Sereno Capital Corporation
TSX VENTURE : SZZ.H

September 18, 2013 17:15 ET

Sereno Capital Corporation Announces Signing of Definitive Transaction Agreement to Complete Qualifying Transaction

TORONTO, ONTARIO--(Marketwired - Sept. 18, 2013) -

NOT FOR DISSEMINATION IN THE U.S. OR THROUGH U.S. NEWSWIRES

Sereno Capital Corporation ("Sereno" or the "Company") (TSX VENTURE:SZZ.H) is pleased to announce that it has entered into arm's length binding business combination agreement (the "Agreement") dated September 18, 2013 with Delavaco Properties Inc. ("Delavaco"), a company incorporated under the laws of Ontario, whereby Delavaco will amalgamate with a new and direct wholly-owned subsidiary of Sereno to become a direct, wholly-owned subsidiary of Sereno (the "Business Combination"). Upon completion, Sereno will remain as the resulting issuer (the "Resulting Issuer"). The Business Combination will constitute the Qualifying Transaction of Sereno under the policies of the TSX Venture Exchange (the "Exchange"). This news release updates the terms of the transaction that were previously announced in a news release of Sereno dated May 24, 2013 (the "Original Release").

None of the insiders of the Company, or their associates and affiliates, have any interest in the Business Combination or are otherwise an insider of, or have any relationship with, Delavaco or its direct and indirect shareholders, and the transaction is not a Non-Arm's Length Qualifying Transaction (as such terms are defined by the Exchange) under the policies of the Exchange.

Assuming completion of the Business Combination, it is expected that the Resulting Issuer will satisfy the original listing requirements of the Exchange for a Tier 1 Real Estate or Investment Issuer and will combine its business under the new name "Delavaco Residential Properties Inc.". The Resulting Issuer intends to invest in single-family homes and multi-family properties at prices below replacement costs located in major markets in the United Sates that, in the opinion of the Resulting Issuer, will be leveraged to the housing recovery and that exhibit favourable demographics, positive long-term economic growth and solid rental demand. Upon completion of the Business Combination, and subject to the completion of the Reorganization (defined below) and other conditions (as described below), Delavaco is expected to own not less than 524 single-family homes in Florida and not less than 178 single-family homes in Georgia (collectively, the "Single-Family Homes") and not less than 627 multi-family units in Florida and Texas (the "Multi-Family Properties").

Completion of the Qualifying Transaction is subject to certain conditions including the approval of the Company's and Delavaco's shareholders and is expected to close in the fourth quarter of this year. The Company anticipates filing a joint management information circular (the "Circular") with Delavaco detailing the Qualifying Transaction and related matters in the near future.

About Delavaco

Delavaco was incorporated on January 27, 2011 and since that time has been investing in single-family homes at prices below replacement costs and multi-family properties at attractive capitalization rates located in select markets in the United States, to date primarily in the southern United States, that were hard-hit by the residential housing market downturn and that, in the opinion of Delavaco, exhibit favourable demographics, positive economic growth and solid rental demand. While Delavaco will continue to invest in multi-family properties on an opportunistic basis, the principal focus will be on the acquisition of single-family homes, as Management believes that such properties offer greater potential returns resulting from a housing recovery. The characteristics used by Delavaco's management team to identify and purchase single-family homes and multi-family properties have not changed from those set out in the Original Release and will be further detailed in the Circular in accordance with applicable securities laws.

Updated Transaction Terms

Amalgamation

In connection with the Business Combination, Sereno will form a new, direct, wholly-owned subsidiary of Sereno incorporated under the laws of Ontario ("Subco"). Subject to the terms of the Agreement, Subco will amalgamate (the "Amalgamation") with Delavaco and continue as "Amalco" under the name "Delavaco Properties Inc.". Amalco will be a wholly-owned subsidiary of Sereno. All of the property and assets of each of Subco and Delavaco will be the property and assets of Amalco, and Amalco will be liable for all of the liabilities and obligations of each of Subco and Delavaco.

On the effective date of the Amalgamation, the common shares of Delavaco (the "Delavaco Shares") will be cancelled and former shareholders of Delavaco shall receive that number of Sereno Shares equal to (A) the number of Delavaco Shares so cancelled, multiplied by (B) 7.36 (the "Consideration Shares"). Sereno will subsequently consolidate all of the issued and outstanding Sereno Shares (including the Consideration Shares) on the basis of 7.36 pre-consolidation shares for one (1) post-consolidation share in the Resulting Issuer (the "Resulting Issuer Shares"). The common share purchase warrants and the incentive stock options of Delavaco will, in accordance with their terms, become exercisable for shares of the Resulting Issuer. The incentive stock options of Sereno will also be adjusted in accordance with their terms so that they become exercisable for Resulting Issuer Shares.

The table below outlines the number and terms of the convertible securities of the Resulting Issuer after giving effect to the 7.36 to 1 consolidation.

Type of Security Number Conversion Price Expiration / Description
Warrants
Delavaco class A warrants 200,000 $1.00 March 13, 2015
Delavaco class B warrants 632,000 $1.25 Expire 3 years from the date of issuance
Delavaco class C warrants 3,850,000 $1.18 June 3, 2017
Options
Delavaco options 2,500,000 $0.10 33.3% vested December 31, 2012 and the balance vesting equally on December 31, 2013 and 2014
Sereno options 35,666 $1.18 May 16, 2016

Reorganization and Lender Consents

It is expected that prior to the closing of the Business Combination, Delavaco will complete an internal corporate reorganization (the "Reorganization") pursuant to which it will indirectly acquire from Delavaco Real Estate Opportunities Corp. ("DREOC"), through a "master" limited partnership (the "Master LP") of Delavaco, certain issued and outstanding limited partnership units held indirectly by DREOC (the "Multi-Family Partnerships"). Subject to confirmation of all parties, prior to the closing of the Business Combination, Delavaco may also acquire all of the issued and outstanding membership interests in a limited liability company ("Park Colony") that, collectively with the Multi-Family Partnerships, own the Multi-Family Properties.

The equity interests in the Multi-Family Partnerships are held indirectly by DREOC, an entity owned and controlled by Mr. Andrew DeFrancesco, Chairman and Chief Executive Officer of Delavaco. The equity interests in Park Colony are held by Mr. DeFrancesco directly. In connection with the Reorganization, Mr. DeFrancesco will cause the general partner to transfer all of the outstanding units in the Multi-Family Partnerships and provided the acquisition of Park Colony is undertaken, the equity interests in Park Colony, to the Master LP. As consideration for such transfer, and subject to the completion of the Business Combination, DREOC and Mr. DeFrancesco will receive a combined total of 11,156,522 Delavaco Shares, representing the equity value in the Multi-Family Properties. These shares will subsequently be exchanged for an equal number of Resulting Issuer Shares in accordance with the terms of the Amalgamation described above.

The Multi-Family Properties are currently mortgaged in favour of the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac") in an aggregate amount of US$47,044,000. The consent of Fannie Mae and, provided the acquisition of Park Colony is undertaken, Freddie Mac, will serve as a condition precedent to the completion of the Reorganization (collectively referred to as the "Lender Consents"). Pursuant to the terms of the Agreement, the Business Combination is conditional on the completion of the Reorganization (and by extension, the receipt of the Lender Consents). Delavaco is actively engaged with Fannie Mae and Freddie Mac and their respective counsel in obtaining the Lender Consents and fully expects receipt of same within a period of time that will allow for the closing of the Business Combination. Subject to the receipt of the Lender Consents and completion of the Business Combination, all of the outstanding mortgages on the Multi-Family Properties will be assumed by the Resulting Issuer.

Concurrent Debt Conversion

As part of the Reorganization, the US$15.25 million of secured debt of DREOC due August 31, 2013 will be converted such that, in connection with the Business Combination, 14,413,989 Resulting Issuer Shares will be distributed to existing secured convertible noteholders of DREOC in satisfaction of their outstanding indebtedness at an effective price of US$1.058 per Resulting Issuer Share. In addition, the US$10 million of unsecured debt of Delavaco due December 20, 2014 will convert into 10,230,179 Resulting Issuer Shares at an effective price of US$0.9775 per Resulting Issuer Share.

Private Placement

The private placement by Delavaco of certain secured debentures as previously announced will no longer be completed. Since the issuance of the Original Release, Delavaco has instead completed a series of private placements pursuant to which it issued US$12,300,000 (with the option to issue up to a total of US$15,000,000) aggregate principal amount of 7.00% unsecured debentures due July 31, 2018 (the "Debentures"), on a private placement basis to accredited investors. The proceeds from the issuance of the Debentures will be used to acquire additional single-family homes in the Southeast United States, to pay down outstanding indebtedness and for general working capital purposes.

In accordance with the terms of the Debentures, upon the occurrence of a "liquidity event" (which includes the completion of the Business Combination), all of the principal amount of the Debentures, plus accrued but unpaid interest thereon, may be converted, at the option of the holders thereof, into Resulting Issuer Shares at price equal to $1.15 per Resulting Issuer Share.

PowerOne Capital Markets Ltd. acted as agent in connection with the private placement of Debentures and was paid customary compensation for such agency services.

Management and Board of Directors

Subject to Exchange approval, on completion of the Business Combination, the management team and the board of directors of the Resulting Issuer will include the persons identified in the Original Release. In addition, subject to Exchange approval, Romeo De Gasperis will be appointed as an independent director.

Romeo De Gasperis - Director

Romeo De Gasperis serves as Chief Executive Officer and Vice President of Con-Drain Company Ltd. Mr. De Gasperis has also managed the operations and personnel of Swisher Hygiene Inc. and was responsible for tendering new projects as well as overseeing networking and communications. He has been with Con-Drain Company Ltd. for over 18 years. Mr. De Gasperis is also a Principal and Vice-President of Countrywide homes and Condor Properties Limited, operating in Concord, Ontario, Canada. He served as a Director of Swisher Hygiene Inc. since November 17, 2006 and served in the same position from 2000 to August 15, 2006. In 1988, Mr. De Gasperis completed his Civil Engineering Technician course at Seneca College.

Significant Shareholders

Mr. Andrew DeFrancesco, Chief Executive Officer and Chairman of the Board of Directors, has taken the initiative in founding and organizing Delavaco. Upon completion of the Business Combination, Mr. DeFrancesco is expected to own or control, directly or indirectly, approximately 27.0% of the outstanding Resulting Issuer Shares. In addition, Dynamic Power Hedge Fund, PowerOne Capital Corp. and Mardis Group are expected to own or control, directly or indirectly, approximately 11.9%, 11.29% and 10.09%, respectively, of the outstanding Resulting Issuer Shares. Mr. DeFrancesco is a resident of United States. Each of the other foregoing investors is resident in the Province of Ontario.

Summary Financial Information

The following tables set forth certain selected financial information for Delavaco in respect of the year ended December 31, 2012, and the period from incorporation on January 27, 2011 through December 31, 2011, and as at December 31, 2012 and 2011, each presented in US dollars.

2012 2011
Rental Revenue $3,108,834 $929,660
Operating Costs(1) $1,658,745 $835,309
Net Operating Income(2) $1,450,089 $94,351
Investment Properties $33,940,819 $8,851,396
Total Assets $46,764,652 $9,415,883
Total Liabilities $32,711,831 $4,485,277

(1) Operating costs include costs directly attributable to operating the properties, including, but not limited to, insurance, utilities, property taxes, management fees and maintenance.
(2) Net Operating Income is equal to Rental Revenue less Operating Costs.

After completion of the Reorganization, Delavaco expects to own assets with a fair value in excess of US$120,000,000.

Resulting Issuer

The following table sets forth the pro forma capitalization of the Resulting Issuer after giving effect to the Business Combination (including the proposed consolidation).

Equity
Shares held by Delavaco shareholders 25,075,000
Shares held by current Sereno shareholders 638,587
Shares to be issued with respect to Reorganization 11,156,522
Shares to be issued with respect to US$15.25 million DREOC debt conversion 14,413,989
Shares to be issued with respect to US10 million Delavaco debt conversion 10,230,179
Shares to be issued for executive services rendered 600,000
Shares underlying options and warrants 7,217,666
Total (fully-diluted) 80,027,595
Debt
Secured debt due 2016 US$25,000,000
Multi-Family mortgages with Fannie Mae and Freddie Mac US$47,044,000
Unsecured debt due 2018 US$12,300,000

Conditions of Completion

Completion of the Business Combination, including the proposed consolidation and name change of the Resulting Issuer to "Delavaco Residential Properties Inc.", is subject to the satisfaction or waiver of a number of terms and conditions including, but not limited to: (i) receipt of all the Lender Consents and the completion of the Reorganization; (ii) the approvals from each of the shareholders of Sereno and Delavaco and the approval and acceptance of the Exchange; (iii) the Resulting Issuer being in compliance with the initial listing requirements of the Exchange; and (iv) there not having occurred a material adverse effect with respect to Sereno or Delavaco.

Sponsorship

Sponsorship of a Qualifying Transaction of a capital pool company is required by the Exchange, unless an exemption from the sponsorship requirement is available. Sereno intends to apply to the Exchange for an exemption from the sponsorship requirement. There is no assurance that the Company will be able to obtain such an exemption.

Information contained herein pertaining to Delavaco and the proposed members of Management and the Board of Directors of the Resulting Issuer has been furnished to Sereno by Delavaco.

Completion of the transaction is subject to a number of conditions, including but not limited to, Exchange acceptance and if applicable pursuant to Exchange Requirements, majority of the minority shareholder approval. Where applicable, the transaction cannot close until the required shareholder approval is obtained. There can be no assurance that the transaction will be completed as proposed or at all.

Investors are cautioned that, except as disclosed in the management information circular or filing statement to be prepared in connection with the transaction, any information released or received with respect to the transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.

Certain information in this news release constitutes forward-looking statements under applicable securities law. Any statements that are contained in this news release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as "may", "should", "anticipate", "expect", "intend" and similar expressions. Forward-looking statements in this news release include, but are not limited to, statements with respect to the closing or completion of the Qualifying Transaction. Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks that closing of the Proposed Transaction may not occur; risks related to the receipt of approval by the Exchange, the completion of the Qualifying Transaction; risks associated with general economic conditions; adverse industry events; marketing costs; loss of markets; volatility of real estate prices; inability to access sufficient capital from internal and external sources, and/or inability to access sufficient capital on favourable terms; industry and government regulation; changes in legislation, income tax and regulatory matters; the ability of the Resulting Issuer to implement its business strategies; competition; currency and interest rate fluctuations; and other risks. Readers are cautioned that the foregoing list is not exhaustive.

Readers are further cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

The forward-looking statements contained in this news release represent the expectations of the Company and Delavaco as of the date of this news release, and, accordingly, are subject to change after such date. Neither the Company nor Delavaco undertakes any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.

The Exchange has in no way passed upon the merits of the proposed transaction and has neither approved nor disapproved the contents of this press release.

Neither the Exchange nor its Regulation Services Provider (as that term is defined in the policies of the Exchange) accepts responsibility for the adequacy or accuracy of this release.

Contact Information

  • Sereno Capital Corporation
    Brandon Gordon
    Director
    416-214-9672