10% of the Company's shares and the TSX is not the principal market for trading such shares.  The City Code is based on six General Principles:

1.

All holders of the securities of an offeree company of the same class must be afforded equivalent treatment; moreover, if a person acquires control of a company, the other holders of securities must be protected.

2.

The holders of the securities of an offeree company must have sufficient time and information to enable them to reach a properly informed decision on the bid; where it advises the holders of securities, the board of the offeree company must give its views on the effects of implementation of the bid on employment, conditions of employment and the locations of the company's places of business.

 

 

3.

The board of an offeree company must act in the interests of the company as a whole and must not deny the holders of securities the opportunity to decide on the merits of the bid.

4.

False markets must not be created in the securities of the offeree company, of the offeror company or of any other company concerned by the bid in such a way that the rise or fall of the prices of the securities becomes artificial and the normal functioning of the markets is distorted.

5.

An offeror must announce a bid only after ensuring that he/she can fulfil in full any cash consideration, if such is offered, and after taking all reasonable measures to secure the implementation of any other type of consideration.

6.

An offeree company must not be hindered in the conduct of its affairs for longer than is reasonable by a bid for its securities.

The Panel on Takeovers and Mergers (the "Panel") is an independent body whose main functions are to issue and administer the City Code and to supervise and regulate takeovers and other matters to which the City Code applies in accordance with the rules set out in the City Code. The City Code is designed to ensure that shareholders are treated fairly and are not denied an opportunity to decide on the merits of a takeover and that shareholders of the same class are afforded equivalent treatment by an offeror. The City Code also provides an orderly framework within which takeovers are conducted. In addition, it is designed to promote, in conjunction with other regulatory regimes, the integrity of the financial markets.

Under Rule 9 of the City Code, any person who acquires an interest (as defined in the City Code) in shares which, taken together with shares in which that person is already interested and in which persons acting in concert with such person are interested, carry 30% or more of the voting rights of a company which is subject to the City Code, is normally required to make a general offer to all the remaining shareholders to acquire their shares.

Similarly, when any person, together with persons acting in concert with such person, is interested in shares which in the aggregate carry not less than 30% of the voting rights of such a company but does not hold shares carrying more than 50% of such voting rights, a general offer will normally be required if any further interests in shares are acquired by any such person.

Unless the Panel otherwise consents, an offer under Rule 9 must be made to all other shareholders, be in cash (or have a cash alternative) at the highest price paid by the person required to make the offer, or any person acting in concert with him, for any interests in shares of the company during the 12 months prior to the announcement of the offer and not be conditional on anything other than the securing of acceptances which will result in the offeror and persons acting in concert with him holding shares carrying more than 50% of the voting rights.

Shareholder Proposals

The CBCA provides that a shareholder who holds at least 1% of the total number of outstanding voting shares of the corporation, provided that such voting shares have a fair market value of at least $2,000, may submit to the corporation notice of any matter that the shareholder proposes to raise at a meeting called by the corporation and may discuss any such matter at the meeting.  If such a proposal is submitted to the corporation at least 90 days before the anniversary of the date of the notice of meeting that was sent to shareholders in connection with the previous annual meeting of shareholders, a corporation who receives such a proposal is required to set out the proposal in its management information circular.

As well as providing a right for shareholders to requisition general meetings of a company (which is mentioned above), the CJL permits members of a company who represent not less than 10% of the total voting rights of all members entitled to vote on the particular resolution, to require the company to circulate a written resolution within 21 days of becoming subject to the requirement to circulate the resolution.

 

 

The Articles will give Shareholders the right to require the Company to circulate to Shareholders entitled to receive notice of the next general meeting notice of a resolution that is intended to be moved at the meeting.  Only Shareholders representing at least 5% of the total voting rights of all Shareholders who have a right to vote on the resolution at the meeting shall be entitled to exercise this right.  Further, such request must be received by the Company at least 90 days prior to the first anniversary of the prior year's annual general meeting.

Notice and Disclosure Obligations

The CBCA does not contain notice and disclosure provisions.  The Articles, however, will include provisions similar to those that govern English listed companies, which will enable the Company to establish who ultimately owns its shares.  Such provisions will permit the Company to give a disclosure notice to any person whom the Company knows or has reasonable cause to believe is interested in the Company's shares or has been so interested at any time during the three years immediately preceding the date on which the disclosure notice is issued (the "Disclosure Period").  The disclosure notice may require the person to confirm whether he, she or it has such an interest and, if she, or it holds, or has held such interest during the Disclosure Period, to provide further information as may be required, including particulars of his, her, or its past or present interest in the shares held during the Disclosure Period.

Further, the disclosure notice may require the person to whom it is addressed, where his, her or its interest is a present interest and another interest in the shares subsists, or another interest in the shares subsisted during the Disclosure Period at a time when his, her, or its interest subsisted, to give such particulars with respect to that other interest as may be required by the notice.  These particulars may include the identity of persons interested in the shares and whether persons interested in the shares are or were parties to an agreement to acquire interests in a particular company or an agreement or arrangement relating to the exercise of any rights conferred by the holding of the shares or the nature and extent of any interest in the shares.

The disclosure notice may also require the person to whom it is addressed, where his, her, or its interest is a past interest, to give particulars of the identity of the person who held that interest immediately after him, her or it.

If a person interested in less than 0.25% of the shares of a class receives a disclosure notice and does not provide the necessary information in the requisite time period, that person will not be entitled to vote personally or by proxy at any meeting of Shareholders or exercise any other right regarding meetings of the Company conferred by membership.

If a person who is interested in 0.25% or more of the shares of a class receives a disclosure notice and does not provide the necessary information in the requisite time period, that person will not be entitled to vote personally or by proxy, at any meeting of Shareholders or to exercise any other right regarding meetings of the Company conferred by membership, to receive a dividend, or to transfer or agree to transfer any shares or rights therein.

The Articles will also incorporate Chapter 5 of the UK Listing Authority's Disclosure and Transparency Rules (the "Rules") with respect to vote holder and issuer notification rules, which AIM considers best practice for foreign companies to adopt.  If the Company determines that a Shareholder has not complied with the Rules, by delivering a notice to such Shareholder, the Company may suspend the right of the Shareholder to vote its shares in person or by proxy at any meeting of the Company, withhold any dividend or other amount payable with respect to the defaulting Shareholder's shares, render ineffective the defaulting Shareholder's election to receive shares instead of cash in respect of any dividend, and prohibit the transfer of the defaulting Shareholder's shares, except with the Company's consent.

SECURITIES MATTERS

As a result of the Continuance, the Depository Interests ("DIs") over Canadian shares that are currently traded on AIM in London will be DIs over Jersey shares, which will have a new ISIN and SEDOL.  Under the AIM Rules, this requires a readmission of the Company's Common Shares to trading on AIM, albeit as a "quoted applicant," as defined in Rule 2 of the AIM Rules, and accordingly, the readmission will not require a full admission document, but rather a Schedule 1 to be submitted to AIM, no less than 20 business days prior to the date of readmission.  It is currently expected that the readmission date will be March 21, 2016.  This is subject to AIM approval and completion by the Company of all of AIM's requirements.  The Schedule 1 will be made available on the Company's website.  It is not expected that this process will create any further interruption to the normal trading facilities of AIM afforded to Shareholders.

 

 

Similarly, the Common Shares will have a new CUSIP and ISIN.  It is not anticipated that this will affect trading on the TSX or OTCQX.  The Company will continue to be a reporting issuer in the provinces of Ontario and British Columbia and to comply with Canadian public disclosure requirements and the United States ("U.S.") disclosure requirements applicable to it.

It is expected that the Common Shares will, following the Continuance, continue to be tradeable through the relevant book-based systems in North America (the Canadian Depository for Securities and its U.S. counterpart, The Depository Trust Company) and in the U.K. (CREST).  Trading in Common Shares following the Continuance would be under the new ISIN, SEDOL and CUSIP numbers referred to above.

CERTAIN CANADIAN FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of the principal Canadian federal income tax considerations under the Income Tax Act (Canada) (the "Tax Act") as of the date hereof, generally applicable to the Company and Shareholders, including those who choose to exercise Dissent Rights (defined below under the heading "Rights of Dissent to the Continuance"). This summary only applies to Shareholders who are and remain at all relevant times resident in Canada for purposes of the Tax Act and any applicable tax treaty.

This summary is not applicable to a Shareholder who (i) is a "financial institution" for the purposes of the mark-to-market rules contained in the Tax Act, (ii) is a taxpayer whose "functional currency" for the purposes of the Tax Act is the currency of a country other than Canada; (iii) has entered into, or will enter into, a "derivative forward agreement" or a "synthetic disposition arrangement" as defined in the Tax Act with respect to shares of the Company; or (iv) a Shareholder whose share ownership in the Company is such that the Company will be a "foreign affiliate" of such Shareholder following the Continuance. Such Shareholders should consult their own advisors.

This summary is not exhaustive of all possible Canadian federal income tax considerations applicable to the Company or a Shareholder.  This summary is of a general nature only and is not intended to be legal or tax advice to the Company or a Shareholder.  Shareholders should consult their own tax advisors for advice with respect to the tax consequences of the Continuance based on their particular circumstances.

This summary is based upon the provisions of the Tax Act in force on the date of this Circular and the current published administrative policies and assessing practices of the Canada Revenue Agency ("CRA") publicly available prior to the date of this Circular. This summary takes into account all specific proposals to amend the Tax Act which have been publicly announced by or on behalf of the Minister of Finance (Canada) prior to the date of this Circular (the "Proposed Amendments") and assumes that the Proposed Amendments will be enacted in their current form. There can be no assurance that any of the Proposed Amendments will be implemented in their current form or at all. Except for the Proposed Amendments, this summary does not otherwise take into account or anticipate any changes in law, whether by legislative, governmental or judicial decision or action, or changes in the administrative or assessing practices and policies of the CRA. In addition, this summary does not take into account other federal or any provincial, territorial or foreign tax legislation or considerations, which may differ significantly from the Canadian federal income tax considerations discussed in this Circular.

The Company

While the Company is incorporated in Canada, it is deemed to be resident in Canada for purposes of the Tax Act.  In addition, the Company would also be considered a resident of Canada if its "central management and control" is located in Canada.

When the Company is granted the Certificate of Continuance, thereafter it will be considered to have been incorporated in Jersey and will cease to be deemed to be a resident in Canada unless its "central management and control" continues to be located in Canada.  The Company intends to relocate its "central management and control" to Jersey simultaneously with the Continuance.  Hence, the Company should cease to be resident in Canada immediately following the Continuance.

 

 

The Company will be deemed to have a taxation year end immediately before the Continuance.  There will also be a deemed disposition of each property owned by the Company immediately before such taxation year end for proceeds of disposition equal to its fair market value at that time.  The Company will also be required to pay a one-time tax upon emigration from Canada.  The Company does not expect any tax payable as a result of the deemed disposition of its properties and its emigration from Canada.

Shareholders

Except as described below under the heading "Rights of Dissent to the Continuance", a Shareholder will not dispose of his or her Common Shares solely as a consequence of the Continuance.

Dividends Received after Continuance

Dividends received or deemed to be received by a Shareholder after the Continuance will be required to be included in computing the Shareholder's income.  As a consequence of the Company ceasing to be a resident of Canada, the following provisions in the Tax Act governing dividends or deemed dividends will no longer apply:

(a)

A Shareholder who is an individual will not benefit from the gross-up and dividend tax credit rules.

(b)

A corporate Shareholder will no longer be able to deduct the amount of the dividends in computing its taxable income.

(c)

Dividends received by a corporate Shareholder that is a "private corporation" or "subject corporation" as defined in the Tax Act will no longer be liable to tax under Part IV of the Tax Act.

Foreign Property Information Reporting after Continuation

Subsequent to the Continuance, a Shareholder may need to comply with certain foreign property information reporting applicable to a "specified Canadian entity" holding "specified foreign property" (as such terms are defined in the Tax Act) with a tax cost which exceeds CAD$100,000.  Shareholders should consult their own tax advisors as to whether they must comply with these reporting requirements.

Shareholders with Tax-Exempt Status

Currently, a Common Share is a "qualified investment" for trusts governed by a registered retirement savings plan ("RRSP"), registered retirement income fund ("RRIF"), deferred profit sharing plan, registered education savings plan, registered disability savings plan or tax-free savings account ("TFSA") by virtue of the fact that the Company's shares are listed on the TSX.  It is the Company's intention that the Common Shares will remain listed on the TSX following the Continuance, such that they will thereby remain "qualified investments."

The Continuance, in and of itself, will not affect the "prohibited property" status of the Common Shares for trusts governed by a TFSA, RRSP, or RRIF.

Dissenting Shareholders

A dissenting Shareholder will be entitled to be paid by the Company the fair value of the Common Shares held by that Shareholder. The Company anticipates that the redemption of any Common Shares held by dissenting Shareholders will occur after the Continuance.

The amount paid to a Canadian resident Shareholder who dissents to the Continuance should be treated as receiving proceeds of disposition of the relevant Common Shares. Accordingly, the dissenting Canadian resident Shareholder will recognize a capital gain (or loss) in the amount by which the amount received as proceeds for the disposition of the Common Shares exceeds (or is less than) the shareholder's adjusted cost base of the Common Shares.  Interest awarded to a dissenting Shareholder by a court will be included in that Shareholder's income for the purposes of the Tax Act.

 

 

Generally, one-half of any capital gain (a "taxable capital gain") realized by a shareholder in a taxation year must be included in the shareholder's income for the year, and one-half of any capital loss (an "allowable capital loss") realized by a shareholder in a taxation year must be deducted from taxable capital gains realized by the shareholder in that year. Allowable capital losses for a taxation year in excess of taxable capital gains for that year generally may be carried back and deducted in any of the three preceding taxation years or carried forward and deducted in any subsequent taxation year against net taxable capital gains realized in such years, to the extent and under the circumstances described in the Tax Act.

A Shareholder that is, throughout the relevant taxation year, a "Canadian-controlled private corporation" (as defined in the Tax Act) may be liable to pay an additional refundable tax of 6⅔% on its "aggregate investment income" for the year, which is defined to include interest and the "eligible portion" of taxable capital gains.  Proposed Amendments announced by the Department of Finance on December 7, 2015 would increase the rate of such tax to 10⅔%.  Capital gains realized by individual or certain trusts may give rise to a liability for alternative minimum tax.  A capital loss realized by a corporation may be reduced in certain circumstances by dividends previously received or deemed to have been received thereon. Similar rules apply where a corporation is a member of a partnership or a beneficiary of a trust. A Shareholder to whom these rules may be relevant should consult his, her, or its own advisors.

CERTAIN JERSEY TAX CONSIDERATIONS

The Board intends to conduct the Company's affairs such that, based on current law and practice of the relevant tax authorities, the Company will not become resident for tax purposes in any other territory other than Jersey. It is assumed that the Company does not become resident in a territory other than Jersey.

The following summary of the anticipated treatment of the Company and Shareholders is based on Jersey taxation law as it is understood to apply at the date of this document.

It does not constitute legal or tax advice. Shareholders should consult their professional advisers on the implications of acquiring, buying, holding, selling or otherwise disposing of Common Shares under the laws of the jurisdictions in which they may be liable to taxation. Shareholders should be aware that tax laws, rules and practice and their interpretation may change.

General

Under current Jersey law, there are no capital gains, capital transfer, gift, wealth or inheritance taxes or any death or estate duties. No stamp duty is levied in Jersey on the issue, conversion, redemption or transfer of shares. On the death of an individual shareholder (whether or not such individual was domiciled in Jersey), duty at rates of up to 0.75% of the value of the relevant shares may be payable on the registration of any Jersey probate or letters of administration which may be required in order to transfer, convert, redeem or make payments in respect of shares held by a deceased individual sole shareholder.

Income Tax – The Company

Under the Income Tax (Jersey) Law 1961 (as amended) (the "Tax Law"), from January 1, 2009, the standard rate of income tax on the profits of companies regarded as resident in Jersey or having a permanent establishment in Jersey is 0% ("zero tax rating"). Certain exceptions from zero tax rating apply, namely:

(a)

companies which are regulated by the JFSC under certain sections of the Financial Services (Jersey) Law 1998, the Banking Business (Jersey) Law 1991 or the Collective Investment Funds (Jersey) Law 1988 shall be subject to income tax at a rate of 10% (these companies are defined as "financial services companies" in the Tax Law);

(b)

specifically identified utility companies shall be subject to income tax at a rate of 20% (these companies are defined as "utility companies" in the Tax Law); and

(c)

any income derived from the ownership or disposal of land in Jersey and companies involved in the importation or supply of hydrocarbon oil in Jersey shall be subject to income tax at a rate of 20%.

It is anticipated that the Company will be subject to a zero tax rating.

Income Tax – The Shareholders

Shareholders who are not resident for income tax purposes in Jersey will not be subject to taxation in Jersey in respect of any income or gains arising in respect of shares held by them.

Shareholders who are resident for income tax purposes in Jersey will be subject to income tax in Jersey at the standard rate of 20% on any dividends paid on shares held by them or on their behalf. The provisions of Article 134A (Power of Comptroller to make assessment to prevent avoidance of income tax) of the Tax Law may, in certain circumstances, render investors who are resident in Jersey liable to income tax on the undistributed income of the Company.

Withholding Tax – The Company

Jersey companies chargeable to corporate income tax at the 0% rate are not obliged or entitled to deduct withholding tax on dividends.  Where companies are chargeable to Jersey income tax at the 10% or 20% rates, dividends will be paid to shareholders following the payment of such tax by the company. The Jersey income tax paid on the company's income represented by such dividend will be available to the relevant shareholders as tax credits against such shareholders' personal liabilities to Jersey income tax.

It is anticipated that the Company will be subject to a zero tax rating and therefore not obliged or entitled to deduct withholding tax on dividends.

Goods and Services Tax

Pursuant to the Goods and Services Tax (Jersey) Law 2007 (the "2007 Law"), tax at a rate which is currently 5% applies to the supply of retail goods and services, unless the relevant supplier or recipient of such goods and services is registered as an "international services entity".

The Company is expected to be an "international services entity" within the meaning of the 2007 Law, having satisfied the requirements of the Goods and Services Tax (International Services Entities) (Jersey) Regulations 2008, as amended and, as long as it continues to be such an entity, a supply of goods or of a service made by or to the Company shall not be a taxable supply for the purposes of the 2007 Law.

Tax Information Exchange

A paying agent established in Jersey that makes "interest payments" (as defined in the Taxation (Agreements with European Member States) (Jersey) Regulations 2005 (the "Regulations")) to an individual beneficial owner resident in an EU Member State that is a "contracting party" (as defined in the Regulations) is obliged to communicate details of such payments to the Comptroller of Taxes in Jersey who, pursuant to the Regulations, must provide such information to the tax authorities of the EU Member State in which the beneficial owner is resident.

Identification of Shareholders

The Company can be required to make a return to the Comptroller of Income Tax in Jersey, on request, of the names, addresses and shareholdings of Jersey resident Shareholders (in practice this return will not be required at more frequent intervals than once a year).

 

 

CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS

The following is a general summary of certain U.S. federal income tax considerations applicable to a U.S. Holder (as defined below) arising from the Continuance and the ownership and disposition of Common Shares after the Continuance. This summary is for general information purposes only and does not purport to be a complete analysis or listing of all potential U.S. federal income tax considerations that may apply to a U.S. Holder as a result of the Continuance or as a result of the ownership and disposition of Common Shares after the Continuance. In addition, this summary does not take into account the individual facts and circumstances of any particular U.S. Holder that may affect the U.S. federal income tax consequences to such U.S. Holder, including specific tax consequences to a U.S. Holder under an applicable tax treaty. Accordingly, this summary is not intended to be, and should not be construed as, legal or U.S. federal income tax advice with respect to any U.S. Holder. This summary does not address the U.S. federal alternative minimum, U.S. federal estate and gift, U.S. Medicare contribution, U.S. state and local, or non-U.S. tax consequences to U.S. Holders of the Continuance and the ownership and disposition of Common Shares after the Continuance. Except as specifically set forth below, this summary does not discuss applicable income tax reporting requirements. Each U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences of the Continuance and the ownership and disposition of Common Shares after the Continuance.

No opinion from U.S. legal counsel or ruling from the Internal Revenue Service (the "IRS") has been requested, or will be obtained, regarding the U.S. federal income tax consequences of the Continuance or the ownership and disposition of Common Shares after the Continuance. This summary is not binding on the IRS, and the IRS is not precluded from taking a position that is different from, and contrary to, the positions taken in this summary. In addition, because the authorities on which this summary is based are subject to various interpretations, the IRS and the U.S. courts could disagree with one or more of the positions taken in this summary.

Scope of This Disclosure

Authorities

This summary is based on the U.S. Code (the "Code"), U.S. Treasury Regulations (whether final, temporary, or proposed) ("Treasury Regulations"), published rulings of the IRS, published administrative positions of the IRS, the Convention between Canada and the U.S. with respect to taxes on income and capital of 1980, as amended (the "Canada-US Tax Convention (1980)"), and U.S. court decisions that are applicable and, in each case, as in effect and available, as of the date of this Circular. Any of the authorities on which this summary is based could be changed in a material and adverse manner at any time, and any such change could be applied on a retroactive or prospective basis which could affect the U.S. federal income tax considerations described in this summary. This summary does not discuss the potential effects, whether adverse or beneficial, of any proposed legislation that, if enacted, could be applied on a retroactive or prospective basis.

U.S. Holders

For purposes of this summary, the term "U.S. Holder" means a beneficial owner of Common Shares participating in the Continuance or exercising dissent rights pursuant to the Continuance that is for U.S. federal income tax purposes:

1.

an individual who is a citizen or resident of the U.S.;

2.

a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the U.S., any state thereof or the District of Columbia;

3.

an estate the income of which is subject to U.S. federal income taxation regardless of its source; or

4.

a trust that (a) is subject to the primary supervision of a court within the U.S. and the control of one or more U.S. persons for all substantial decisions or (b) has a valid election in effect under applicable U.S. Treasury Regulations to be treated as a U.S. person.

Non-U.S. Holders

For purposes of this summary, a "non-U.S. Holder" is a beneficial owner of Common Shares participating in the Continuance or exercising dissent rights pursuant to the Continuance that is not a partnership (or other "pass-through" entity) for U.S. federal income tax purposes and is not a U.S. Holder. This summary does not address the U.S. federal income tax consequences applicable to non-U.S. Holders arising from the Continuance or the ownership and disposition of Common Shares after the Continuance. Accordingly, a non-U.S. Holder should consult its own tax advisor regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences (including the potential application and operation of any income tax treaties) relating to the Continuance and the ownership and disposition of Common Shares after the Continuance.

U.S. Holders Subject to Special U.S. Federal Income Tax Rules Not Addressed

This summary does not address the U.S. federal income tax considerations of the Continuance or the ownership and disposition of Common Shares after the Continuance to U.S. Holders that are subject to special provisions under the Code, including (except as otherwise specifically noted) U.S. Holders that: (a) are tax-exempt organizations, qualified retirement plans, individual retirement accounts, or other tax-deferred accounts; (b) are financial institutions, underwriters, insurance companies, real estate investment trusts, or regulated investment companies; (c) are broker-dealers, dealers, or traders in securities or currencies that elect to apply a mark-to-market accounting method; (d) have a "functional currency" other than the U.S. dollar; (e) own Common Shares as part of a straddle, hedging transaction, conversion transaction, constructive sale, or other arrangement involving more than one position; (f) acquired Common Shares in connection with the exercise of employee stock options or otherwise as compensation for services; (g) hold Common Shares other than as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment purposes); (h) own, directly, indirectly, or by attribution, 5% or more, by voting power or value, of the outstanding Common Shares; and (i) acquired Common Shares by gift or inheritance.  This summary also does not address the U.S. federal income tax considerations applicable to U.S. Holders who are: (a) U.S. expatriates or former long-term residents of the U.S.; (b) persons that have been, are, or will be a resident or deemed to be a resident in Canada for purposes of the Tax Act; (c) persons that use or hold, will use or hold, or that are or will be deemed to use or hold Common Shares in connection with carrying on a business in Canada; (d) persons whose Common Shares constitute "taxable Canadian property" under the Tax Act; or (e) persons that have a permanent establishment in Canada for the purposes of the Canada-US Tax Convention (1980). U.S. Holders that are subject to special provisions under the Code, including U.S. Holders described immediately above, should consult their own tax advisors regarding all U.S. federal, U.S. state and local, and non-U.S. tax consequences relating to the Continuance and the ownership and disposition of Common Shares after the Continuance.

If an entity or arrangement that is classified as a partnership (including any other "pass-through" entity) for U.S. federal income tax purposes holds Common Shares, the U.S. federal income tax consequences to such partnership and the partners (or owners) of such partnership (or entity) of participating in the Continuance and the ownership and disposition of Common Shares after the Continuance generally will depend on the activities of the partnership (or entity) and the status of such partners (or owners). This summary does not address the tax consequences to any such partnership (or entity) or partner (or owner). Partners (or owners) of entities and arrangements that are classified as partnerships for U.S. federal income tax purposes should consult their own tax advisors regarding the U.S. federal income tax consequences of the Continuance and the ownership and disposition of Common Shares after the Continuance.

Pre-2007 Shareholders Not Addressed

U.S. Holders should note that the Company may have been a "passive foreign investment company" ("PFIC") for 2006 and prior tax years.  A foreign (non-U.S.) corporation is classified as a PFIC for U.S. federal income tax purposes in any taxable year in which, after applying relevant look-through rules with respect to the income and assets of its subsidiaries, either: (i) at least 75% of its gross income is passive income (the "income test"); or (ii) 50% or more of the value of its assets either produce passive income or are held for the production of passive income (the "asset test"), based on the quarterly average of the fair market value of such assets.

If the Company was a PFIC as to a U.S. Holder at any time during such U.S. Holder's holding period for Common Shares, then (absent certain elections) it would continue to be a PFIC as to such U.S. Holder and as to such Common Shares.  The tax consequences to U.S. Holders as to whom the Company is a PFIC are beyond the scope of this discussion.

The Company believes that it was not a PFIC for its tax years ending December 31, 2007 through 2014. Based on current business plans and financial expectations, the Company expects that it will not be a PFIC for its current tax year ending December 31, 2015 and the foreseeable future.  The determination of whether any non-U.S. corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any non-U.S. corporation is a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this Circular. Accordingly, there can be no assurance that the Company will or will not be a PFIC for the current tax year or any future tax year or that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any subsidiary of the Company and the application of the PFIC rules to the Common Shares and the consequences of being treated as the owner of subsidiary PFICs.

The Company has not made a determination regarding its status as a PFIC for tax years before 2007. Therefore, this discussion addresses only the U.S. federal income tax treatment of U.S. Holders who purchased their Common Shares after December 31, 2006.

The rules applicable to shareholders of PFICs are highly complex, and U.S. Holders who acquired Common Shares before January 1, 2007, or after that date by gift or inheritance, are advised to consult their own tax advisors regarding the U.S. federal income tax consequences of owning stock in a PFIC, as well as the potential availability of certain elections to mitigate the adverse U.S. federal income tax consequences of owning stock in a PFIC.

Certain U.S. Federal Income Tax Consequences of the Continuance

The Continuance should qualify as a reorganization within the meaning of Section 368(a)(1)(F) of the Code (an "F Reorganization") and generally should not represent a taxable transaction to the Company for U.S. federal income tax purposes, provided that holders of not more than 1% of the Company shares entitled to vote on the Continuance elect to exercise dissent rights.  Under IRS guidance, if holders of less than 1% of the Common Shares entitled to vote on the Continuance exercise dissent rights, the Continuance should qualify as an F Reorganization.

If the Continuance does not qualify as an F Reorganization for the reason stated above, it should qualify as a tax-free transaction to the Company under Section 368(a)(1)(D) of the Code (a "D Reorganization"), unless the Company is required to use an amount of its assets to satisfy claims of Shareholders exercising dissent rights, which would prevent the Company from transferring substantially all of its assets to the continued Company.  Historically, for advance ruling purposes, the IRS defines "substantially all" to mean 70% of the fair market value of a company's gross assets and at least 90% of the fair market value of a company's net assets.  In determining if the continued Company acquires "substantially all" of the assets of the Company, payments of cash by the Company to Shareholders exercising dissent rights will not be considered assets acquired by the continued Company.  The Company will satisfy the "substantially all" test unless it is required to pay to Shareholders exercising dissent rights more than 30% of the fair market value of its gross assets or more than 10% of the fair market value of its net assets.  The Company anticipates that the amount it may be required to pay to Shareholders exercising dissent rights will not prevent it from transferring "substantially all" of its assets to the Company within the meaning of the IRS ruling guidelines.  Based on all relevant facts, the Company expects the Continuance to qualify as a tax-free F Reorganization or D Reorganization for U.S. federal income tax purposes.

If the Continuance qualifies as a tax-free F Reorganization or D Reorganization, then the following U.S. federal income tax consequences will result for U.S. Holders:

1.

no gain or loss will be recognized by U.S. Holders;

2.

the aggregate tax basis of the Common Shares after the Continuance will be equal to the aggregate tax basis of the Common Shares immediately prior to the Continuance;

3.

the holding period for the Common Shares after the Continuance will include such U.S. Holder's holding period for the Common Shares held immediately prior to the Continuance; and

4.

U.S. Holders generally will be required to report certain information to the IRS on their U.S. federal income tax returns for the tax year in which the Continuance occurs, and to retain certain records related to the Continuance.

In the event the Continuance does not qualify as either an F Reorganization or a D Reorganization, a U.S. Holder would recognize gain or loss with respect to its Common Shares equal to the difference between the U.S. Holder's tax basis in its Common Shares and the fair market value, as of the effective time of the Continuance, of the Common Shares.  In such event, a U.S. Holder's aggregate tax basis in the Common Shares after the Continuance would equal its fair market value and such U.S. Holder's holding period would begin the day after the Continuance.  Such gain or loss will be capital gain or loss, which will be long-term capital gain or loss if the holding period with respect to such Common Shares is more than one year as of the date of the exchange. Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to complex limitations under the Code.

U.S. Holders Exercising Dissent Rights

A U.S. Holder that exercises dissent rights and is paid cash in exchange for all of such U.S. Holder's Common Shares generally will recognize gain or loss in an amount equal to the difference, if any, between (a) the U.S. dollar value of the foreign currency received by such U.S. Holder in exchange for such U.S. Holder's Common Shares (other than amounts, if any, that are, or are deemed to be, interest for U.S. federal income tax purposes, which amounts will be taxed as ordinary income) and (b) the adjusted tax basis of such U.S. Holder in such Common Shares surrendered. Such gain or loss will be capital gain or loss, which will be long-term capital gain or loss if the holding period with respect to such Common Shares is more than one year as of the date of the exchange. Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to complex limitations under the Code.

Ownership of Common Shares After the Continuance

The following discussion is subject in its entirety to the PFIC rules discussed below under the heading "Passive Foreign Investment Company Rules Relating to the Ownership and Disposition of Common Shares."

Distributions With Respect to Common Shares

A U.S. Holder that receives a distribution (including a constructive distribution) with respect to the Common Shares will be required to include the amount of such distribution in gross income as a dividend (without reduction for any non-U.S. income tax withheld from such distribution) to the extent of the current or accumulated "earnings and profits" of the Company, as determined under U.S. federal income tax rules. To the extent that a distribution exceeds the current and accumulated "earnings and profits" of the Company, such distribution will be treated (a) first, as a tax-free return of capital to the extent of a U.S. Holder's tax basis in the Common Shares, and (b) thereafter, as gain from the sale or exchange of such Common Shares. (For a more detailed discussion, see below under the heading "Disposition of Common Shares"). However, the Company may not maintain the calculations of earnings and profits in accordance with U.S. federal income tax principles, and each U.S. Holder therefore should assume that any distribution by the Company with respect to Common Shares will constitute ordinary dividend income. Dividends received on the Common Shares generally will not be eligible for the "dividends received deduction" available to U.S. corporate shareholders receiving dividends from U.S. corporations.

A dividend paid by the Company to a U.S. Holder who is an individual, estate or trust generally will be taxed at the preferential tax rates applicable to long-term capital gains if the Company is a "qualified foreign corporation" ("QFC") and certain holding period requirements for the U.S. Holder's Common Shares and other requirements are met. A non-U.S. corporation generally will be a QFC if its shares are readily tradable on an established securities market in the U.S. However, even if the Company satisfies one or more of these requirements, dividends paid by the Company would not be taxed at the preferential tax rates applicable to long-term capital gains if the Company is a PFIC for the tax year during which the Company pays the dividend or for the preceding tax year. (See the section below under the heading "Passive Foreign Investment Company Rules Relating to the Ownership and Disposition of Common Shares"). The dividend rules are complex, and each U.S. Holder should consult its own tax advisor regarding the application of such rules.

Disposition of Common Shares

A U.S. Holder will recognize capital gain or loss on the sale or other taxable disposition of Common Shares in an amount equal to the difference, if any, between (a) the amount of cash plus the fair market value of any property received and (b) such U.S. Holder's adjusted tax basis in the Common Shares sold or otherwise disposed of. Any such capital gain or loss will be long-term capital gain or loss if the Common Shares have been held for more than one year at the time of the sale or other taxable disposition.

Preferential tax rates apply to long-term capital gains of a U.S. Holder that is an individual, estate, or trust. There are currently no preferential tax rates for long-term capital gains of a U.S. Holder that is a corporation. Deductions for capital losses are subject to complex limitations under the Code.

Passive Foreign Investment Company Rules Relating to the Ownership and Disposition of Common Shares

If the Company is or becomes a PFIC, the preceding section of this summary may not describe the U.S. federal income tax consequences to U.S. Holders of the ownership and disposition of Common Shares.  The U.S. federal income tax consequences of owning and disposing of Common Shares if the Company is or becomes a PFIC are described below.

If the Company were to constitute a PFIC for any tax year during a U.S. Holder's holding period, then certain potentially adverse rules may affect the U.S. federal income tax consequences to a U.S. Holder as a result of the ownership and disposition of Common Shares.

Based on current business plans and financial expectations, the Company expects that it will not be a PFIC for its current tax year and the foreseeable future.  The determination of whether any non-U.S. corporation was, or will be, a PFIC for a tax year depends, in part, on the application of complex U.S. federal income tax rules, which are subject to differing interpretations. In addition, whether any non-U.S. corporation is a PFIC for any tax year depends on the assets and income of such corporation over the course of each such tax year and, as a result, cannot be predicted with certainty as of the date of this Circular. Accordingly, there can be no assurance that the Company will or will not be a PFIC for the current tax year or any future tax year or that the IRS will not challenge any determination made by the Company (or any subsidiary of the Company) concerning its PFIC status. Each U.S. Holder should consult its own tax advisor regarding the PFIC status of the Company and any subsidiary of the Company and the application of the PFIC rules to the Common Shares and the consequences of being treated as the owner of subsidiary PFICs.

In any tax year in which the Company is a PFIC, a U.S. Holder will be required to file an annual report with the IRS containing such information as Treasury Regulations and other IRS guidance may require.  In addition to penalties, a failure to satisfy such reporting requirements may result in an extension of the time period during which the IRS can assess a tax.  U.S. Holders should consult their own tax advisors regarding the requirements of filing such information returns under these rules, including the requirement to file an IRS Form 8621.

The Company generally will be a PFIC for a tax year if, after the application of certain "look-through" rules with respect to subsidiaries in which the Company holds at least 25% of the value of such subsidiary that satisfies the "income test" or the "asset test", each as defined above under the heading "Pre-2007 Shareholders Not Addressed."  For those purposes, "gross income" generally includes all sales revenues less the cost of goods sold, plus income from investments and from incidental or outside operations or sources, and "passive income" generally includes dividends, interest, certain rents and royalties, certain gains from the sale of stock and securities, and certain gains from commodities transactions.  Active business gains arising from the sale of commodities generally are excluded from passive income if substantially all (85% or more) of a non-U.S. corporation's commodities are stock in trade or inventory, depreciable property used in a trade or business or supplies regularly used or consumed in the ordinary course of its trade or business, and certain other requirements are satisfied.  If the Company were a PFIC for any tax year, certain non-U.S. subsidiaries in which the Company has a direct or indirect interest could also be PFICs with respect to U.S. Holders.

If the Company were a PFIC in any tax year during which a U.S. Holder held Common Shares, such holder generally would be subject to special rules with respect to any "excess distribution" made by the Company on the Common Shares and with respect to gain from the disposition of the Common Shares. An "excess distribution" generally is defined as the excess of distributions with respect to the Common Shares received by a U.S. Holder in any tax year over 125% of the average annual distributions such U.S. Holder has received from the Company during the shorter of the three preceding tax years, or such U.S. Holder's holding period for the Common Shares. Generally, a U.S. Holder would be required to allocate any excess distribution or gain from the disposition of the Common Shares ratably over its holding period for the Common Shares. Such amounts allocated to the tax year of the disposition or excess distribution and to any tax year prior to the first year in which the Company was a PFIC would be taxed as ordinary income, and amounts allocated to all other tax years would be taxed as ordinary income at the highest tax rate in effect for each such tax year and an interest charge at a rate applicable to underpayments of tax would apply.  Any loss realized on the disposition of Common Shares would generally not be recognized.

While there are U.S. federal income tax elections that sometimes can be made to mitigate these adverse tax consequences (including the "QEF Election" under Section 1295 of the Code and the "Mark-to-Market Election" under Section 1296 of the Code), such elections are available in limited circumstances and must be made in a timely manner.

U.S. Holders should be aware that, for each tax year, if any, that the Company is a PFIC, the Company can provide no assurances that it will satisfy the record keeping requirements or make available to U.S. Holders the information such U.S. Holders require to make a QEF Election with respect to the Company or any subsidiary of the Company that also is classified as a PFIC.  U.S. Holders should consult their own tax advisors regarding the potential application of the PFIC rules to the ownership and disposition of Common Shares, and the availability of certain U.S. tax elections under the PFIC rules for the Company and any subsidiary of the Company that is also a PFIC to mitigate these adverse tax consequences.

Additional Considerations

Foreign Tax Credit

A U.S. Holder that pays (whether directly or through withholding) non-U.S. income tax in connection with the Continuance or in connection with the ownership or disposition of Common Shares may be entitled, at the election of such U.S. Holder, to receive either a deduction or a credit for such non-U.S. income tax paid.  Generally, a credit will reduce a U.S. Holder's U.S. federal income tax liability on a dollar-for-dollar basis, whereas a deduction will reduce a U.S. Holder's income subject to U.S. federal income tax. This election is made on a year-by-year basis and applies to all creditable non-U.S. taxes paid (whether directly or through withholding) by a U.S. Holder during a tax year.

Complex limitations apply to the foreign tax credit, including the general limitation that the credit cannot exceed the proportionate share of a U.S. Holder's U.S. federal income tax liability that such U.S. Holder's "foreign source" taxable income bears to such U.S. Holder's worldwide taxable income. In applying this limitation, a U.S. Holder's various items of income and deduction must be classified, under complex rules, as either "foreign source" or "U.S. source." Generally, dividends paid by a non-U.S. corporation should be treated as foreign source for this purpose, and gains recognized on the sale of stock of a non-U.S. corporation by a U.S. Holder should be treated as U.S. source for this purpose, except as otherwise provided in an applicable income tax treaty, and if an election is properly made under the Code. In addition, this limitation is calculated separately with respect to specific categories of income. The foreign tax credit rules are complex, and each U.S. Holder should consult its own tax advisor regarding the foreign tax credit rules.

Receipt of Foreign Currency

The amount of any distribution or proceeds paid in non-U.S. currency to a U.S. Holder in connection with the ownership of Common Shares, or on the sale, exchange or other taxable disposition of Common Shares, or any foreign currency received in connection with the Continuance (including, but not limited to, U.S. Holders exercising dissent rights), will generally be included in the gross income of a U.S. Holder as translated into U.S. dollars calculated by reference to the exchange rate prevailing on the date of actual or constructive receipt of such amount, regardless of whether the foreign currency or other non-U.S. currency is converted into U.S. dollars at that time. If the foreign currency or other non-U.S. currency received is not converted into U.S. dollars on the date of receipt, a U.S. Holder will have a basis in the foreign currency or other non-U.S. currency equal to its U.S. dollar value on the date of receipt. Any U.S. Holder who receives payment in foreign currency or other non-U.S. currency and engages in a subsequent conversion or other disposition of the foreign currency or other non-U.S. currency may have a foreign currency exchange gain or loss that would be treated as ordinary income or loss, and generally would be U.S. source income or loss for foreign tax credit purposes. Different rules apply to U.S. Holders who use the accrual method.  Each U.S. Holder should consult its own tax advisor regarding the U.S. federal income tax consequences of receiving, owning, and disposing of foreign currency or other non-U.S. currency.

Information Reporting and Backup Withholding Tax

Under U.S. federal income tax law, certain categories of U.S. Holders must file information returns with respect to their investment in, or involvement in, the Company. For example, U.S. return disclosure obligations (and related penalties) are imposed on individuals who are U.S. Holders that hold certain specified foreign financial assets in excess of certain thresholds. The definition of "specified foreign financial assets" includes not only financial accounts maintained in non-U.S. financial institutions, but also, if held for investment and not in an account maintained by certain financial institutions, any stock or security issued by a non-U.S. person, any financial instrument or contract that has an issuer or counterparty other than a U.S. person and any interest in a non-U.S. entity. U.S. Holders may be subject to these reporting requirements unless their Common Shares are held in an account at certain financial institutions. Penalties for failure to file certain of these information returns are substantial. U.S. Holders should consult with their own tax advisors regarding the requirements of filing information returns under these rules, including the requirement to file an IRS Form 8938.

Payments made within the U.S. or by a U.S. payor or U.S. middleman, of (a) distributions on the Common Shares, (b) proceeds arising from the sale or other taxable disposition of Common Shares, or (c) any payments received in connection with the Continuance (including, but not limited to, U.S. Holders exercising dissent rights) generally may be subject to information reporting.  In addition, backup withholding, currently at a rate of 28% , may apply to such payments if a U.S. Holder (a) fails to furnish such U.S. Holder's correct U.S. taxpayer identification number (generally on IRS Form W-9), (b) furnishes an incorrect U.S. taxpayer identification number, (c) is notified by the IRS that such U.S. Holder has previously failed to properly report items subject to backup withholding, or (d) fails to certify, under penalty of perjury, that such U.S. Holder has furnished its correct U.S. taxpayer identification number and that the IRS has not notified such U.S. Holder that it is subject to backup withholding. Certain exempt persons generally are excluded from these information reporting and backup withholding rules. Backup withholding is not an additional tax. Any amounts withheld under the U.S. backup withholding rules will be allowed as a credit against a U.S. Holder's U.S. federal income tax liability, if any, or will be refunded, if such U.S. Holder furnishes required information to the IRS in a timely manner. Each U.S. Holder should consult its own tax advisor regarding the information reporting and backup withholding rules in their particular circumstances and the availability of, and procedures for obtaining, an exemption from backup withholding.

The discussion of reporting requirements set forth above is not intended to constitute an exhaustive description of all reporting requirements that may apply to a U.S. Holder. A failure to satisfy certain reporting requirements may result in an extension of the time period during which the IRS can assess a tax, and under certain circumstances, such an extension may apply to assessments of amounts unrelated to any unsatisfied reporting requirement. Each U.S. Holder should consult its own tax advisor regarding applicable reporting requirements and the information reporting and backup withholding rules.

RISK FACTORS

This Circular should be read in conjunction with the Company's annual management discussion and analysis ("MD&A") dated as of March 27, 2015, and interim MD&As thereafter, which disclose certain general risks faced by the Company and its subsidiaries.  In addition to these general risks, the Company has identified three additional risks with respect to the Continuance, which are described below.  Accordingly, Shareholders should consider carefully the specific risk factors set out below in addition to the other information contained in this Circular. The Company considers the following risks to be the most significant, but these risks are not set out in any particular order of priority. In particular, the Company's performance may be materially and adversely affected by changes in the market and/or economic conditions and by changes in the laws and regulations (including any tax laws and regulation) relating to, or affecting, the Company or the interpretation of such laws and regulations.

If any of the risks identified below and in the Company's MD&As materialise, the business, financial condition, results or future operations of the Company could be materially and adversely affected. In such circumstances, the trading price of the Common Shares could decline and Shareholders could lose part or all of their investment in the Common Shares. In addition, the risks below, as well as those in the Company's MD&As, are not the only risks to which the Company may be subject. The Company may be unaware of certain risks or believe certain risks to be immaterial which later prove to be material.

Therefore, the information set out in this Circular should be carefully considered, together with the risks normally associated with businesses of a similar nature to the Company, the risks disclosed in the Company's MD&As mentioned above, and those risks described below which solely relate to the Continuance.

Changes to the Tax Law in Jersey

The rates of taxation in Jersey may change, which could adversely affect the financial prospects of the Company and/or the returns available to Shareholders. The tax rates in Jersey referred to in this Circular are those prevailing  as at the date of this Circular.  Any change in these rates or in Jersey tax legislation could impose a new tax liability or increase an existing tax liability.

Maintenance of Tax Residence in Jersey

In order to ensure the Company does not become tax resident in any jurisdiction other than Jersey, the Company will be required to be controlled and managed in Jersey. The composition of the Board, the place of residence of the individual members of the Board and senior management and the location(s) in which the Board makes decisions will be important in ensuring that the Company does not become tax resident in any jurisdiction other than Jersey. Following the Continuance, the Company must also ensure that management and control decisions are made in Jersey, so that the Company does not become tax resident in a jurisdiction other than Jersey. Failure to maintain tax residence in Jersey could potentially lead to the Company being considered tax resident in a jurisdiction other than Jersey, which in turn could have a material adverse effect on the Company's business, financial condition and prospects and/or operating results.  To address this risk, the Company intends to maintain a head office in Jersey, to have at least one executive director resident in Jersey and to hold regular meetings of the Board in Jersey.

Rights of Shareholders and Fiduciary Duties owed by the Board will be Governed by Jersey Law and the M&A

It is intended that the Company be continued under the CJL. The rights of Shareholders and the fiduciary duties that the Board owes to the Company and Shareholders will be governed by Jersey law and the M&A.  As a result, the rights of Shareholders and the fiduciary duties owed to them and the Company will differ from those under the CBCA and may differ in material respects from the rights and duties that would be applicable if the Company were organized under the laws of a different jurisdiction or if the Company was not permitted to vary such rights and duties in its M&A. See above under the headings "Comparison between Canada and Jersey Corporate Law" and "Other Implications Affecting the Company and Securityholders."

RIGHTS OF DISSENT TO THE CONTINUANCE

The CBCA expressly provides Registered Shareholders with the right to dissent to the Continuance (the "CBCA Dissent Rights"). If the Continuance Resolution is approved, any Shareholder who dissents to the Continuance is entitled to be paid by the Company the fair value of the Common Shares held on behalf of any one beneficial owner and registered in such Shareholder's name, in accordance with Section 190 of the CBCA. The fair value of Shareholders' Common Shares will be determined as of the close of business on the business day before the approval of the Continuance Resolution.

The following summary does not purport to be a comprehensive description of the procedures to be followed by a Shareholder seeking to exercise its CBCA Dissent Rights with respect to the Continuance Resolution and is qualified in its entirety by reference to Section 190 of the CBCA, which is set out in "Schedule D – Dissent Rights" to this Circular.

The CBCA requires strict adherence to the procedures it establishes.  Failure to adhere to such procedures may result in a Shareholder's loss of all CBCA Dissent Rights with respect to the Continuance Resolution. Accordingly, each Shareholder who wishes to exercise CBCA Dissent Rights should carefully consider and comply with the provisions of Section 190 of the CBCA and consult its legal and tax advisors.

CBCA Dissent Rights are restricted by Section 190(3) of the CBCA, which stipulates that there shall be no partial dissent.  Shareholders wishing to exercise their CBCA Dissent Rights may only claim with respect to all of the Common Shares held on behalf of any one beneficial owner and registered in its own name.

Many Common Shares are beneficially owned by a Non-Registered Shareholder and such Common Shares are registered either (i) in the name of an Intermediary that the beneficial Shareholder deals with in respect of such Common Shares, such as banks, trust companies, securities brokers, trustees and other similar entities, or (ii) in the name of a depository, such as CDS, of which the Intermediary is a participant. Accordingly, a Non-Registered Shareholder is not entitled to exercise his or her CBCA Dissent Rights directly (unless the Common Shares are re-registered in the Non-Registered Shareholder's name). A Non-Registered Shareholder who wishes to exercise CBCA Dissent Rights should immediately contact the Intermediary with whom the Non-Registered Shareholder deals in respect of its Common Shares and either: (i) instruct the Intermediary to exercise the CBCA Dissent Rights on the Non-Registered Shareholder's behalf (which, if the Common  Shares are registered in the name of CDS or any other clearing agency, may require that such Common Shares first be re-registered in the name of the Intermediary), or (ii) instruct the Intermediary to re-register such Common Shares in the name of the Non-Registered Shareholder, in which case the Non-Registered Shareholder would have to exercise the CBCA Dissent Rights directly.

Pursuant to subsection 190(5) of the CBCA, a dissenting Shareholder who seeks payment of the fair value of its Common Shares must deliver to the Company a written objection to the Continuance at or before the Meeting (or, if the Meeting is adjourned or postponed, at or before the reconvened or postponed Meeting). If the written objection is delivered before the Meeting, it is to be delivered to the Company at its head office: Caledonia Mining Corporation, Attention CEO, Suite 4009, 1 King Street West, Toronto, Ontario M5H 1A1.

A vote against the Continuance Resolution, an abstention from voting on the Continuance Resolution, or the execution or exercise of a proxy to vote against the Continuance Resolution does not constitute a notice of dissent.  However, a Shareholder need not vote against the Continuance Resolution in order to dissent. Further, a Shareholder who consents to or votes in favour of the Continuance Resolution, other than as a proxy for another Shareholder whose proxy required an affirmative vote, or otherwise acts inconsistently with the dissent, will not be entitled to exercise any CBCA Dissent Rights.

If the Continuance Resolution is approved by the Shareholders, the Company must notify each Shareholder who sent a written objection in respect of the Continuance (unless such Shareholder voted for the Continuance Resolution or has withdrawn its objection).  Within 20 days of receiving such notice from the Company, (or, if such dissenting Shareholder does not receive such notice, within 20 days after learning of the approval of the Continuance Resolution), the dissenting Shareholder must send to the Company a written notice containing its name and address, the number of Common Shares in respect of which the Shareholder dissents and a demand for payment of the fair value of such Common Shares.  Within 30 days of sending such written notice, the Shareholder must send to the Company or Computershare the Common Share certificate(s) in respect of which the Shareholder dissents.

 

 

A dissenting Shareholder who fails to send such Common Share certificates to the Company within 30 days forfeits the right to make a claim under Section 190 of the CBCA. Computershare will endorse on the share certificates received from a dissenting Shareholder a notice that the Shareholder is exercising his or her CBCA Dissent Rights and will forthwith return the certificates to such Shareholder.

Pursuant to section 190 of the CBCA, upon sending a written demand for payment to the Company, a Shareholder ceases to have any rights as a Shareholder other than the right to be paid the fair value of the Shareholder's Common Shares, which fair value shall be determined as of the close of business on the business day before the adoption of the Continuance Resolution, except where:

(a)

the dissenting Shareholder withdraws the demand for payment before the Company makes an offer to purchase the Common Shares in respect of which the Shareholder dissents,

(b)

the Company fails to make an offer to purchase such Common Shares and the dissenting Shareholder withdraws the demand for payment, or

(c)

the Board terminates the application for the Continuance, in which case the rights as a Shareholder will be reinstated as of the date the dissenting Shareholder sent the demand for payment.

If the Continuance becomes effective, the Company will be required to send to each dissenting Shareholder who has sent demand for payment, not later than seven days after the later of (i) the day the Continuance Resolution is approved, or (ii) the day on which the Company receives the demand for payment, a written offer to pay for such Shareholder's Common Shares such amount as the Board considers fair value and a statement showing how the fair value was determined.

The Company must pay for the Common Shares of a dissenting Shareholder within 10 days after an offer to pay has been accepted by such dissenting Shareholder.  Any such offer lapses, however, if the Company does not receive an acceptance thereof within 30 days after such offer is made. If the Company fails to make an offer to pay or a dissenting Shareholder fails to accept such an offer, the Company may, within 50 days after the Continuance Resolution is approved or within such further period as the Court (defined below) may allow, apply to the Ontario Superior Court of Justice (the "Court") to fix the fair value of such Common Shares. There is no obligation of the Company to apply to the Court. If the Company fails to make such an application, a dissenting Shareholder has the right to so apply within a further 20 days, or within such further period as the Court may allow. A dissenting Shareholder is not required to give security for costs in such an application.

Upon an application to the Court, all dissenting Shareholders whose Common Shares have not been purchased by the Company will be joined as parties and be bound by the decision of the Court, and the Company will be required to notify each affected dissenting Shareholder of the date, place and consequences of the application and of the right to appear and be heard in person or by counsel. Upon any such application to the Court, the Court may determine whether any other person is a dissenting Shareholder who should be joined as a party, and the Court will then fix a fair value for the Common Shares of all dissenting Shareholders who have not accepted an offer to pay from the Company. The final order of the Court will be rendered against the Company in favour of each dissenting Shareholder and for the amount of Common Shares as fixed by the court. The Court may, in its discretion, allow a reasonable rate of interest on the amount payable to each such dissenting Shareholder from the date the Continuance Resolution is approved until the date of payment.

The foregoing summary does not purport to provide a comprehensive statement of the procedures to be followed by a dissenting Shareholder who seeks payment of fair value of its Common Shares. Section 190 of the CBCA requires strict compliance with the procedures established therein.  Failure to so comply may result in the loss of a Shareholder's CBCA Dissent Rights. Accordingly, each Shareholder who desires to exercise its CBCA Dissent Rights should (i) carefully consider and comply with Section 190 of the CBCA, the full text of which is set out in "Schedule D – Dissent Rights" to this Circular, (ii) consult his, her or its own legal advisor, and (iii) consult his, her, or its own tax advisor regarding the income tax consequences of such action.

 

 

SHAREHOLDER APPROVAL OF THE CONTINUANCE RESOLUTION

The Shareholders will be asked to consider and, if thought appropriate, approve, with or without variation, the Continuance Resolution, the full text of which is set out in "Schedule B – Continuance Resolution" to this Circular. The Continuance Resolution is a special resolution, which means that in order to be effective, it must be approved by not less than 66 2/3% of the votes cast by the Shareholders who vote on the Continuance Resolution.

RECOMMENDATION OF THE BOARD

After careful consideration of several factors considered relevant by the Board, the Board hereby unanimously recommends that Shareholders vote FOR the Continuance Resolution. Common Shares represented by proxies in favour of management nominees will be voted FOR the Continuance Resolution, unless such Shareholder has specified otherwise in his, her or its proxy.

PART III - MISCELLANEOUS

INTERESTS OF CERTAIN PERSONS OR COMPANIES IN MATTERS TO BE ACTED UPON

None of the directors or executive officers of the Company, and, to the knowledge of the Company, none of the persons who have been directors or executive officers of the Company since the commencement of the Company's last completed financial year or any associate or affiliate of any of the foregoing persons, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter to be acted upon at the Meeting.

INTEREST OF INFORMED PERSONS IN MATERIAL TRANSACTIONS

To the knowledge of the Company, no informed person of the Company, none of the persons who have been directors or executive officers of the Company since the commencement of the Company's last financial year, and no associate or affiliate of any of them has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any transaction since the commencement of the Company's most recently completed financial year or in a proposed transaction that has materially affected or would materially affect the Company other than as disclosed in this Circular.

OTHER MATTERS TO BE ACTED UPON

The management of the Company knows of no other matters to come before the Meeting other than those referred to in the Notice of Meeting. Should any other matters properly come before the Meeting, the Common Shares represented by the proxy solicited hereby will be voted on such matters in accordance with the best judgment of the person voting such proxy.

AUDITORS

The auditors of the Company are KPMG Inc. of 85 Empire Road, Parktown 2193, South Africa, who have been auditors of the Company since April 30, 2013.

LEGAL ADVISORS

The legal advisers of the Company are:

As to Canadian law:

 

Borden Ladner Gervais LLP

Scotia Plaza

40 King Street West

Toronto, Ontario, Canada M5H 3Y4

As to English law:

Memery Crystal LLP

44 Southampton Buildings

London WC2A 1AP

As to Jersey law:

Walkers

PO Box 72

Walker House

28-34 Hill Street

St Helier

Jersey JE4 8PN

Channel Islands

PRINCIPAL BANKERS

The principal bankers of the Company are:

Barclays Bank PLC

1 Churchill Place

Canary Wharf

London E14 5HP

STATED CAPITAL

The stated capital of the Company is currently $57,607,000.

ADDITIONAL INFORMATION

Additional information relating to the Company is available on SEDAR at www.sedar.com and on the Company's website.  Financial information is provided in the Company's comparative financial statements prepared and audited to December 31, 2014 and in its annual MD&A dated as of March 27, 2015, and interim MD&A thereafter.

Copies of any of the documents described in the Circular are available on the Company's website at www.caledoniamining.com.  They also can be obtained by contacting the Company at:

 

APPROVAL

The content of this Circular has been approved by the Board.

DATED as of the 31^st day of December, 2015.

By order of the Board of Directors of Caledonia Mining Corporation

 

SCHEDULE A – MEMORANDUM AND ARTICLES OF ASSOCIATION

SCHEDULE B – CONTINUANCE RESOLUTION

The text of the Continuance Resolution is as follows:

BE IT RESOLVED, AS A SPECIAL RESOLUTION, THAT:

1.

Caledonia Mining Corporation (the "Company") be and is hereby authorized to:

a.

make application pursuant to Article 127K of the Companies (Jersey) Law 1991, as amended (the "CJL") to the Jersey Financial Services Commission ("JFSC") to seek continuance of the Company  as a company incorporated under the CJL under the name "Caledonia Mining Corporation Plc" (the "Continuance"); and

b.

make application to the Director under the Canada Business Corporations Act (the "CBCA") for the Director's authorization to permit the Continuance;

2.

Subject to the issuance by the Jersey Registrar of Companies of a certificate of continuance (the "Certificate of Continuance") and without affecting the validity of any act previously done by the Company under its charter documents or otherwise, the Memorandum and Articles of Association set out in "Schedule A – Memorandum and Articles of Association" to the management information circular of the Company dated December 31, 2015 are hereby adopted as the charter documents of the Company (and the Articles of Association shall be the "articles of continuance" under the CJL) and, in connection therewith, all amendments to the existing articles of the Company to be implemented by the adoption of the Memorandum and Articles of Association, including the change in the Company's name to "Caledonia Mining Corporation Plc," are hereby approved;

3.

Subject to the issuance of the Certificate of Continuance, the repeal of the Company's by-law is hereby authorized;

4.

For the purposes of the CJL:

a.

any purchase by the Company, following the completion of the Continuance, of any shares of any shareholder dissenting to the Continuance be and is hereby sanctioned as a special resolution; and

b.

the contract resulting from the acceptance by each dissenting shareholder of an offer to purchase made by the Company pursuant to section 190 of the CBCA, together with the Company's and such dissenting shareholder's obligations and rights under the CBCA in relation to such purchase, including the price at which the shares of dissenting shareholders are agreed or otherwise determined by a court to be purchased, shall form the purchase contracts between the Company and any shareholders dissenting to the Continuance, and all such contracts, if any, are hereby approved;

5.

Notwithstanding that this resolution has been passed by the shareholders of the Company, the directors of the Company are hereby authorized and empowered in their sole discretion, without further notice to, or approval of, the shareholders of the Company, to revoke this resolution and abandon the application for Continuance at any time prior to the issuance of the Certificate of Continuance; and

6.

Any one officer or one director of the Company is hereby authorized and directed for and on behalf of the Company to execute or cause to be executed and to deliver or cause to be delivered all such documents, applications, articles, agreements and instruments and to perform or cause to be performed all such other acts and things as in such person's opinion may be necessary or desirable to give full effect to the foregoing resolutions and the matters authorized thereby, such determination to be conclusively evidenced by the execution and delivery of such document, agreement or instrument or the doing of any such act or thing.

 

SCHEDULE C – HOLDERS OF OPTIONS OF THE COMPANY

Option Holder Name	Exercise Price	Outstanding Options to December 31, 2015	Expiry Date
B. Babensee Consultant and former Director	$0.90 $1.30	40,000 175,000	September 10, 2017 January 31, 2016
Steve Curtis Chief Executive Officer and Director	$0.90 $1.30 $0.70	120,000 250,000 30,000	September 10, 2017 January 31, 2016 May 11, 2016
Peter Dell Chief Financial Officer – Zimbabwe	$0.90 $1.30	3,000 7,500	September 10, 2017 January 31, 2016
DSA Corporate Services Inc. J. Archibald (Corporate Secretary)	$0.80	25,000	October 8, 2020
David Henderson Non-Executive Director	$0.74	90,000	December 22, 2020
Johann Holtzhausen Director	$0.72	90,000	November 21, 2018
P. Human Employee	$0.90 $1.30	5,000 10,000	September 10, 2017 January 31, 2016
James Johnstone Director	$0.90 $1.30	40,000 160,000	September 10, 2017 January 31, 2016
Carl Jonsson Consultant and former Director	$0.90 $1.30	40,000 160,000	September 10, 2017 January 31, 2016
John L. Kelly Director	$0.90	90,000	September 10, 2017
Alexander Lawson Employee	$0.90 $1.30	3,000 7,500	September 10, 2017 January 31, 2016
Mark Learmonth Chief Financial Officer and Director	$0.90 $1.30	89,020 150,000	September 10, 2017 January 31, 2016
J. Liswaniso Consultant	$0.90 $1.30	7,500 10,000	September 10, 2017 January 31, 2016
Caxton Mangezi General Manager – Blanket	$0.90 $1.30	100,000 200,000	September 10, 2017 January 31, 2016
Richard Patricio Former Director	$0.90	90,000	February 7, 2016
Trevor Pearton Vice President Exploration	$0.90 $1.30	25,000 25,000	September 10, 2017 January 31, 2016

Option Holder Name	Exercise Price	Outstanding Options to December 31, 2015	Expiry Date
Dana Roets Chief Operating Officer	$0.72	100,000	November 21, 2018
S. Smith Employee	$0.90 $1.30	2,400 6,000	September 10, 2017 January 31, 2016
Leigh Wilson Chairman and Director	$0.90	90,000	September 10, 2017

 

 

SCHEDULE D – DISSENT RIGHTS

Reproduced below is the text of section 190 of the Canada Business Corporations Act, which entitles Shareholders to object to the Continuance Resolution and sets out the procedure for so doing.

Right to dissent

190.	(1) Subject to sections 191 and 241, a holder of shares of any class of a corporation may dissent if the corporation is subject to an order under paragraph 192(4)(d) that affects the holder or if the corporation resolves to

(a)

amend its articles under section 173 or 174 to add, change or remove any provisions restricting or constraining the issue, transfer or ownership of shares of that class;

(b)

amend its articles under section 173 to add, change or remove any restriction on the business or businesses that the corporation may carry on;

(c)

amalgamate otherwise than under section 184;

(d)

be continued under section 188;

(e)

sell, lease or exchange all or substantially all its property under subsection 189(3); or

(f)

carry out a going-private transaction or a squeeze-out transaction.

Further right

(2) A holder of shares of any class or series of shares entitled to vote under section 176 may dissent if the corporation resolves to amend its articles in a manner described in that section.

If one class of shares

(2.1) The right to dissent described in subsection (2) applies even if there is only one class of shares.

Payment for shares

(3) In addition to any other right the shareholder may have, but subject to subsection (26), a shareholder who complies with this section is entitled, when the action approved by the resolution from which the shareholder dissents or an order made under subsection 192(4) becomes effective, to be paid by the corporation the fair value of the shares in respect of which the shareholder dissents, determined as of the close of business on the day before the resolution was adopted or the order was made.

No partial dissent

(4) A dissenting shareholder may only claim under this section with respect to all the shares of a class held on behalf of any one beneficial owner and registered in the name of the dissenting shareholder.

Objection

(5) A dissenting shareholder shall send to the corporation, at or before any meeting of shareholders at which a resolution referred to in subsection (1) or (2) is to be voted on, a written objection to the resolution, unless the corporation did not give notice to the shareholder of the purpose of the meeting and of their right to dissent.

Notice of resolution

(6) The corporation shall, within ten days after the shareholders adopt the resolution, send to each shareholder who has filed the objection referred to in subsection (5) notice that the resolution has been adopted, but such notice is not required to be sent to any shareholder who voted for the resolution or who has withdrawn their objection.

Demand for payment

(7) A dissenting shareholder shall, within twenty days after receiving a notice under subsection (6) or, if the shareholder does not receive such notice, within twenty days after learning that the resolution has been adopted, send to the corporation a written notice containing

(a)

the shareholder's name and address;

(b)

the number and class of shares in respect of which the shareholder dissents; and

(c)

a demand for payment of the fair value of such shares.

Share certificate

(8) A dissenting shareholder shall, within thirty days after sending a notice under subsection (7), send the certificates representing the shares in respect of which the shareholder dissents to the corporation or its transfer agent.

Forfeiture

(9) A dissenting shareholder who fails to comply with subsection (8) has no right to make a claim under this section.

Endorsing certificate

(10) A corporation or its transfer agent shall endorse on any share certificate received under subsection (8) a notice that the holder is a dissenting shareholder under this section and shall forthwith return the share certificates to the dissenting shareholder.

Suspension of rights

(11) On sending a notice under subsection (7), a dissenting shareholder ceases to have any rights as a shareholder other than to be paid the fair value of their shares as determined under this section except where

(a)

the shareholder withdraws that notice before the corporation makes an offer under subsection (12),

(b)

the corporation fails to make an offer in accordance with subsection (12) and the shareholder withdraws the notice, or

(c)

the directors revoke a resolution to amend the articles under subsection 173(2) or 174(5), terminate an amalgamation agreement under subsection 183(6) or an application for continuance under subsection 188(6), or abandon a sale, lease or exchange under subsection 189(9),

in which case the shareholder's rights are reinstated as of the date the notice was sent.

Offer to pay

(12) A corporation shall, not later than seven days after the later of the day on which the action approved by the resolution is effective or the day the corporation received the notice referred to in subsection (7), send to each dissenting shareholder who has sent such notice

(a)

a written offer to pay for their shares in an amount considered by the directors of the corporation to be the fair value, accompanied by a statement showing how the fair value was determined; or

(b)

if subsection (26) applies, a notification that it is unable lawfully to pay dissenting shareholders for their shares.

Same terms

(13) Every offer made under subsection (12) for shares of the same class or series shall be on the same terms.

Payment

(14) Subject to subsection (26), a corporation shall pay for the shares of a dissenting shareholder within ten days after an offer made under subsection (12) has been accepted, but any such offer lapses if the corporation does not receive an acceptance thereof within thirty days after the offer has been made.

Corporation may apply to court

(15) Where a corporation fails to make an offer under subsection (12), or if a dissenting shareholder fails to accept an offer, the corporation may, within fifty days after the action approved by the resolution is effective or within such further period as a court may allow, apply to a court to fix a fair value for the shares of any dissenting shareholder.

Shareholder application to court

(16) If a corporation fails to apply to a court under subsection (15), a dissenting shareholder may apply to a court for the same purpose within a further period of twenty days or within such further period as a court may allow.

Venue

(17) An application under subsection (15) or (16) shall be made to a court having jurisdiction in the place where the corporation has its registered office or in the province where the dissenting shareholder resides if the corporation carries on business in that province.

No security for costs

(18) A dissenting shareholder is not required to give security for costs in an application made under subsection (15) or (16).

Parties

(19) On an application to a court under subsection (15) or (16),

(a)

all dissenting shareholders whose shares have not been purchased by the corporation shall be joined as parties and are bound by the decision of the court; and

(b)

the corporation shall notify each affected dissenting shareholder of the date, place and consequences of the application and of their right to appear and be heard in person or by counsel.

Powers of court

(20) On an application to a court under subsection (15) or (16), the court may determine whether any other person is a dissenting shareholder who should be joined as a party, and the court shall then fix a fair value for the shares of all dissenting shareholders.

Appraisers

(21) A court may in its discretion appoint one or more appraisers to assist the court to fix a fair value for the shares of the dissenting shareholders.

Final order

(22) The final order of a court shall be rendered against the corporation in favour of each dissenting shareholder and for the amount of the shares as fixed by the court.

Interest

(23) A court may in its discretion allow a reasonable rate of interest on the amount payable to each dissenting shareholder from the date the action approved by the resolution is effective until the date of payment.

Notice that subsection (26) applies

(24) If subsection (26) applies, the corporation shall, within ten days after the pronouncement of an order under subsection (22), notify each dissenting shareholder that it is unable lawfully to pay dissenting shareholders for their shares.

Effect where subsection (26) applies

(25) If subsection (26) applies, a dissenting shareholder, by written notice delivered to the corporation within thirty days after receiving a notice under subsection (24), may

(a)

withdraw their notice of dissent, in which case the corporation is deemed to consent to the withdrawal and the shareholder is reinstated to their full rights as a shareholder; or

(b)

retain a status as a claimant against the corporation, to be paid as soon as the corporation is lawfully able to do so or, in a liquidation, to be ranked subordinate to the rights of creditors of the corporation but in priority to its shareholders.

Limitation

(26) A corporation shall not make a payment to a dissenting shareholder under this section if there are reasonable grounds for believing that

(a)

the corporation is or would after the payment be unable to pay its liabilities as they become due; or

(b)

the realizable value of the corporation's assets would thereby be less than the aggregate of its liabilities.

 

 

Company no. [•]

Companies (Jersey) Law (1991)   Public Company Limited by Shares

ARTICLES OF ASSOCIATION of CALEDONIA MINING CORPORATION PLC