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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Westwater Resources Inc | NASDAQ:WWR | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 5.83 | 5.80 | 5.84 | 0 | 01:00:00 |
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TABLE OF CONTENTS
INDEX TO WWR'S FINANCIAL STATEMENTS
TABLE OF CONTENTS
TABLE OF CONTENTS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant ý | ||
Filed by a Party other than the Registrant o |
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Check the appropriate box: |
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material under §240.14a-12 |
WESTWATER RESOURCES, INC. | ||||
(Name of Registrant as Specified In Its Charter) |
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant) |
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Payment of Filing Fee (Check the appropriate box): |
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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(1) |
Title of each class of securities to which transaction applies:
For purposes of computing the filing fee, Alabama Graphite Corp. common shares |
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(2) |
Aggregate number of securities to which transaction applies:
100% of the common shares of Alabama Graphite Corp. |
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(3) |
Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined):
Solely for purposes of calculating the filing fee, the underlying value of the transaction was calculated in accordance with Exchange Act Rules 14a-6(i)(1) and 0-11 as the product of (i) 145,315,187 common shares of Alabama Graphite Corp. plus 31,354,730 shares underlying Alabama Graphite Corp.'s options and warrants, representing the entire issued and to be issued common shares of Alabama Graphite Corp., and (ii) $0.07 representing the average of the high and low sales price of Alabama Graphite Corp.'s common shares as quoted on the TSX Venture Exchange on January 10, 2018, as converted to U.S. dollars based on an exchange rate of 0.801142 U.S. dollars for every one Canadian dollar on January 10, 2018, such product representing the as-converted value of the Alabama Graphite Corp.'s common share to be received by the registrant as the acquiring person. |
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(4) |
Proposed maximum aggregate value of transaction:
$12,030,703.70 |
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(5) |
Total fee paid:
$1,497.83 |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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Amount Previously Paid: |
(2) |
Form, Schedule or Registration Statement No.:
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Filing Party:
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(4) |
Date Filed:
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PRELIMINARY PROXY MATERIALSSUBJECT TO COMPLETION, DATED JANUARY 12, 2018
Dear WWR stockholders:
You are cordially invited to attend the special meeting of stockholders (the "Special Meeting") of Westwater Resources, Inc., to be held on March [ ], 2018, at 9:00 a.m., local time, at our headquarters, located at 6950 South Potomac Street, Suite 300, Centennial, Colorado 80112.
As previously disclosed, on December 13, 2017, WWR entered into an arrangement agreement to acquire all of the outstanding common shares of Alabama Graphite Corp. ("Alabama Graphite") in an all-stock acquisition. Under the terms of the arrangement agreement and the plan of arrangement attached thereto, eligible Alabama Graphite shareholders will receive 0.08 of a share of WWR common stock in exchange for each Alabama Graphite common share, and holders of Alabama Graphite options and warrants will receive replacement WWR options and warrants. The value of the WWR shares to be received by Alabama Graphite shareholders in the acquisition will fluctuate with the market value of WWR stock. Based on the exchange ratio of 0.08 of a share of WWR common stock for each share of AG common stock and closing prices of both companies common stock on December 12, 2017, the last trading day before the acquisition was announced, the implied value of each Alabama Graphite common share was $0.09, or approximately CAD $0.10, which is 15% less than Alabama Graphite's closing price of CAD $0.12 per common share on that day.
Upon completion of the acquisition, former Alabama Graphite shareholders would own approximately 29.5% of the outstanding shares of the combined company based on the number of WWR and Alabama Graphite common shares outstanding as of January 10, 2018.
The Board of Directors of WWR ("WWR Board") expects the transaction to provide significant strategic and financial benefits to the stockholders of WWR, including participation in the value chain of critical minerals for the high growth battery market, operational efficiencies and improved access to capital. Following closing of the acquisition, WWR and Alabama Graphite will be combined to create a larger, more diversified American energy minerals development and exploration business, with the aim of becoming a low-cost, near-term producer in the United States of specialized graphite as well as lithium for use in batteries worldwide with continued availability of uranium in the long-term.
The issuance of WWR common stock to Alabama Graphite shareholders in the acquisition requires the approval of WWR stockholders under the requirements of the Nasdaq Stock Market Listing Rules. At the Special Meeting, you will be asked to consider and vote on a proposal to approve the issuance of shares of WWR common stock pursuant to the arrangement agreement (the "WWR Stock Issuance"). You will also be asked to consider and vote on a proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the Special Meeting to approve the WWR Stock Issuance. The attached notice of the Special Meeting and proxy statement provide additional information about the proposed arrangement with Alabama Graphite and the proposals for stockholder approval.
After careful consideration, the WWR Board has unanimously determined that the proposed acquisition of Alabama Graphite is advisable and in the best interests of WWR and its stockholders and, subject to the approval of the WWR Stock Issuance proposal by WWR's stockholders, authorized and approved the issuance of shares of WWR common stock to Alabama Graphite's stockholders in accordance with the arrangement agreement. The WWR Board has also unanimously determined that the proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, in the event that there are not sufficient votes at the time of the Special Meeting, is advisable and in the best interest of WWR and its stockholders. The WWR Board therefore unanimously recommends that you vote "FOR" the WWR Stock Issuance proposal and the adjournment proposal.
On behalf of the Board of Directors of WWR, we appreciate your consideration of this important matter and thank you for your continued support.
Very truly yours, | ||
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Christopher M. Jones
President and Chief Executive Officer |
Terence J. Cryan
Chairman of the Board of Directors |
Centennial,
Colorado
[ ], 2018
PRELIMINARY PROXY MATERIALSSUBJECT TO COMPLETION, DATED JANUARY 12, 2018
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS OF
WESTWATER RESOURCES, INC.
TO BE HELD ON MARCH [ ], 2018
To the stockholders of Westwater Resources, Inc. ("WWR" or "Westwater"):
We will hold a special meeting of the stockholders (the "Special Meeting") on March [ ], 2018 at 9:00 a.m., local time, at our headquarters, located at 6950 South Potomac Street, Suite 300, Centennial, Colorado 80112, to consider and vote upon the following matters:
The WWR Board unanimously recommends that you vote "FOR" the proposals listed above.
The Board of Directors of WWR (the "WWR Board") has fixed the close of business on [ ], 2018 as the record date for determining the stockholders entitled to notice of and to vote at the Special Meeting or at any adjournment or postponement thereof. The proxy statement is dated [ ], 2018 and, together with the enclosed form of proxy card, is first being mailed to WWR stockholders on or about [ ], 2018.
Stockholders are cordially invited to attend the meeting in person. Whether or not you plan to be present at the meeting, you are requested to sign and return the enclosed proxy in the enclosed envelope, or vote all of your shares over the telephone or over the Internet, so that your shares may be voted in accordance with your wishes and in order that the presence of a quorum may be assured. The giving of such proxy will not affect your right to vote in person, should you later decide to attend the meeting. Please date and sign the enclosed proxy and return it promptly in the enclosed envelope, or vote over the telephone or Internet. Your vote is important.
Centennial, Colorado | By Order of the Board of Directors, | |
[ ], 2018 | ||
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John W. Lawrence, Secretary |
Important Notice Regarding the Availability of Proxy Materials for the Special Meeting of Stockholders to be Held on March [ ], 2018:
The Notice of Special Meeting and Proxy Statement are available at http://[ ].com
VOTING BY TELEPHONE, INTERNET OR MAIL
Stockholders of record may submit their proxies by:
Via the Internet. You may vote via the Internet by following the instructions on the proxy card. You will be asked to provide the company number and control number from the enclosed proxy card.
By Telephone. You may vote by proxy by calling the toll-free number found on the proxy card.
By Mail. You may vote by proxy by filling out the proxy card and sending it back in the envelope provided.
In Person. Attend the Special Meeting and vote in person.
If you are a beneficial owner of shares held in "street name" (that is, if you hold your shares through a broker, bank or other holder of record), you can vote in one of four ways:
Via the Internet. You may vote via the Internet by following the instructions on the voting instruction form accompanying the proxy materials.
By Telephone. You may vote by proxy by calling the toll-free number found on the voting instruction form.
By Mail. You may vote by proxy by filling out the voting instruction form and sending it back in the envelope provided.
In Person. You must obtain a legal proxy from the organization that holds your shares if you wish to attend the Special Meeting and vote in person.
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QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING
The following are answers to certain questions that you may have regarding the Special Meeting. WWR urges you to read carefully the remainder of this proxy statement because the information in this section may not provide all of the information that might be important to you in determining how to vote. Additional important information is also contained in the annexes to this proxy statement.
Q: Why am I receiving this document?
Q: What will happen in the Arrangement?
In connection with the closing of the Arrangement, WWR will issue to Alabama Graphite shareholders in exchange for each Alabama Graphite common share, WWR common stock that in the aggregate will equal 14,133,593 shares of WWR common stock.
After the closing of the Arrangement, the current stockholders of WWR and the current shareholders of Alabama Graphite who receive shares of WWR common stock in the Arrangement will be the stockholders of WWR.
Q: Why did WWR decide to enter into the Arrangement Agreement with Alabama Graphite?
Q: When and where is the Special Meeting?
Additional information relating to the Special Meeting is set forth beginning on page [ ].
Q: Are there any risks in the Arrangement that I should consider?
1
Q: What are holders of WWR common stock being asked to vote on?
WWR's common stock is listed on the Nasdaq Capital Market. Under Rule 5635(a) of the Nasdaq Manual, a company listed on the Nasdaq Capital Market is required to obtain stockholder approval prior to the issuance of common stock in connection with the acquisition of the stock or assets of another company if 20% or more of the common stock or voting power of the issuer outstanding before such issuance would be issued in connection with such acquisition.
As of the record date, there were [ ] shares of WWR common stock outstanding. In connection with the Arrangement and pursuant to the WWR Stock Issuance, WWR will issue a total of 14,133,593 shares of its common stock representing approximately [ ]% of the common stock of WWR outstanding as of the record date.
Q: Am I being asked to vote to approve the Arrangement?
Q: What is required to complete the Arrangement?
Alabama Graphite will hold a separate meeting of its securityholders to obtain the required approval of the Arrangement.
Q: Will WWR stockholders receive any shares as a result of the Arrangement?
2
Q: When do you expect to complete the Arrangement?
Q: Am I entitled to appraisal or dissenters' rights?
Q: Is the Arrangement expected to be taxable to stockholders?
Q: What will the Alabama Graphite's stockholders be asked to vote upon?
Q: Who is eligible to vote at the Special Meeting?
Holders of WWR common stock as of the close of business on [ ], 2018, the record date for the Special Meeting, are eligible to vote. As of the close of business on the record date, there were [ ] shares of WWR common stock outstanding and entitled to vote at the Special Meeting.
Q: How many votes do WWR's stockholders have?
As of the record date, directors and executive officers of WWR as a group beneficially owned and were entitled to vote approximately [ ] shares of WWR common stock, representing approximately [ ]% of the shares of WWR common stock issued and outstanding. All of the directors and executive officers of WWR who are entitled to vote at the Special Meeting have
3
advised WWR that they intend to vote their shares of WWR common stock in favor of each of the proposals, although such persons have not entered into agreements obligating them to do so.
Q: What vote is required to approve the WWR Stock Issuance and related matters?
Additional information on the vote required to approve the WWR Stock Issuance and related matters is located on page [ ].
Q: Why is my vote important? What happens if I don't vote?
If you are the beneficial owner of shares held in "street name" (that is, if you hold your shares through a broker, bank or other holder of record), the broker, bank or other holder of record who holds your shares of WWR common stock will have authority to vote on "routine" proposals. However, banks, brokerage firms and other nominees are precluded from exercising their voting discretion with respect to non-routine matters, such as the WWR Stock Issuance and the adjournment proposal. As a result, absent specific instructions from the beneficial owner of such shares, brokers, banks or other holders of record are not empowered to vote such shares on non-routine matters, which we refer to as a "broker non-vote." The effect of not instructing your broker, bank or other holder of record regarding how you wish your shares to be voted will NOT be counted as " FOR " or " AGAINST " and will NOT have an effect on the proposals before the Special Meeting.
No matter how many or few shares you own you are encouraged to vote and have your voice heard.
Q: How does the WWR Board recommend that I vote?
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Q: Do any executive officers or directors of WWR have interests in the Arrangement or the issuance of WWR common stock to Alabama Graphite shareholders that may be different from, or in addition to, those of other stockholders?
Q: What agreements has WWR entered into in connection with the Arrangement?
WWR has also entered into voting agreements with Alabama Graphite's executive officers and directors and certain related shareholders, each dated as of December 13, 2017. Such persons have agreed to vote all of their respective Alabama Graphite shares in favor of the Arrangement at Alabama Graphite's separate securityholder meeting.
Q: What do I need to do now?
Q: How will my proxy be voted?
Q: If my broker holds my shares in "street name," will my broker automatically vote my shares for me?
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broker provides to you. Please check the voting form used by your broker to see if the broker offers telephone or Internet voting.
All stockholders are urged to have their voices heard on this important matterplease vote your shares today.
Q: Can I attend the Special Meeting and vote my shares in person?
If you plan to attend the WWR Special Meeting, you must hold your shares in your own name, have a letter or recent brokerage statement from the record holder of your shares confirming your ownership or have a valid proxy authorizing you to vote shares at the meeting, and you must bring a form of personal photo identification with you in order to be admitted. WWR reserves the right to refuse admittance to anyone without proper proof of share ownership, proper authorization to vote shares, or proper photo identification.
Q: What does it mean if I receive more than one set of materials?
Q: What constitutes a quorum for the Special Meeting?
Q: What can I do if I want to change or revoke my vote?
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If you hold your shares in "street name," and wish to change or revoke your vote, please refer to the information on the voting instruction form included with these materials and forwarded to you by your bank, broker, custodian or other record holder to see your voting options.
Q: Whom should I call if I have questions about the Special Meeting or the Arrangement?
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This proxy statement is being furnished to the stockholders of WWR in connection with the solicitation of proxies by WWR's Board of Directors (the "WWR Board") for use at the Special Meeting of the Stockholders (the "Special Meeting") to be held on March [ ], 2018 at 9:00 a.m., local time, and at any reconvened meeting following any adjournment or postponement thereof. The meeting will be held at our corporate headquarters, located at 6950 South Potomac Street, Suite 300, Centennial, Colorado 80112.
The following summary highlights selected information in this proxy statement and may not contain all of the information that may be important to you. Accordingly, you are urged to read carefully this entire proxy statement, including the attached annexes, and the other documents to which this proxy statement refers you in order for you to fully understand the proposals described in this summary. See "Where You Can Find More Information" beginning on page [ ] of this proxy statement. Each item in this summary refers to the page of this proxy statement on which that subject is discussed in more detail.
The functional currency of WWR is the United States ("U.S.") dollar. Unless otherwise specified, all references to "dollars," "$," "USD" or "US$" shall mean U.S. dollars. Alabama Graphite Corp. ("Alabama Graphite") uses the Canadian dollar ("CAD$") as its functional currency.
Westwater Resources, Inc.
6950 S. Potomac Street, Suite 300 Centennial, Colorado 80112 Telephone: (303) 531-0516 |
Alabama Graphite Corp.
First Canadian Place 100 King Street West Suite 5700 Toronto, Ontario, M5X 1C7, Canada Telephone: (416) 309-8641 |
Meeting of WWR Stockholders
(Page 8)
At the Special Meeting, WWR stockholders will vote on the following matters:
Proposal 1Approve the issuance of shares of WWR common stock to the stockholders of Alabama Graphite pursuant to the Arrangement Agreement. We refer to Proposal 1 as the "WWR Stock Issuance".
The WWR Board recommends a vote "FOR" this proposal.
Proposal 2Approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve Proposal 1.
The WWR Board recommends a vote "FOR" this proposal.
Conduct other business that may properly come before the Special Meeting or any adjournment or postponement thereof.
The Special Meeting will be held on March [ ], 2018 at 9:00 a.m., local time, at our corporate headquarters, located at 6950 South Potomac Street, Suite 300, Centennial, Colorado 80112.
The record date for the Special Meeting is [ ], 2018.
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Each share of WWR common stock is entitled to one vote on each matter to be voted upon at the meeting. The presence in person or by proxy of the holders of one-third of the votes entitled to be cast on a matter constitutes a quorum for purposes of the meeting. Votes " FOR " and " AGAINST " or " WITHHOLD ," and abstentions will all be counted as present to determine whether a quorum has been established.
Approval of the WWR Stock Issuance requires the affirmative vote of a majority of the total votes cast on the proposal. Approval of, if appropriate, the adjournment requires the affirmative vote of a majority of the total votes cast on the proposal, whether or not a quorum exists.
WWR's Reasons for the Arrangement
(Page 48)
The WWR Board expects the transaction to provide significant strategic and financial benefits to the stockholders of WWR, including WWR's increased ability to participate in the value chain of critical minerals for the high growth battery market with Alabama Graphite's Coosa Graphite Project together with WWR's existing lithium exploration projects in Nevada and Utah, WWR gaining a pathway to potential production and near-term cash flows through the development of Alabama Graphite's Coosa Project, the exposure to a new commodity, namely graphite, which is in high demand as transportation batteries increase production, and improved access to capital. Furthermore, Alabama Graphite has completed its Preliminary Economic Assessment, which confirmed Coosa as a project with low capital intensity and attractive potential returns.
Following closing of the acquisition, WWR and Alabama Graphite will be combined to create a larger, more diversified American energy minerals development and exploration business, with the aim of becoming a low-cost, near-term producer in the United States of specialized graphite as well as lithium for use in batteries worldwide with continued availability of uranium in the long-term.
Opinion of Financial Advisor to the WWR Board
(Page 50)
On December 10, 2017, Roth Capital Partners ("Roth") rendered its written opinion to the WWR Board to the effect that, subject to the matters considered by Roth in preparing its opinion, as of December 10, 2017, the aggregate consideration payable to Alabama Graphite securityholders pursuant to the Arrangement Agreement was fair to WWR and its stockholders from a financial point of view.
Roth's opinion was directed to WWR Board (in its capacity as such) and only addressed the fairness to WWR and its stockholders, from a financial point of view, of the aggregate consideration payable to Alabama Graphite securityholders provided for in the Arrangement pursuant to execution drafts of the Arrangement Agreement and did not address any other aspect or implication of the Arrangement. The summary of Roth's opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex C to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Roth in preparing its opinion. However, neither Roth's opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to any WWR stockholder as to how such stockholder should act or vote with respect to any matter relating to the Arrangement.
Security Ownership of Certain Beneficial Owners and Management of WWR Stock
(Page 42)
As of the record date, directors and executive officers of WWR as a group beneficially owned and were entitled to vote approximately [ ] shares of WWR common stock, representing approximately [ ]% of the shares of WWR common stock issued and outstanding. All of the directors and executive officers of WWR who are entitled to vote at the Special Meeting have advised WWR that they intend
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to vote their shares of WWR common stock in favor of each of the proposals, although such persons have not entered into agreements obligating them to do so.
The Arrangement and the Arrangement Agreement
(Pages 46,104)
The terms and conditions of the Arrangement are contained in the Arrangement Agreement, which is attached to this proxy statement as Annex A . We encourage you to read the Arrangement Agreement carefully, as it is the legal document that governs the Arrangement.
Arrangement Consideration
(page 104)
Conditions to the Arrangement Becoming Effective
(page 105)
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Interests of WWR's Executive Officers and Directors in the Arrangement
None of WWR's directors or executive officers has any substantial financial interest, direct or indirect, in the Arrangement or the issuance of WWR common stock to Alabama Graphite shareholders in the Arrangement, other than being a director or executive officer and a stockholder of WWR.
WWR announced on December 18, 2017 that it had completed an evaluation and analysis of previously acquired geophysical data covering the Sal Rica lithium brine exploration project in the Pilot Valley of western Utah, and WWR has commenced exploration drill program planning and permitting.
If you would like to receive additional copies of this proxy statement, without charge, or if you have questions about the meeting, including the procedures for voting your shares, you should contact us at: Westwater Resources, Inc., Attention: Secretary, 6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112, or by calling (303) 531-0516.
Selected Historical Consolidated Financial Data of WWR
The following table sets forth selected consolidated financial data for WWR. The selected consolidated financial data as of and for the years ended December 31, 2016 and December 31, 2015 have been derived from, and are qualified by reference to, WWR's audited consolidated historical financial statements and related notes appearing elsewhere in this proxy statement. The selected consolidated financial data as of and for the nine months ended September 30, 2017 and 2016 have been derived from, and are qualified by reference to, WWR's unaudited condensed consolidated historical financial statements and related notes appearing elsewhere in this proxy statement The summary financial data for the nine months ended September 30, 2017 and September 30, 2016 are unaudited, but in the opinion of WWR's management reflect all adjustments of a normal recurring nature necessary for a fair statement of WWR's financial position and results of operations at the dates and for the periods indicated.
WWR's historical financial data may not be indicative of the results of operations or financial position to be expected in the future, and results for any interim period are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year.
You should read this selected historical consolidated financial data of WWR in conjunction with the section entitled " Information About the CompaniesManagement's Discussion and Analysis of WWR's Financial Condition and Results of Operations " and with WWR's consolidated financial statements and the related notes to those financial statements starting on page F.1-1 to this proxy statement.
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For the nine months
ending September 30, |
For the years ending
December 31, |
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(USD in thousands)
Results of operations |
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2017 | 2016 | 2016 | 2015 | ||||||||||
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(unaudited)
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(unaudited)
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Net loss |
$ | (3,778 | ) | $ | (12,624 | ) | $ | (19,605 | ) | $ | (15,143 | ) | |
Basic loss per share |
$ | (0.16 | ) | $ | (1.81 | ) | $ | (3.73 | ) | $ | (5.63 | ) |
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Selected Historical Consolidated Financial Data of Alabama Graphite
The following tables set forth the selected historical consolidated financial and operating data for Alabama Graphite Corp. The selected consolidated statement of operations data for the fiscal years ended August 31, 2016 and 2017 and the selected balance sheet data as of August 31, 2017 and 2016 are derived from Alabama Graphite Corp.'s audited consolidated financial statements included elsewhere in this proxy statement. The summary financial data for the nine months ended May 31, 2017 and 2016 have been derived from Alabama Graphite Corp.'s unaudited consolidated interim financial statements included elsewhere in this proxy statement. Alabama Graphite Corp.'s unaudited consolidated interim financial data, in the opinion of Alabama Graphite Corp.'s management, reflect all adjustments of a normal recurring nature necessary for a fair statement of Alabama Graphite Corp.'s financial position and results of operations at the dates and for the periods indicated. All financial information is presented in Canadian dollars and has been prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board.
Alabama Graphite Corp.'s historical financial data may not be indicative of the results of operations or financial position to be expected in the future, and results for any interim period are not necessarily indicative of results that may be expected for any other interim period or the entire fiscal year.
You should read this selected historical consolidated financial data of Alabama Graphite Corp. in conjunction with the section entitled " Information About the CompaniesManagement's Discussion and Analysis of Alabama Graphite's Financial Condition, Results of Operations, Properties and Other Information " and with Alabama Graphite Corp.'s consolidated financial statements and the related notes to those financial statements starting on page F.2-1 to this proxy statement.
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For the nine months
ending May 31, |
For the years ending
August 31, |
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(All amounts in CAD in thousands)
Results of operations |
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2017 | 2016 | 2017 | 2016 | ||||||||||
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(unaudited)
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(unaudited)
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Net loss |
$ | (2,596 | ) | $ | (1,333 | ) | $ | (3,211 | ) | $ | (1,753 | ) | |
Comprehensive loss |
(2,584 | ) | (1,310 | ) | (3,207 | ) | (1,729 | ) | |||||
Basic loss per share |
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.01 | ) |
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(CAD in thousands)
Financial position |
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As of August 31, | ||||||||
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As of May 31,
2017 |
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2017 | 2016 | ||||||||
Cash and cash equivalents |
$ | 1,191 | $ | 509 | $ | 96 | ||||
Working capital/(deficit) |
799 | 934 | (207 | ) | ||||||
Exploration and evaluation assets |
7,305 | 7,563 | 6,867 | |||||||
Total assets |
8,633 | 8,217 | 7,184 | |||||||
Total liabilities |
392 | 496 | 521 | |||||||
Total stockholders' equity |
$ | 8,241 | $ | 7,721 | $ | 6,663 |
Comparative Historical and Unaudited Pro Forma Per Share Data
The following table sets forth selected historical share information of WWR and Alabama Graphite Corp. and unaudited pro forma share information after giving effect to the Arrangement assuming that 0.08 shares of WWR common stock had been issued in exchange for each outstanding Alabama Graphite Corp. ordinary share.
The pro forma equivalent information of WWR was derived using the historical share information assuming that 0.08 shares of WWR common stock had been issued in exchange for each outstanding Alabama Graphite Corp. ordinary share. You should read this information in conjunction with the unaudited pro forma condensed combined financial statements and the separate historical financial statements of WWR and Alabama Graphite Corp. and the notes thereto included elsewhere in or incorporated by reference in this proxy statement. The historical share information as of and for the nine-month period ended September 30, 2017 is derived from unaudited consolidated financial statements of WWR and Alabama Graphite Corp. as of and for the nine months ended September 30, 2017 and nine months ended August 31, 2017, respectively. The historical share information as of and for the year ended December 31, 2016 is derived from audited financial statements of WWR for the year ended December 31, 2016. Given that Alabama Graphite Corp.'s fiscal year ends August 31, 2017, Alabama Graphite Corp.'s results represents the sum of unaudited historical financial information in the nine-month period ended August 31, 2017 and in the twelve-month period ended November 30, 2016. The unaudited pro forma condensed combined financial statements and the pro forma share information are not necessarily indicative of the operating results or financial position that would have been achieved had the Arrangement been consummated at the beginning of the period presented and should not be construed as representative of future operations. Alabama Graphite Corp.'s results as reported in Canadian dollars have been converted into U.S. dollars using the average and period end exchange rates set out in notes 5(a) and 5(f) under " Unaudited Pro Forma Condensed Consolidated Financial Information " beginning on page 28 of this proxy statement.
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Nine Months Ended September 30, 2017 | ||||||||||||
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Westwater Resources, Inc. | Alabama Graphite Corp. | |||||||||||
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Historical | Pro Forma | Historical |
Pro Forma
Equivalent of One Alabama Graphite Share(1) |
|||||||||
Basic and diluted net loss per share |
$ | (0.16 | ) | $ | (0.17 | ) | $ | (0.01 | ) | $ | (0.06 | ) | |
Shares used in calculating basic and diluted loss per share |
23,763,842 | 35,389,057 | 145,315,187 | 11,625,215 | |||||||||
Book value per share(2) |
$ | 2.35 | $ | 1.90 | $ | 0.04 | $ | 0.62 |
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|
Year Ended December 31, 2016 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Westwater Resources, Inc. | Alabama Graphite Corp. | |||||||||||
|
Historical | Pro Forma | Historical |
Pro Forma
Equivalent of One Alabama Graphite Share(1) |
|||||||||
Basic and diluted net loss per share |
$ | (3.73 | ) | $ | (1.25 | ) | $ | (0.02 | ) | $ | (0.77 | ) | |
Shares used in calculating basic and diluted loss per share |
5,251,954 | 16,877,169 | 129,547,225 | 10,363,778 |
14
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement contain or may contain forward-looking statements. Forward-looking statements may be identified by the use of forward-looking terms such as "may," "will," "should," "can," "expect," "believe," "anticipate," "intend," "plan," "estimate," "potential", "project," "assume," "guide," "target," "forecast," "is confident that" and "seek" or the negative of such terms or other variations on such terms or comparable terminology.
Such forward-looking statements include, but are not limited to, statements about (i) the timing and completion of the proposed Arrangement between WWR and Alabama Graphite, (ii) expectations as a result of the proposed Arrangement, (iii) the ability to optimize technical and operational components of a future combined business, (iv) the timing, occurrence and rates of production at the properties, including statements regarding future growth and life of the mines, (v) the cost of uranium or graphite or lithium production at the properties, (vi) capital resources, capitalization and ownership, including relationships with major stockholders, (vii) the occurrence, extent and results of any future exploration program, including drilling, (viii) mineral resources and exploration results, which includes inferred resources, (ix) future improvements in the demand for and price of uranium, lithium or graphite and growth in nuclear generating capacity or battery demand, (x) adequacy of funding and access to capital markets, (xi) plans for capital management, revenue, cash generation and profits, (xii) the occurrence and results of any potential production from the combined companies' properties and acceptance by the market of such products, (xiii), and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the respective managements of WWR and Alabama Graphite and are subject to significant risks and uncertainties that could cause actual outcomes and results to differ materially.
You should not place undue reliance on these forward-looking statements. Neither WWR nor Alabama Graphite undertakes any obligation to update or revise any forward-looking statements to reflect events or circumstances after the date of this proxy statement, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws. Important factors that could cause actual results to differ materially from those indicated by such forward-looking statements include, without limitation, the risks and uncertainties set forth under the section entitled " Risk Factors " beginning on page [ ] of this proxy statement, as well as the following:
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You should carefully consider the following risk factors and all of the other information contained in this proxy statement, including the matters addressed under the caption "Cautionary Statement Regarding Forward-Looking Statements" on page [ ] and the annexes hereto, before deciding how to vote your shares on the proposals presented. If any of the risks described below, or elsewhere in this proxy statement, actually occur, the business, financial results, financial condition, operating results or stock price of WWR or the combined company could be materially adversely affected.
Risks Relating to the Arrangement
The benefits of integrating the companies may not be realized.
To be successful after the Arrangement, WWR will need to combine and integrate the operations of WWR and Alabama Graphite into one company. Integration will require substantial management attention and could detract attention from the day-to-day business of the combined company. WWR could encounter difficulties in the integration process, such as the need to revisit assumptions about future production, revenues, capital expenditures and operating costs, including synergies, the loss of key employees or commercial relationships or the need to address unanticipated liabilities. If WWR cannot integrate the WWR and Alabama Graphite businesses successfully, it may fail to realize the expected benefits of the Arrangement.
Failure to complete the Arrangement or delays in completing the Arrangement could negatively affect WWR's stock price and WWR's and Alabama Graphite's future businesses and operations.
If the Arrangement is not completed for any reason, WWR and Alabama Graphite may be subject to a number of risks, including the following:
Delays in completing the Arrangement could exacerbate uncertainties concerning the effect of the Arrangement, which may have an adverse effect on the business following the Arrangement and could defer or detract from the realization of the benefits expected to result from the Arrangement.
WWR stockholders will suffer immediate dilution to their equity and voting interests as a result of the WWR Stock Issuance.
In connection with the Arrangement, WWR will issue up to approximately 14,133,593 shares of its common stock to Alabama Graphite shareholders. Immediately following the completion of the Arrangement, former Alabama Graphite shareholders will own collectively approximately 29.5% of the total number of shares the combined company's outstanding common stock and the existing stockholders of WWR will own approximately 70.5% of the outstanding common stock of the combined
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company; and on a fully diluted basis, former Alabama Graphite shareholders will own collectively approximately 33% of the total number of shares the combined company's outstanding common stock and the existing stockholders of WWR will own approximately 67% of the outstanding common stock of the combined company. Accordingly, the issuance of WWR common stock to Alabama Graphite shareholders will have the effect of reducing the percentage of equity and voting interest held by each of WWR's existing stockholders. Consequently, WWR stockholders as a group will have less influence over the management and policies of the combined company after the Arrangement than they currently exercise.
If the Alabama Graphite holders immediately sell WWR common stock received in the Arrangement, they could depress WWR's stock price.
If the Alabama Graphite holders who receive WWR common stock in the Arrangement, or other holders of WWR common stock, sell significant amounts of WWR common stock following the Arrangement, the market price of WWR common stock could decrease. These sales may also make it more difficult for WWR to sell equity securities or equity-related securities in the future at a time and at a price that WWR otherwise would deem appropriate.
Alabama Graphite's public filings are subject to Canadian disclosure standards, which differ from SEC requirements.
Alabama Graphite is a Canadian issuer that is required to prepare and file its periodic and other filings in accordance with British Columbia securities laws. As a result, certain of the information about Alabama Graphite that is contained in this proxy statement was prepared in conjunction with Alabama Graphite's financial statements that were prepared in accordance with IFRS and other British Columbia disclosure regulations, rather than the requirements that would apply in the U.S. Because Alabama Graphite disclosure requirements are different from SEC requirements, the information about Alabama Graphite contained in this proxy statement may not be comparable to similar information available about WWR or other U.S. issuers.
The unaudited pro forma condensed consolidated financials are presented for illustrative purposes only and may not be indicative of the combined company's financial condition or results of operations following the Arrangement.
The pro forma financial statements contained in this proxy statement are presented for illustrative purposes only and may not be an indication of the combined company's financial condition or results of operations following the Arrangement for several reasons. For example, the pro forma financial statements have been derived from the historical financial statements of WWR and Alabama Graphite, and certain adjustments and assumptions have been made regarding the combined company after giving effect to the Arrangement by which each entity would become a part of the combined company. The information upon which these adjustments and assumptions have been made is preliminary, and such adjustments and assumptions are difficult to make with complete accuracy.
Moreover, the pro forma financial statements do not reflect all costs that are expected to be incurred by the combined company in connection with the Arrangement. For example, the impact of any incremental costs incurred in integrating the companies is not reflected in the pro forma financial statements. As a result, the actual financial condition and results of operations of the combined company following the Arrangement may differ significantly from these pro forma financial statements.
In addition, the assumptions used in preparing the pro forma financial statements may not prove to be accurate, and other factors may affect the combined company's financial condition or results of operations following the Arrangement. Any potential decline in the combined company's financial condition or results of operations may cause significant variations in the stock price of the combined
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company. See the section entitled " Unaudited Pro Forma Condensed Consolidated Financial Information " beginning on page [ ].
WWR will incur significant transaction and combination-related costs in connection with the Arrangement.
WWR and Alabama Graphite expect to incur significant costs associated with the Arrangement and combining the operations of the two companies. WWR's fees and expenses related to the Arrangement include financial advisor fees, filing fees, legal and accounting fees, regulatory fees and mailing costs, some of which will be paid regardless of whether the Arrangement is completed. Even though Alabama Graphite will be obligated to reimburse WWR US$1.5 million for such expenses in certain situations where the Arrangement Agreement is terminated, such reimbursement amount may not be sufficient to cover actual expenses incurred. Any unreimbursed fees and expenses will reduce WWR's cash on hand. Furthermore, following the completion of the Arrangement, the combined company will incur costs associated with combining the operations of the two companies. However, it is difficult to predict the amount of these costs before the combined company begins the integration process. The combined company may incur additional unanticipated costs as a consequence of difficulties arising from efforts to integrate the companies.
If the Arrangement does not occur, WWR will still have a loan outstanding to Alabama Graphite, who will have limited ability to repay.
In connection with the execution of the Arrangement Agreement, on December 13, 2017, WWR, Alabama Graphite and Alabama Graphite Sub (together, the "Borrower") entered into the Loan Agreement. Under the Loan Agreement, WWR has agreed to provide a secured convertible non-revolving line of credit to the Borrower of up to US$2.0 million to fund Alabama Graphite's working capital needs, including its transaction costs for the Arrangement. The loan is secured by a security interest in substantially all of the Borrower's real and personal property. The occurrence of either the termination of the Arrangement Agreement or a change of control of the Borrower constitutes an event of default under the Loan Agreement, whereupon WWR may accelerate the loan by delivering a notice to the Borrower, on which date the entire outstanding loan balance would then be immediately due and payable. If the Arrangement does not occur, it is uncertain whether the Borrower will be able to repay such outstanding balance under the Loan Agreement.
The fairness opinion obtained by WWR from its financial advisors will not reflect changes in circumstances subsequent to the date of the fairness opinion.
WWR obtained an opinion from its financial advisor regarding the fairness, from a financial point of view, of the share exchange ratio and the aggregate consideration payable to Alabama Graphite's stockholders provided for in the Arrangement pursuant to the Arrangement Agreement. See " The ArrangementOpinion of Financial Advisor to the WWR Board " on page [ ] of this proxy statement. The fairness opinion is provided as Annex C to this proxy statement. Such opinion does not reflect changes that may occur or may have occurred after the date of the opinion, including changes to the operations and prospects of WWR, changes in WWR's stock price, changes in exchange rates, general market and economic conditions or regulatory or other factors. Any such changes, or changes in other factors on which the fairness opinion is based, may materially alter or affect the fairness of the Arrangement to the stockholders of WWR.
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If WWR fails to implement an effective system of internal controls with respect to Alabama Graphite after the Arrangement, it may not be able to accurately report its financial results or prevent fraud and, as a result, its business could be harmed and current and potential stockholders could lose confidence in WWR, which could cause WWR's value to fall.
Alabama Graphite does not currently maintain, and if WWR is not able to establish and maintain, effective internal controls with respect to Alabama Graphite in a timely manner following the Arrangement or with adequate compliance, it may not be able to accurately report the financial results of the combined company or prevent fraud and might be subject to sanctions or investigation by, among others, the Nasdaq Capital Market. Any such action could harm its business or investors' confidence in WWR, and could cause its stock price to fall.
The effect of comprehensive U.S. tax reform legislation on WWR and its affiliates, whether adverse or favorable, is uncertain.
On December 22, 2017, President Trump signed into law H.R. 1, "An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018" (informally titled the "Tax Cuts and Jobs Act"). Among a number of significant changes to the current U.S. federal income tax rules, the Tax Cuts and Jobs Act reduces the marginal U.S. corporate income tax rate from 35% to 21%, limits the deduction for net interest expense, shifts the United States toward a more territorial tax system, and imposes new taxes to combat erosion of the U.S. federal income tax base. The effect of the Tax Cuts and Jobs Act on WWR and its affiliates, whether adverse or favorable, is uncertain, and may not become evident for some period of time. You are urged to consult your tax advisor regarding the implications of the Tax Cuts and Jobs Act.
Risks Relating to the Businesses of WWR, Alabama Graphite and the Combined Company
The combined company will require significant capital to fund its future operations, which may not be available on terms acceptable to WWR or at all.
The continued operations of the combined company will be dependent on its ability to obtain financing through debt and equity financing, or generating sufficient cash flows from future operations. There is a risk that the combined company may not be able to access capital from debt or equity markets (or via any other forms of available financing) for future projects or developments, which could have a material adverse impact on the combined company's business and financial condition. If, after the Arrangement is finalized, financing was undertaken through the issuance of new equity or equity-linked securities of the combined company other than on a pro rata basis, existing stockholders may experience additional dilution and the control of the combined company may change.
The combined company will face significant competitive risks in the graphite business from other mining companies.
In addition to WWR's existing uranium and lithium businesses, the graphite business to be acquired as a result of the Arrangement is highly competitive. The combined company will face competition from existing companies, which are capable of mining and producing graphite and graphite materials. Many of these companies are larger companies with greater financial resources than the combined company, which companies are more able to withstand price volatility, should the price of graphite significantly decrease.
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Alabama Graphite's financial results and its exploration, development and mining activities may be adversely affected by declines in the price of graphite, and revenues for the combined company are subject to the volatility of graphite prices.
The combined company's financial results and its exploration, development and mining activities may be adversely affected by declines in the price of graphite. The market price of graphite is volatile and is affected by numerous factors that are beyond WWR or Alabama Graphite's control. These include the sale or purchase of industrial minerals by various dealers, international supply and demand, the level of consumer product demand, international economic trends, currency exchange rate fluctuations, the level of interest rates, exchange rates, the rate of inflation or deflation, production and consumption patterns, speculative activities, increased production due to improved mining and production methods, government regulations relating to prices, taxes, royalties, land tenure, land use, importing and exporting of minerals, environmental protection, the degree to which a dominant producer uses its market strength to bring supply into equilibrium with demand, global or regional political and economic trends and international events as well as a range of other market forces. A reduction in the price of graphite may prevent Alabama Graphite's mineral rights properties from being economically mined or result in the write-off of assets whose value is impaired as a result of low graphite prices. The prices of industrial minerals have fluctuated widely in recent years, and future price declines could cause continued exploration and development of the Coosa Graphite Project to be impracticable. Further, reserve calculations and life-of-mine plans using significantly lower industrial mineral prices could result in material write-downs of Alabama Graphite's investment in the Coosa Graphite Project and increased amortization, reclamation and closure charges. In addition to adversely affecting reserve estimates and Alabama Graphite's financial condition, declining commodity prices can impact operations by requiring a reassessment of the feasibility of a particular project. Such a reassessment may be the result of a management decision or may be required under financing arrangements related to a particular project. Even if the project is ultimately determined to be economically viable, the need to conduct such a reassessment may cause substantial delays or may interrupt operations until the reassessment can be completed. The price of graphite may also have a significant influence on the market price of WWR's common stock.
Alabama Graphite has a limited operating history as a graphite exploration and mining company, and Alabama Graphite's business and prospects should be considered in light of the risks and difficulties typically encountered by a company with a limited operating history.
Alabama Graphite has had no revenue-generating operations and Alabama Graphite's operating cash flow needs have been financed solely through offerings of Alabama Graphite's common shares or other securities. As a result, Alabama Graphite has limited historical financial and operating information relating to its ability to generate revenue in the future available to help evaluate Alabama Graphite's performance or independent value.
All of Alabama Graphite's mineral rights properties are in the exploration stage and require additional capital in order to continue with the implementation of Alabama Graphite's business plan. There can be no assurance that Alabama Graphite will be able to obtain such additional capital. Until the commencement of operations, Alabama Graphite will not generate any operating revenues. Alabama Graphite expects to continue to incur operating deficits as Alabama Graphite implements its business plan.
Alabama Graphite's estimates of capital, personnel, equipment, and facilities required for its proposed operations are based on certain other existing businesses operating under similar business conditions and plans. Alabama Graphite believes that its estimates are reasonable, but, until Alabama Graphite's operations have been established, it is not possible to determine the accuracy of such estimates. Alabama Graphite has not had any direct operating experience and therefore has no basis for its projections, other than the experience of other similar businesses from which limited financial
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histories are available. As a result, there is no assurance that Alabama Graphite will be able to generate profits from operations.
Alabama Graphite is an exploration stage company and has virtually no history of producing graphite from its mineral rights properties. Any future revenues and profits are uncertain.
Other than limited mining activity conducted for pre-commercial testing purposes, there can be no assurance that the Coosa Graphite Project and Alabama Graphite's mineral rights properties located in Coosa County and Chilton County, Alabama will be successfully placed into production, produce minerals in commercial quantities or qualities or otherwise generate operating earnings. Advancing properties from the exploration stage into development and commercial production requires significant capital and time and will be subject to further feasibility studies, permitting requirements and construction of the mine, processing plants, roads and related works and infrastructure. Alabama Graphite will continue to incur losses until such time, if ever, as its mining activities successfully reach commercial production levels and generate sufficient revenue to fund continuing operations. There is no certainty that Alabama Graphite will produce revenue from any source, operate profitably or provide a return on investment in the future. If Alabama Graphite is unable to generate revenues or profits, the combined company's shareholders might not be able to realize returns on their investment in shares of WWR common stock.
The combined company cannot be assured that Alabama Graphite's Coosa Graphite Project is feasible or that a feasibility study will accurately forecast operating results.
Alabama Graphite has not established proven or probable reserves through the completion of a "final" or "bankable" feasibility study for any of its projects, including the Coosa Graphite Project. We cannot be assured that Alabama Graphite's Coosa Graphite Project is feasible or that a feasibility study will accurately forecast operating results. Before contracting with battery manufacturers or those that supply them, WWR will likely have to complete a feasibility study. There can be no assurance that the results of the feasibility study will be positive or that such study will be completed when expected. If the Coosa Graphite Project feasibility study is favorable, there is no assurance that actual production rates, revenues, capital and operating costs at the Coosa Graphite Project will not vary unfavorably from the estimates and assumptions included in the feasibility study.
There is no guarantee that the mineral deposit contained in the Coosa Graphite Project and Alabama Graphite's mineral rights properties in Chilton County, Alabama will be commercially viable.
There is no guarantee that the mineral deposit contained in the Coosa Graphite Project and Alabama Graphite's mineral rights properties in Coosa County or Chilton County, Alabama will be commercially viable. The exploration and development of mineral projects is highly speculative in nature and involves a high degree of financial and other risks over a significant period of time, which even a combination of careful evaluation, experience and knowledge may not reduce or eliminate. The Coosa Graphite Project and Alabama Graphite's mineral rights properties in Chilton County, Alabama constitute Alabama Graphite's primary assets. However, there are no guarantees that there will ever be a profitable mining operation on the Coosa Graphite Project property or Alabama Graphite's properties in Coosa County or Chilton County, Alabama. The proposed multi-phase exploration and development program on the Coosa Graphite Project and Alabama Graphite's mineral rights properties in Coosa County or Chilton County, Alabama is subject to a significant degree of risk. Whether a mineral deposit will be commercially viable depends on a number of factors, including the particular attributes of the deposit (i.e. size, grade, access, flake size distribution, contaminants, and proximity to infrastructure), financing costs, the cyclical nature of commodity prices and government regulations (including those relating to prices, taxes, currency controls, royalties (both product and monetary), land tenure, land use, access to the surface property, importing and exporting of mineral products, and
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environmental protection). The effect of these factors or a combination thereof cannot be accurately predicted but could have an adverse impact on the combined company.
Title to Alabama Graphite's mineral rights properties may be subject to other claims that could affect its property rights and claims. Certain of Alabama Graphite's current leases with options to purchase need to be renewed and we cannot guarantee that we will be successful in renewing those leases.
There are risks that title to Alabama Graphite's mineral rights may be challenged or impugned. Alabama Graphite's current Coosa Graphite Project and its mineral rights in Coosa County or Chilton County, Alabama are all located in Alabama and may be subject to prior unrecorded agreements or transfers, and title may be affected by undetected defects. The combined companies have investigated Alabama Graphite's rights to explore and exploit the Coosa Graphite Project and Coosa County and Chilton County, Alabama mineral rights and, to the best of the combined company's knowledge, Alabama Graphite's rights in relation to the mineral rights covering the Coosa Graphite Project and Coosa County and Chilton County, Alabama resource are in good standing. However, there may be valid challenges to the title of Alabama Graphite's mineral rights that, if successful, could impair development and/or operations. Further, Alabama Graphite's current leases for its mineral rights properties give Alabama Graphite certain renewal options, with such terms not to exceed seventy (70) years. If we are unsuccessful in renewing these mineral rights leases, Alabama Graphite may incur increased costs and difficulties in developing the Coosa Graphite Project and Alabama Graphite's Coosa County and Chilton County, Alabama mineral rights properties that could affect the combined company's results of operations. In addition, Alabama Graphite may be required to obtain rights to access the surface property in order to excavate the mineral deposits. Alabama Graphite does not currently have any agreements in place to operate on the surface property above its mineral rights property. Obtaining such surface rights may be a significant expense and the cost for such access cannot be accurately predicted.
WWR and Alabama Graphite's operations are subject to government regulations and licensing.
The future operations of WWR and Alabama Graphite, including exploration and development activities and the commencement and continuation of commercial production, require licenses, permits or other approvals from various federal, state and local governmental authorities and such operations are or will be governed by laws and regulations relating to prospecting, development, mining, production, exports, taxes, labor standards, occupational health and safety, waste disposal, toxic substances, land use, water use, environmental protection, historic and cultural resources, endangered species, land claims of indigenous people and other matters. Alabama Graphite believes that the Coosa Graphite Project and its mineral rights properties in Coosa County and Chilton County, Alabama are in substantial compliance with all material laws and regulations that apply to its current activities. There can be no assurance, however, that WWR or Alabama Graphite will obtain on reasonable terms or at all the permits and approvals, and the renewals thereof, which it may require for the conduct of its future operations or that compliance with applicable laws, regulations, permits and approvals will not have an adverse effect on plans to explore and develop the Coosa Graphite Project and WWR's mineral rights properties in Coosa County and Chilton County, Alabama. Current and possible future environmental and mineral tax legislation, regulations and actions could prohibit Alabama Graphite's planned exploration and operations or cause additional expense, capital expenditures, restrictions and delay on Alabama Graphite's planned exploration and operations, the extent of which cannot be predicted. Failure to comply with applicable laws, regulations and permitting requirements may result in enforcement actions thereunder, including orders issued by regulatory or judicial authorities causing operations to cease or be curtailed, and may include corrective measures requiring capital expenditures, installation of additional equipment, or remedial actions. Parties engaged in mining operations may be required to compensate those suffering loss or damage by reason of the mining activities and may have civil or criminal fines or penalties imposed for violations of applicable laws or regulations.
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Negative publicity of lithium ion batteries may negatively impact the industries or markets WWR and Alabama Graphite operate in.
The combined company is unable to predict the impact, security or duration of negative publicity related to fire / mishandling of lithium ion batteries or the environmental impact of their disposal, and how it may impact the industries or markets the combined company of WWR and Alabama Graphite intend to serve. Ongoing negative attention being given to lithium ion batteries that are used in certain cellular phones or are integrated into the power systems of new commercial aircraft and electric motor vehicles may have an impact on the lithium battery industry as a whole, regardless of the design or use of those batteries. The residual effects of such events could have an adverse effect on the combined company's business, financial condition, and results of operations, since the combined company's core business is based on the production of secondary processed materials used in the manufacture of lithium ion batteries.
Hiring or retaining qualified people or obtaining all necessary services for Alabama Graphite's operations may be difficult.
Hiring or retaining qualified people or obtaining all necessary services for Alabama Graphite's operations may be difficult. It may be difficult to hire qualified people, or to retain service providers, with the requisite expertise who are situated in or willing to work in the relevant local jurisdiction at reasonable rates. If qualified people and services cannot be obtained in the relevant local jurisdiction, WWR and/or Alabama Graphite may need to obtain these services from people located outside such jurisdiction, which could result in delays and higher costs to the combined company to conduct its operations.
WWR's and Alabama Graphite's operations are each subject to environmental risks.
WWR and Alabama Graphite are required to comply with environmental protection laws and regulations and permitting requirements, and WWR and Alabama Graphite each anticipate that they will be required to continue to do so in the future. WWR has expended significant resources, both financial and managerial, to comply with environmental protection laws, regulations and permitting requirements and WWR anticipates that it will be required to continue to do so in the future.
A breach of environmental regulations may result in the imposition of civil and/or criminal fines and penalties on the combined company. In addition, certain types of permitting potentially applicable to mining operations require the submission and approval of environmental impact assessments. Environmental legislation is evolving in a manner which will require stricter standards and enforcement, increased fines and penalties for non-compliance, more stringent environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees. The cost of compliance with changes in governmental regulations has the potential to reduce the viability or profitability of operations of Alabama Graphite. Environmental studies of Alabama Graphite's Coosa Graphite Project and its mineral rights properties in Coosa County and Chilton County, Alabama will likely be required as Alabama Graphite's anticipated exploration and development programs unfold. It is always possible that, as work proceeds, environmental risks and hazards may be identified on Alabama Graphite's Coosa Graphite Project and its mineral rights properties in Coosa County and Chilton County, Alabama, which are at present unknown to Alabama Graphite and which may have the potential to negatively impact Alabama Graphite's exploration and development plans for the Coosa Graphite Project and Alabama Graphite's mineral rights properties in Coosa County and Chilton County, Alabama.
WWR and Alabama Graphite cannot predict what environmental legislation, regulation or policy will be enacted or adopted in the future or how future laws and regulations will be administered or interpreted. The recent trend in environmental legislation and regulation, generally, is toward stricter
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standards and enforcement, increased fines and penalties for non-compliance, more detailed environmental assessments of proposed projects and a heightened degree of responsibility for companies and their officers, directors and employees, and this trend is likely to continue in the future. This recent trend also includes, without limitation, laws and regulations relating to air and water quality, mine reclamation, waste handling and disposal, the protection of threatened and endangered species, the protection of historic and cultural resources, and the preservation of certain lands. These regulations may require the acquisition of permits or other authorizations prior to engaging in certain activities. Such permits and authorizations may be more difficult to obtain for leased lands or for certain land uses. These laws and regulations may also limit or prohibit activities on certain lands. Compliance with more stringent laws and regulations, as well as potentially more vigorous enforcement policies or stricter interpretation of existing laws, may necessitate significant capital outlays, may materially affect WWR's or Alabama Graphite's respective results of operations and business or may cause material changes or delays in WWR's or Alabama Graphite's intended activities.
Each of WWR's and Alabama Graphite's operations may require additional analysis in the future including environmental, cultural and social impact and other related studies. Permitting for certain activities require the submission and approval of environmental impact assessments. Environmental assessments of proposed projects carry a heightened degree of responsibility for companies and directors, officers, and employees. It is always possible that, as work proceeds, environmental hazards may be identified on Alabama Graphite's Coosa Graphite Project and its mineral rights properties in Coosa County and Chilton County, Alabama which are at present unknown to Alabama Graphite and which may have the potential to negatively impact Alabama Graphite's exploration and development plans for the Coosa Graphite Project and Alabama Graphite's mineral rights properties in Chilton County, Alabama.
Neither WWR nor Alabama Graphite can provide assurance that it will be able to obtain or maintain all necessary permits that may be required to continue its operation or its exploration of its mineral rights properties or, if feasible, to commence development, construction or operation of mining facilities at such properties on terms which enable operations to be conducted at economically justifiable costs. If WWR or Alabama Graphite is unable to obtain or maintain permits or water rights for development of its mineral rights properties or otherwise fails to manage adequately future environmental issues, its operations could be materially and adversely affected.
Terms of subsequent financings may adversely impact WWR's stockholders.
In order to finance WWR's future production plans and working capital needs, WWR may have to raise funds through the issuance of equity or debt securities. WWR currently has no authorized preferred stock. Depending on the type and the terms of any financing WWR pursues, stockholders' rights and the value of their investment in WWR's common stock could be reduced. For example, if WWR has to issue secured debt securities, the holders of the debt would have a claim to WWR's assets that would be prior to the rights of stockholders until the debt is paid. Interest on these debt securities would increase costs and negatively impact operating results. If the issuance of new securities results in diminished rights to holders of WWR's common stock, the market price of WWR's common stock could be negatively impacted.
WWR stockholders could be diluted if WWR uses its common stock to raise capital.
As previously noted, WWR may need to seek additional capital in the future to satisfy WWR's working capital requirements. This financing would likely involve one or more types of securities including common stock, convertible debt, preferred stock or warrants to acquire common or preferred stock. These securities could be issued at or below the then prevailing market price for WWR's common stock. Any issuance of additional shares of WWR's common stock would be dilutive to existing stockholders and could adversely affect the market price of WWR's common stock.
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In this proxy statement, unless otherwise specified or the context otherwise requires:
The functional currency of WWR is U.S. dollars. Alabama Graphite uses the Canadian dollar as its functional currency. See the section entitled " Exchange Rate Information " for additional information regarding the exchange rate between the Canadian dollar and the U.S. dollar.
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The following table shows, for the periods indicated, information concerning the exchange rate between U.S. dollars and Canadian dollars. The information in the following table is expressed in U.S. dollars per Canadian dollar and is based on the "Close" price from CAD USD CMPL screen on Bloomberg on the day concerned, and rounded to four decimals. The average rate refers to the closing average.
On January 10, 2018, the latest practicable date for which such information was available prior to the printing of this proxy statement, the exchange rate was US$0.8011 per CAD$1.00. The average of the exchange rates during the year ended December 31, 2017 was US$0.7981 per CAD$1.00. These conversions should not be construed as a representation that the U.S. dollar amounts actually represent, or could be converted into, Canadian dollars at the rates indicated.
|
Period-end
rate US$ |
Average
rate US$ |
High
US$ |
Low
US$ |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Recent monthly data |
|||||||||||||
January 2018 (through January 10, 2018) |
$ | 0.8011 | $ | 0.8009 | $ | 0.8092 | $ | 0.7763 | |||||
December 2017 |
$ | 0.7981 | $ | 0.7835 | $ | 0.7990 | $ | 0.7743 | |||||
November 2017 |
$ | 0.7752 | $ | 0.7833 | $ | 0.7895 | $ | 0.7746 | |||||
October 2017 |
$ | 0.7753 | $ | 0.7934 | $ | 0.8043 | $ | 0.7742 | |||||
September 2017 |
$ | 0.8010 | $ | 0.8137 | $ | 0.8289 | $ | 0.7982 | |||||
August 2017 |
$ | 0.7983 | $ | 0.7931 | $ | 0.8037 | $ | 0.7827 | |||||
July 2017 |
$ | 0.8008 | $ | 0.7876 | $ | 0.8054 | $ | 0.7684 | |||||
Annual Data (year ended December 31) |
|
|
|
|
|||||||||
2017 |
$ | 0.7981 | $ | 0.7709 | $ | 0.8289 | $ | 0.7250 | |||||
2016 |
$ | 0.7436 | $ | 0.7554 | $ | 0.8025 | $ | 0.6808 | |||||
2015 |
$ | 0.7232 | $ | 0.7831 | $ | 0.8621 | $ | 0.7146 | |||||
2014 |
$ | 0.8628 | $ | 0.9058 | $ | 0.9442 | $ | 0.8568 | |||||
2013 |
$ | 0.9409 | $ | 0.9711 | $ | 1.0188 | $ | 0.9314 |
27
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following unaudited pro forma condensed consolidated financial statements are derived from the historical consolidated financial statements of WWR and Alabama Graphite Corp., and have been adjusted to reflect the Arrangement. The unaudited pro forma condensed consolidated balance sheet as of September 30, 2017 gives effect to the Arrangement as if it had occurred on September 30, 2017. The unaudited pro forma condensed consolidated statements of operations for the nine months ended September 30, 2017 and for the year ended December 31, 2016 both give effect to the Arrangement as if it had occurred on January 1, 2016. The pro formas are presented for illustrative purposes only and do not necessarily reflect the results of operations or the financial position of WWR that actually would have resulted had the Arrangement occurred at the dates indicated, or project the results of operations or financial position of WWR for any future date or period.
The pro formas should be read in conjunction with the historical financial statements of WWR and Alabama Graphite Corp. including the notes thereto, which are included elsewhere in this proxy statement.
Alabama Graphite Corp.'s historical consolidated financial statements were prepared in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board ("IFRS"), which differ in certain respects from the accounting principles generally accepted in the United States of America ("US GAAP"). Adjustments were made to Alabama Graphite Corp.'s financial statements to convert those from IFRS to US GAAP as well as reclassifications to conform Alabama Graphite Corp.'s historical accounting presentation to WWR's accounting presentation. Adjustments were also made to translate Alabama Graphite Corp.'s financial statements from Canadian dollars to U.S. dollars based on applicable historical exchange rates, which may differ from future exchange rates. These adjustments reflect WWR's best estimates based upon the information available to date and are preliminary and subject to change once more detailed information is obtained.
The Arrangement will be accounted for as a business combination using the acquisition method of accounting in conformity with US GAAP. Under this method, the assets acquired and liabilities assumed have been recorded based on preliminary estimates of fair value. The actual fair values will be determined upon the consummation of the Arrangement and may vary from these preliminary estimates.
The pro forma adjustments are based upon the best available information and certain assumptions that WWR believes to be reasonable. Further, these adjustments could materially change as both the determination of the purchase price and the allocation of the purchase price for Alabama Graphite Corp. has not been finalized. Accordingly, there can be no assurance that the final allocation of the purchase price will not differ from the preliminary allocation reflected in the pro formas.
28
WESTWATER RESOURCES, INC.
Pro Forma Condensed Consolidated Balance Sheet as at September 30, 2017 (Unaudited)
(Expressed in thousands of
dollars)
See accompanying notes to the unaudited condensed consolidated pro forma financial statements
29
WESTWATER RESOURCES, INC.
Pro Forma Condensed Consolidated Statement of Operations as for the nine months ending September 30, 2017
(Unaudited)
(Expressed in thousands of dollars, except share and per share amounts)
|
Westwater
Resources, Inc. |
Alabama
Graphite Corp. (under IFRS) |
Note |
US GAAP
adjustments |
Alabama
Graphite Corp. (under US GAAP) |
Note |
Pro Forma
Adjustments |
Pro Forma
Consolidated Westwater Resources, Inc. |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
5(f)
|
|
|
|
|
|
|
|||||||||||||||
Operating Expenses: |
|||||||||||||||||||||||
Operating expenses |
$ | (3,637 | ) | $ | (1,483 | ) | 4(b) | $ | (414 | ) | $ | (1,897 | ) | $ | | $ | (5,534 | ) | |||||
General and administrative |
(4,976 | ) | (262 | ) | | (262 | ) | 5(g) | 50 | (5,188 | ) | ||||||||||||
Accretion of asset retirement obligations |
(395 | ) | | | | | (395 | ) | |||||||||||||||
Depreciation and amortization |
(104 | ) | (1 | ) | | (1 | ) | | (105 | ) | |||||||||||||
Impairment of mineral property |
| | | | | | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses |
(9,112 | ) | (1,746 | ) | (414 | ) | (2,160 | ) | 50 | (11,222 | ) | ||||||||||||
Non-Operating |
|||||||||||||||||||||||
Income/(Expense) |
|||||||||||||||||||||||
Interest income/(expense) |
424 | | | | | 424 | |||||||||||||||||
Gain on sale of an asset |
4,949 | | | | | 4,949 | |||||||||||||||||
Other income/(expense) |
(39 | ) | | | | | (39 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total other income/(expense) |
5,334 | | | | | 5,334 | |||||||||||||||||
Net Loss |
(3,778 | ) | (1,746 | ) | (414 | ) | (2,160 | ) | 50 | (5,888 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other Comprehensive Income |
|||||||||||||||||||||||
Foreign currency translation reserve |
| (14 | ) | | (14 | ) | | (14 | ) | ||||||||||||||
Unrealized fair value decrease on securities |
(287 | ) | | | | | (287 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Loss For the Period |
$ | (4,065 | ) | $ | (1,760 | ) | $ | (414 | ) | $ | (2,174 | ) | $ | 50 | $ | (6,189 | ) | ||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Basic and diluted loss per share |
$ | (0.16 | ) | $ | (0.17 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding |
23,763,842 | 35,389,057 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the unaudited condensed consolidated pro forma financial statements
30
WESTWATER RESOURCES, INC.
Pro Forma Condensed Consolidated Statement of Operations as for the year ending
December 31, 2016
(Unaudited)
(Expressed in thousands of dollars, except share and per share amounts)
|
Westwater
Resources, Inc. |
Alabama
Graphite Corp. (under IFRS) |
Note |
US GAAP
adjustments |
Alabama
Graphite Corp. (under US GAAP) |
Note |
Pro Forma
Adjustments |
Pro Forma
Consolidated Westwater Resources, Inc. |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
|
5(f)
|
|
|
|
|
|
|
|||||||||||||||
Operating Expenses: |
|||||||||||||||||||||||
Operating expenses |
$ | (3,248 | ) | $ | (1,484 | ) | 4(b) | $ | (475 | ) | $ | (1,009 | ) | $ | | $ | (4,257 | ) | |||||
General and administrative |
(7,650 | ) | (458 | ) | | (458 | ) | | (8,108 | ) | |||||||||||||
Accretion of asset retirement obligations |
(480 | ) | | | | | (480 | ) | |||||||||||||||
Depreciation and amortization |
(247 | ) | (1 | ) | | (1 | ) | | (248 | ) | |||||||||||||
Impairment of mineral property |
(1,673 | ) | | | | | (1,673 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total operating expenses |
(13,298 | ) | (1,943 | ) | (475 | ) | (1,468 | ) | | (14,766 | ) | ||||||||||||
Non-Operating |
|||||||||||||||||||||||
Income/(Expense) |
|||||||||||||||||||||||
Interest income/(expense) |
(6,455 | ) | (1 | ) | | (1 | ) | | (6,456 | ) | |||||||||||||
Gain on sale of an asset |
| | | | | | |||||||||||||||||
Other income/(expense) |
148 | | | | | 148 | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Total other income/(expense) |
(6,307 | ) | (1 | ) | | (1 | ) | | (6,308 | ) | |||||||||||||
Net Loss |
(19,605 | ) | (1,944 | ) | (475 | ) | (1,469 | ) | | (21,074 | ) | ||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Other Comprehensive Income |
|||||||||||||||||||||||
Foreign currency translation reserve |
| 22 | | 22 | | 22 | |||||||||||||||||
Transfer to realized loss on securities |
116 | | | | | 116 | |||||||||||||||||
Unrealized fair value decrease on securities |
(49 | ) | | | | | (49 | ) | |||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
Comprehensive Loss For the Period |
$ | (19,538 | ) | $ | (1,922 | ) | $ | (475 | ) | $ | (1,447 | ) | $ | | $ | (20,985 | ) | ||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Basic and diluted loss per share |
$ | (3.73 | ) | $ | (1.25 | ) | |||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Weighted average shares outstanding |
5,251,954 | 16,877,169 | |||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
See accompanying notes to the unaudited condensed consolidated pro forma financial statements
31
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements
1. Basis of Presentation
The unaudited pro forma condensed consolidated financial statements have been prepared in connection with the proposed acquisition of Alabama Graphite Corp. by Westwater Resources, Inc. (WWR). The unaudited pro forma condensed consolidated financial statements have been prepared for illustrative purposes only and give effect to the Arrangement pursuant to the assumptions described in Notes 3, 4 and 5 to these unaudited pro forma condensed consolidated financial statements. The unaudited pro forma condensed consolidated balance sheet as at September 30, 2017 gives effect to the proposed Arrangement by WWR as if it had occurred as at September 30, 2017. The unaudited pro forma condensed consolidated statement of operations for the year ended December 31, 2016 and for the nine months ended September 30, 2017 gives effect to the Arrangement as if had occurred as at January 1, 2016. Alabama Graphite Corp.'s financial statements are prepared under IFRS and have been conformed to US GAAP for inclusion in these pro forma condensed consolidated financial statements. These adjustments are discussed in Note 4.
The historical financial statements have been adjusted in the pro forma financial statements to give effect to events that are (1) directly attributable to the pro forma events, (2) factually supportable, and (3) with respect to the statement of operations, expected to have a continuing impact on the combined company. The unaudited pro forma condensed consolidated statements of operations do not reflect any non-recurring charges directly related to the pro forma events that may be incurred upon completion of the Arrangement. The unaudited pro forma condensed consolidated financial statements are not necessarily indicative of the operating results or financial condition that would have been achieved if the proposed Arrangement had been completed on the dates or for the periods presented, nor do they purport to project the results of operations or financial position of the consolidated entities for any future period or as of any future date.
The unaudited pro forma condensed consolidated financial information does not reflect any cost savings, operating synergies or efficiencies that the combined company may achieve as a result of the Arrangement or for liabilities resulting from integration planning, except for certain severance costs related to management and directors of Alabama Graphite Corp. However, liabilities ultimately may be recorded for severance, relocation or retention costs in subsequent periods related to employees of both companies or other costs associated with exiting or transferring activities between the companies. The ultimate recognition of such costs and liabilities would affect amounts in the unaudited pro forma condensed consolidated financial statements, and such costs and liabilities could be material.
The pro forma adjustments and allocations of the purchase price of Alabama Graphite Corp. are based on preliminary estimates of the fair value of the consideration paid and the fair value of the assets acquired and liabilities to be assumed. Because the unaudited pro forma combined financial information has been prepared based on these preliminary estimates, the final purchase price allocation and the resulting effect on financial position and results of operations may differ significantly from the pro forma amounts included herein. WWR expects to finalize its allocation of the purchase consideration as soon after completion of the proposed arrangement as practicable.
The unaudited pro forma consolidated balance sheets and the unaudited pro forma condensed consolidated statement of operations should be read in conjunction with the historical financial statements of WWR and Alabama Graphite Corp., including the notes thereto. Certain of Alabama Graphite Corp.'s assets, liabilities, income and expenses have been reclassified to conform to WWR's consolidated financial statement presentation.
32
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements (Continued)
2. Significant Accounting Policies
The accounting policies used in preparing the unaudited pro forma condensed consolidated financial statements are set out in WWR's Annual Report in Form 10-K for the year ended December 31, 2016. In preparing the unaudited pro forma condensed consolidated financial statements, a review was undertaken by management of WWR to identify accounting policy differences where the impact was potentially material and could be reasonably estimated, and identified Alabama Graphite Corp.'s use of IFRS as a material difference. The Company has adjusted Alabama Graphite Corp.'s financial statements to conform to US GAAP and WWR's accounting policies and these adjustments are discussed in Note 4. Additional accounting differences may be identified after consummation of the proposed Arrangement.
3. Description of the Arrangement
On December 13, 2017, WWR announced the execution of the Arrangement Agreement with Alabama Graphite Corp. pursuant to which WWR will acquire all of the issued and outstanding ordinary shares, options and warrants of Alabama Graphite Corp. Under the terms of the Arrangement Agreement, ordinary shareholders of Alabama Graphite Corp. will receive 0.08 common shares of WWR for each ordinary share of Alabama Graphite Corp. held. Each outstanding Alabama Graphite Corp. option or warrant will be cancelled in exchange for the issue of an option or warrant (as applicable) to acquire common shares of WWR, on the same terms and conditions as were applicable to the Alabama Graphite Corp. options or warrants (as applicable) prior to the Arrangement, except that the number of shares subject to the options or warrants and the exercise price of the options and warrants will be adjusted based on the fair value of the options and warrants prior to the completion of the Arrangement, as to preserve the economic value of such options or warrants. Based on the outstanding shares of WWR and Alabama Graphite Corp. as at December 13, WWR's shareholders will own approximately 70.5% of the shares of WWR upon completion of the Arrangement and Alabama Graphite Corp. shareholders will own approximately 29.5% of the common shares of WWR.
The obligations of WWR and Alabama Graphite Corp. to consummate the Arrangement are subject to satisfactory completion of various conditions.
The cost of the Arrangement will include the fair value of the issuance of 11,625,215 WWR common shares (based on the December 8, 2017 closing price of $1.12 for WWR's shares), and the issuance of 2,508,378 replacement options and warrants with a fair value of $0.5 million. In addition, WWR estimates transaction costs of $2.0 million, of which approximately $25,000 were incurred though September 30, 2017 and Alabama Graphite Corp. transaction costs of approximately $1.0 million, of which approximately $25,000 were incurred though September 30, 2017. These costs are not reflected in the pro forma financial statements of operations as they are non-recurring.
The Arrangement will be accounted for as a business combination under US GAAP. For the purposes of the pro forma statement of financial position, the value of the share consideration has been based on the closing price of WWR's shares on December 8, 2017 (the effective date of presentation of the Arrangement for purposes of the unaudited pro forma statement of financial position). WWR will value the share consideration component based on the closing price of WWR's shares on the date the Arrangement closes, which may result in an increase or decrease in the consideration for accounting purposes. For every $0.01 change in share price of the WWR, the purchase price will change by $0.1 million.
The allocation of the purchase price is based upon management of WWR's preliminary estimates and certain assumptions with respect to the fair value associated with the assets and the liabilities to be
33
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements (Continued)
3. Description of the Arrangement (Continued)
acquired. The actual fair values of the assets and liabilities may differ materially from the amounts disclosed below in the assumed pro forma purchase price allocation as further analysis is completed. Consequently, the actual allocation of the purchase price is likely to result in different adjustments than those in the unaudited pro forma condensed consolidated statements.
The preliminary allocation of fair value assumed in these unaudited pro forma condensed consolidated financial statements is as of September 30, 2017, subject to change and is summarized as follows:
Expected volatility |
(89%) | |
Risk-free interest rate |
(1.62% to 1.90%) | |
Expected life |
(.42 to 3.42 years) | |
Dividend yield |
N/A |
4. International Financial Reporting Standards
Differences between US GAAP and IFRS
WWR's management reviewed the historic accounting records and financial statements of Alabama Graphite Corp. for the periods presented and identified the material differences between IFRS and US GAAP. WWR's accounting policies are contained within the Company's consolidated financial statements for the year ended December 31, 2016.
To conform to US GAAP the following adjustments were made:
34
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements (Continued)
4. International Financial Reporting Standards (Continued)
property holding costs not attributable to the purchase of mineral assets that were previously capitalized under IFRS of $5.5 million, in accordance with US GAAP.
5. Pro Forma Assumptions and Adjustments
The unaudited pro forma condensed consolidated financial statements reflect the following adjustments to give effect to the Arrangement as described in Note 3:
The allocation of the estimated fair value of consideration transferred (based on the closing price of WWR's common stock as of December 8, 2017) to the estimated fair value of the assets acquired and liabilities assumed resulted in the following purchase price allocation adjustments:
35
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements (Continued)
5. Pro Forma Assumptions and Adjustments (Continued)
WWR common stock to be issued to holders of Alabama Graphite common shares |
11,625,215 | |||
Price per share of WWR's common stock on December 8, 2017 |
$ | 1.12 | ||
| | | | |
Fair value of common stock to be issued |
$ | 13,020 | ||
Fair value of Alabama Graphite's options to be exchanged for WWR options |
$ | 542 | ||
| | | | |
Total fair value of WWR equity to be issued |
$ | 13,562 | ||
Increase in WWR's common stock ($0.001 par value per share) |
$ |
12 |
||
Increase in WWR's additional paid-in-capital |
$ |
13,550 |
36
Notes to the Unaudited Condensed Consolidated Pro Forma Financial Statements (Continued)
6. Pro Forma Shares Outstanding
The average number of shares used in the computation of pro forma basic and diluted loss per share has been determined as follows:
|
Nine months
ended September 30, 2017 |
Year ended
December 31, 2016 |
|||||
---|---|---|---|---|---|---|---|
Weighted average shares outstanding of WWR |
23,763,842 | 5,251,954 | |||||
Shares to be issued to holders of Alabama Graphite Corp. common shares in connection with the Arrangement |
11,625,215 | 11,625,215 | |||||
| | | | | | | |
Pro forma weighted average shares of WWR |
35,389,057 | 16,877,169 | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
37
COMPARATIVE HISTORICAL AND UNAUDITED PRO FORMA PER SHARE DATA
The following table sets forth selected historical share information of WWR and Alabama Graphite Corp. and unaudited pro forma share information after giving effect to the Arrangement assuming that 0.08 shares of WWR common stock had been issued in exchange for each outstanding Alabama Graphite Corp. ordinary share.
The pro forma equivalent information of WWR was derived using the historical share information assuming that 0.08 shares of WWR common stock had been issued in exchange for each outstanding Alabama Graphite Corp. ordinary share. You should read this information in conjunction with the unaudited pro forma condensed combined financial statements and the separate historical financial statements of WWR and Alabama Graphite Corp. and the notes thereto included elsewhere in this proxy statement. The historical share information as of and for the nine-month period ended September 30, 2017 is derived from unaudited consolidated financial statements of WWR and Alabama Graphite Corp. as of and for the nine months ended September 30, 2017 and nine months ended August 31, 2017, respectively. The historical share information as of and for the year ended December 31, 2016 is derived from audited financial statements of WWR for the year ended December 31, 2016. Given that Alabama Graphite Corp.'s fiscal year ends August 31, 2017, Alabama Graphite Corp.'s results represents the sum of unaudited historical financial information in the nine-month period ended August 31, 2017 and in the twelve-month period ended November 30, 2016. The unaudited pro forma condensed combined financial statements and the pro forma share information are not necessarily indicative of the operating results or financial position that would have been achieved had the Arrangement been consummated at the beginning of the period presented and should not be construed as representative of future operations. Alabama Graphite Corp.'s results as reported in Canadian dollars have been converted into U.S. dollars using the average and period end exchange rates set out in notes 5(a) and 5(f) under " Unaudited Pro Forma Condensed Consolidated Financial Information " beginning on page [ ] of this proxy statement.
|
Nine Months Ended September 30, 2017 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Westwater Resources, Inc. | Alabama Graphite Corp. | |||||||||||
|
Historical | Pro Forma | Historical |
Pro Forma
Equivalent of One Alabama Graphite Share(1) |
|||||||||
Basic and diluted net loss per share |
$ | (0.16 | ) | $ | (0.17 | ) | $ | (0.01 | ) | $ | (0.06 | ) | |
Shares used in calculating basic and diluted loss per share |
23,763,842 | 35,389,057 | 145,315,187 | 11,625,215 | |||||||||
Book value per share(2) |
$ | 2.35 | $ | 1.90 | $ | 0.04 | $ | 0.62 |
|
Year Ended December 31, 2016 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Westwater Resources, Inc. | Alabama Graphite Corp. | |||||||||||
|
Historical | Pro Forma | Historical |
Pro Forma
Equivalent of One Alabama Graphite Share(1) |
|||||||||
Basic and diluted net loss per share |
$ | (3.73 | ) | $ | (1.25 | ) | $ | (0.02 | ) | $ | (0.77 | ) | |
Shares used in calculating basic and diluted loss per share |
5,251,954 | 16,877,169 | 129,547,225 | 10,363,778 |
38
COMPARATIVE PER SHARE MARKET PRICE INFORMATION
Alabama Graphite's common shares trade on the TSX Venture Exchange under the symbol "CSPG" and WWR's common stock trades on the Nasdaq Capital Market under the symbol "WWR". The following table presents the closing prices of Alabama Graphite's common shares and WWR's common stock on December 13, 2017, the last trading day before the public announcement of the Arrangement Agreement, and January 10, 2018, the last practicable trading day prior to the date of this proxy statement. The table also shows the estimated implied value of the per share consideration for each Alabama Graphite share on the relevant date.
|
Alabama Graphite
Closing Price(1) |
WWR Closing Price |
Exchange
Ratio |
Estimated Equivalent
Per Share Value(2) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
December 13, 2017 |
US$ | 0.09 | US$ | 1.11 | 0.08 | US$ | 0.088 | ||||||
January 10, 2018 |
US$ | 0.07 | US$ | 1.05 | 0.08 | US$ | 0.084 |
COMPARATIVE STOCK PRICE INFORMATION
The following tables show, for the periods indicated, the high and low sale prices per Alabama Graphite share as reported on the TSX Venture Exchange and per share of WWR common stock as reported on the Nasdaq Capital Market for the fiscal periods indicated. Price per share information for Alabama Graphite ordinary shares is presented in Canadian dollars.
WWR Common Stock
|
Low | High | |||||
---|---|---|---|---|---|---|---|
|
US$
|
US$
|
|||||
2018 (through January 10, 2018) |
|||||||
First Quarter (through January 10, 2018) |
$ | 1.03 | $ | 1.14 | |||
2017 (ended December 31, 2017) |
|||||||
Fourth Quarter |
0.76 | 1.42 | |||||
Third Quarter |
1.25 | 1.70 | |||||
Second Quarter |
1.30 | 2.18 | |||||
First Quarter |
1.35 | 4.00 | |||||
2016 (ended December 31, 2016) |
|||||||
Fourth Quarter |
0.97 | 1.75 | |||||
Third Quarter |
1.25 | 2.13 | |||||
Second Quarter |
1.39 | 3.75 | |||||
First Quarter |
2.10 | 7.80 |
39
Alabama Graphite Common Shares
|
Low | High | |||||
---|---|---|---|---|---|---|---|
|
CAD$
|
CAD$
|
|||||
2018 (through January 10, 2018) |
|||||||
Second Quarter (through January 10, 2018) |
$ | 0.06 | $ | 0.08 | |||
First Quarter |
0.11 | 0.21 | |||||
2017 (ended August 31, 2017) |
|||||||
Fourth Quarter |
0.12 | 0.15 | |||||
Third Quarter |
0.125 | 0.215 | |||||
Second Quarter |
0.11 | 0.22 | |||||
First Quarter |
0.105 | 0.175 | |||||
2016 (ended August 31, 2016) |
|||||||
Fourth Quarter |
0.125 | 0.20 | |||||
Third Quarter |
0.11 | 0.23 | |||||
Second Quarter |
0.105 | 0.21 | |||||
First Quarter |
0.195 | 0.24 |
40
This proxy statement is furnished in connection with the solicitation of proxies by WWR on behalf of the WWR Board for the Special Meeting. WWR is first making this proxy statement and the accompanying proxy available on or about [ ], 2018.
At the Special Meeting, WWR stockholders will vote on the following matters:
Proposal 1a proposal to approve, as required by Rule 5635 of the Nasdaq Manual, the issuance of up to 14,133,593 shares of WWR common stock in connection with the Arrangement contemplated by the Arrangement Agreement and the Plan of Arrangement attached thereto, by and among WWR, Alabama Graphite and 1143738 B.C. LTD., a wholly-owned subsidiary of WWR. If approved up to 14,133,593 shares of WWR common stock will be approved for issuance in exchange for outstanding Alabama Graphite common shares, options and warrants (the "WWR Stock Issuance").
The WWR Board recommends a vote "FOR" this proposal.
Proposal 2a proposal to approve the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the foregoing proposal.
The WWR Board recommends a vote "FOR" this proposal.
Conduct other business that may properly come before the Special Meeting or any adjournment or postponement thereof.
The Special Meeting will be held on March [ ], 2018 at 9:00 a.m., local time, at our corporate headquarters, located at 6950 South Potomac Street, Suite 300, Centennial, Colorado 80112.
Record Date; Outstanding Shares; Shares Entitled to Vote
Holders of record of WWR common stock at the close of business on [ ], 2018, the record date, or their duly authorized proxy holders, are entitled to vote on each matter submitted to a vote at the Special Meeting and at any adjournment or postponement thereof. You are entitled to receive notice of, and to vote at, the meeting if you owned shares of WWR common stock as of the close of business on the record date. At the close of business on the record date, there were [ ] shares of WWR common stock outstanding and entitled to one vote per share each at the Special Meeting. Cumulative voting is not permitted.
If you own shares that are registered in the name of someone else, such as a broker, bank or other nominee, you need to direct that organization to vote those shares or obtain an authorization from them and vote the shares yourself at the meeting.
The presence in person or by proxy of the holders of one-third of the votes entitled to be cast on a matter constitutes a quorum for action on that matter. Votes " for " and " against " or " withhold ," and " abstentions " will all be counted as present to determine whether a quorum has been established. "Broker non-votes" will not be counted as present. Once a share of the WWR's common stock is represented for any purpose at the Special Meeting, it is deemed present for quorum purposes for the remainder of the Special Meeting and any adjournments of the Special Meeting unless a new record
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date is or must be set for the adjourned meeting. If a quorum is not present, the holders of record of a majority of such shares present and entitled to vote may adjourn the Special Meeting until a quorum is obtained.
Security Ownership of Certain Beneficial Owners and Management of WWR Stock
As of the record date, directors and executive officers of WWR as a group beneficially owned and were entitled to vote approximately [ ] shares of WWR common stock, representing approximately [ ]% of the shares of WWR common stock issued and outstanding. All of the directors and executive officers of WWR who are entitled to vote at the Special Meeting have advised WWR that they intend to vote their shares of WWR common stock in favor of each of the proposals, although such persons have not entered into agreements obligating them to do so.
See page [ ] of this proxy statement for additional information about beneficial ownership of WWR common stock by WWR's directors, executive officers and significant stockholders.
Assuming the existence of a quorum at the Special Meeting, the following vote is required for each proposal:
Proposal 1the WWR Stock Issuance. The affirmative vote of a majority of the total votes cast on the proposal at the Special Meeting in person or by proxy is required to approve the issuance of WWR common stock pursuant to the Arrangement Agreement. Abstentions will not be treated as votes cast on this proposal and thus will have no effect on the outcome of this proposal.
Proposal 2if necessary or appropriate, adjournment of the Special Meeting to solicit additional proxies, in the event there are not sufficient votes. The affirmative vote of a majority of the total votes cast on the proposal at the Special Meeting in person or by proxy is required to approve, whether or not a quorum exists. Abstentions will not be treated as votes cast on this proposal and thus will have no effect on the outcome of this proposal.
Shares will be voted on each proposal as instructed in the accompanying proxy. However, if no instructions are given on a validly signed and returned proxy, the shares will be voted in accordance with the WWR Board's recommendations " FOR " the approval of the issuance of WWR common stock pursuant to the Arrangement Agreement and " FOR " the adjournment in the event there are not sufficient votes. With respect to any other matter that may come before the Special Meeting, as recommended by the WWR Board or otherwise in the proxies' discretion.
Approval of any other matter properly submitted to the stockholders at the Special Meeting generally will require the affirmative vote of the holders of a majority of the shares of common stock present in person or represented by proxy and entitled to vote on that matter.
This proxy statement is being sent to you on behalf of the WWR Board for the purpose of requesting that you allow your shares of WWR common stock to be represented at the meeting by the persons named in the enclosed proxy card. All shares of WWR common stock represented at the meeting by properly executed proxy cards, voted over the telephone or voted over the Internet will be voted in accordance with the instructions indicated on those proxies. If you hold shares in your name and sign and return a proxy card or submit a proxy by telephone or over the Internet without giving specific voting instructions, your shares will be voted " FOR " the WWR Stock Issuance and the adjournment in the event there are not sufficient votes at the Special Meeting.
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You have the right to revoke a proxy, whether delivered over the Internet, by telephone or by mail, at any time before it is exercised, by voting again at a later date through any of the methods available to you, by attending the meeting and voting in person, or if you are a holder of record, by giving written notice of revocation to WWR prior to the time the meeting begins. Written notice of revocation should be mailed to: Westwater Resources, Inc., Attention: Secretary, 6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112.
Voting in Person at the Meeting
All stockholders of record may vote their shares in person by attending the meeting and submitting the ballot that will be provided there. If your shares are held in "street name," you may vote in person at the meeting if you have a document known as a "legal proxy" from the holder of record. You will need to ask the broker, bank or other nominee holding your shares for a legal proxy and bring the legal proxy with you to the meeting. You will not be able to vote your shares at the meeting without a legal proxy. If you request a legal proxy, any previously executed proxy will be revoked, and your vote will not be counted unless you appear at the meeting and vote in person or legally appoint another proxy to vote on your behalf.
The WWR Board unanimously recommends that its stockholders vote " FOR " each of the proposals.
After determining that it is advisable and in the best interests of WWR and its stockholders to consummate the Arrangement as contemplated by the Arrangement Agreement, WWR Board unanimously authorized, approved, and declared advisable the issuance of shares of WWR common stock in accordance with the Arrangement Agreement. WWR Board also unanimously authorized, approved, and declared advisable the adjournment of the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event there are not sufficient votes at the time of the Special Meeting.
There are certain risks associated with the Arrangement. See " Risk Factors " beginning on page [ ] of this proxy statement for more information regarding such risks. WWR stockholders should carefully read this proxy statement in its entirety for more detailed information concerning the Arrangement. In particular, WWR stockholders are directed to the Arrangement Agreement, which is attached as Annex A to this proxy statement.
Solicitation of Proxies; Payment of Solicitation Expenses
WWR is providing these proxy materials in connection with the solicitation by its Board of Directors of proxies to be voted at our Special Meeting. WWR has retained Regan & Associates as its proxy solicitor and will pay Regan & Associates approximately $[ ]. WWR will bear all expenses incurred in connection with the solicitations of proxies. In addition to the solicitation of proxies by mail, WWR may ask brokers and bank nominees to solicit proxies from their principals and will pay the brokers and bank nominees their expenses for the solicitation. WWR's directors, officers and employees also may solicit proxies by mail, telephone, electronic or facsimile transmission or in person.
Adjournments and Postponements
Although it is not currently expected, the meeting may be adjourned on one or more occasions for the purpose of soliciting additional proxies if a quorum is not present at the meeting. An adjournment generally may be made with the affirmative vote of the owners of a majority of the shares of WWR
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common stock present in person or represented by proxy and entitled to vote thereon if no quorum is present or, if a quorum is present, with the majority of the votes cast. Any adjournment of the meeting for the purpose of soliciting additional proxies will allow WWR stockholders who have already sent in their proxies to revoke them at any time prior to their use at the meeting as adjourned.
WWR does not expect that any matter other than the proposals listed above will be brought before the meeting. If, however, other matters are properly brought before the meeting, or any adjournment or postponement of the meeting, the persons named as proxies will vote in accordance with their judgment.
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If you would like to receive additional copies of this proxy statement, without charge, or if you have questions about the meeting, including the procedures for voting your shares, you should contact us at: Westwater Resources, Inc., Attention: Secretary, 6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112, or by calling (303) 531-0516.
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This discussion of the Arrangement is qualified in its entirety by reference to the Arrangement Agreement, which is attached to this proxy statement as Annex A . You should read the entire Arrangement Agreement carefully as it is the legal document that governs the Arrangement.
The WWR Board and management of WWR continually review the company's long-term strategic plan with the goal of maximizing stockholder value. As part of this ongoing process, WWR has periodically evaluated potential acquisitions and business combinations and engaged in discussions with third parties concerning potential strategic transactions, including the potential acquisition or merger of another company. On December 1, 2016, the WWR Board instructed Chris Jones, our President and CEO, to identify and evaluate publicly traded mining companies as potential acquisition targets.
On January 13, 2017, WWR identified Alabama Graphite as a potential candidate.
On February 1, 2017, Mr. Jones called Mr. Baxter, the then CEO of Alabama Graphite, to express WWR's interest in a potential business combination with Alabama Graphite. The two agreed to meet and to further discuss at the Prospectors & Developers Association of Canada ("PDAC") conference in Toronto that would take place from March 5, 2017 to March 8, 2017.
On March 7, 2017, Mr. Jones, Jeff Vigil, the CFO of WWR, Mr. Baxter and Tyler Dinwoodie, the then executive vice president and current President and Corporate Secretary of Alabama Graphite, met at the PDAC conference and discussed a possible business relationship between the two companies. No conclusions were reached.
On March 9, 2017, Mr. Jones and Mr. Baxter confirmed that neither company would pursue a business combination at that time, though they agreed that the two companies should continue to monitor each other's businesses and continue to consider the compatibility of the two companies' businesses.
Prior to May 2017, WWR's increased financial strength contributed to WWR's increased interest in continuing discussions regarding a potential business combination.
On May 4, 2017, Mr. Jones and Mr. Baxter met again at the Mines & Money Conference in New York City where Mr. Jones reiterated WWR's interest in a potential business combination and highlighted for Mr. Baxter WWR's recent successful financing, including its shelf registration and a recently completed $30 million Cantor Fitzgerald at-the-market financing arrangement. During this meeting, Mr. Jones and Mr. Baxter agreed that WWR and Alabama Graphite should enter into a confidentiality agreement so that the parties could move forward and continue their discussion regarding whether a business combination between the two companies would be beneficial for both parties.
On May 8, 2017, Mr. Jones sent a copy of the confidentiality agreement with a one-year term to Mr. Baxter via e-mail. On the following day, WWR and Alabama Graphite executed the confidentiality agreement (the "Confidentiality Agreement"). Promptly thereafter, WWR and Alabama Graphite began exchange of information over the phone.
Starting June 8, 2017, WWR made initial written information requests to Alabama Graphite regarding graphite market prices, a benchmark report, and other information.
On June 12, 2017, WWR requested additional information from Alabama Graphite, including the Preliminary Economic Assessment ("PEA") economic model and the support for the graphite market prices in the PEA. The following day, Mr. Baxter advised Mr. Jones that Alabama Graphite decided to
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discontinue the current discussion with WWR regarding the possible business combination as Alabama Graphite's common shares were then considered by Alabama Graphite to be undervalued.
On July 18, 2017, an internal memorandum was presented to the WWR Board, identifying Alabama Graphite as a potential business combination target.
On August 24, 2017, Terence Cryan, the Chairman of the WWR Board, signed and delivered a letter to Jean Depatie, the Chairman of the Alabama Graphite Board of Directors (the "Alabama Graphite Board"), which letter reiterated WWR's desire to continue discussions regarding a possible strategic combination, joint venture or other mutually agreeable transaction with Alabama Graphite.
On September 5, 2017, Mr. Depatie responded to WWR Board Chairman's e-mail to acknowledge receipt of WWR's letter dated August 24, 2017.
On September 6, 2017, the Alabama Graphite Board sent an additional email to Mr. Cryan noting that the Alabama Graphite Board would not respond to WWR's letter dated August 24, 2017, and expressed the view that there were too many irreconcilable differences between WWR and Alabama Graphite for a business arrangement to take place. However, at the same time, the Alabama Graphite Board's email also noted that Alabama Graphite would be open to further communications with WWR.
On September 7, 2017, WWR sent Alabama Graphite Board an indicative, non-binding offer to merge the two companies at an exchange ratio of 0.10 share of WWR common stock for each Alabama Graphite common share and to provide Alabama Graphite with limited interim funding in connection with the proposed merger, and further responded to the Alabama Graphite Board that that were no known non-reconcilable differences between WWR and Alabama Graphite. Also on September 7, 2017, Mr. Dinwoodie and the Alabama Graphite Board responded separately to WWR, with the latter indicating that it would further respond to WWR as soon as it could.
The following day, on September 8, 2017, Mr. Cryan sent a letter to Alabama Graphite management and Alabama Graphite Board to confirm that it would continue to pursue discussions with Alabama Graphite Board.
On September 12, 2017, Mr. Depatie responded to Mr. Cryan's e-mail, copying the Alabama Graphite Board, Alabama Graphite's legal counsel, Miller Thomson LLP ("Miller Thomson"), and Mr. Dinwoodie, to reconfirm receipt of WWR's letter dated August 24, 2017 and the non-binding indicative offer dated September 7, 2017, and to request that Alabama Graphite's legal counsel to be copied on all future correspondence.
On September 20, 2017, Alabama Graphite issued a press release, signed by Mr. Baxter, announcing the creation of a Special Committee of the Alabama Graphite Board (the "Alabama Special Committee") comprised of Dr. Gareth P. Hatch, to consider and review, with the assistance of advisors and with the support of Alabama Graphite's management, an unsolicited, non-binding indicative offer. The press release described the indicative offer but did not identify WWR by name.
In late September and early October, 2017, counsels for both companies exchanged communications regarding the press release, the Confidentiality Agreement, WWR's ability to provide Alabama Graphite with limited interim funding in connection with the proposed transaction and plans for the companies' representatives to engage further regarding WWR's non-binding indicative offer.
On October 20, 2017, Miller Thomson sent a letter to WWR's Canadian counsel, Stikeman Elliott LLP ("Stikeman"), to provide an update on the review of the Alabama Special Committee and to request information on the availability of interim funding.
On October 27, 2017, Miller Thomson sent a letter to Stikeman to provide a counter-offer by Alabama Graphite that proposed an investment by WWR in Alabama Graphite and Alabama Graphite Sub.
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On November 10, 2017, Mr. Cryan sent an email to Mr. Depatie to respond to Alabama Graphite's letters dated October 20 and October 27, 2017, reiterating WWR's desire to merge the two companies, to provide interim funding but only in conjunction with a merger, and to arrange a meeting in London during the week of November 27, 2017.
On November 14, 2017, Dr. Hatch, member of the Alabama Special Committee, emailed Mr. Cryan, copying the Alabama Graphite Board and Miller Thomson, confirming receipt of the November 10, 2017 letter, expressing a willingness to meet in London the week of November 27, 2017 and requesting an updated indicative offer and details on interim funding including amount and terms.
On November 16, 2017, Mr. Dinwoodie called Mr. Jones and requested an in-person meeting on November 20, 2017 at WWR's corporate office in Centennial, Colorado to discuss the strategic value of a merger, the possible terms, and the availability of interim funding.
On November 20, 2017, Mr. Dinwoodie, Mr. Jones, Mr. Vigil Mr. Lawrence and WWR's financial advisor, Cantor Fitzgerald, met at WWR's offices to discuss the strategic value of a merger, the possible terms, and the availability of interim funding.
On November 21, 2017, Mr. Dinwoodie, Mr. Jones, Mr. Vigil and Mr. Lawrence met to further discuss the strategic issues associated with a merger and next steps.
On November 22, 2017, Mr. Cryan signed a non-binding letter of intent to enter into a plan of arrangement whereby WWR would acquire all of the outstanding common shares of Alabama Graphite at an exchange ratio of 0.13 share of WWR common stock for each Alabama Graphite common share and to provide Alabama Graphite with interim funding in the form of a secured financing facility. On November 23, 2017, Mr. Depatie signed the non-binding letter of intent and Mr. Dinwoodie delivered the executed document to WWR via email.
On November 27, 2017, WWR's management team, its financial advisors and legal counsel began formal due diligence on Alabama Graphite.
On December 7, 2017, WWR and Alabama Graphite held a telephone conference during which the parties agreed to reduce the exchange ratio to reflect due diligence findings, Alabama Graphite's need for immediate financing and Alabama Graphite's request to increase the size of the secured financing facility to be provided by WWR from $1.5 million to $2.0 million.
Between November 23, 2017 and December 13, 2017, the parties engaged in due diligence regarding their counterparts, conducted further price negotiations and negotiated the definitive version of the Arrangement Agreement and the Loan Agreement, including cancellation of options and warrants held by certain directors and officers.
On December 13, 2017, certain directors, officers and other holders of warrants and options of Alabama Graphite, including holders affiliated with Alabama Graphite directors and officers, entered into Option Surrender Agreements and Warrant Surrender Agreements, as applicable, in connection with the execution of the Plan of Arrangement.
Also on December 13, 2017, Mr. Jones and Mr. Dinwoodie executed the Arrangement Agreement (and associated agreements) and the Loan Agreement (and associated agreements) and publicly announced the details of the Arrangement for WWR to acquire Alabama Graphite.
WWR's Reasons for the Arrangement
In reaching its unanimous determination that it is advisable and in the best interests of WWR and its stockholders to complete the Arrangement as contemplated by the Arrangement Agreement and to recommend that WWR stockholders vote " FOR " the issuance of shares of WWR common stock pursuant to the Arrangement Agreement as described in this proxy statement, the WWR Board
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consulted and received advice from its financial and legal advisors and WWR's management and considered a number of factors, including the following material factors:
The WWR Board acknowledged that the Arrangement requires the approval from the Supreme Court of British Columbia and approvals from the securityholders of Alabama Graphite.
The WWR Board also considered potential risks and potentially negative factors concerning the Arrangement in connection with its deliberations on the Arrangement and the other transactions contemplated by the Arrangement Agreement, including the following:
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The foregoing discussion of factors considered by the WWR Board is not intended to be exhaustive. In view of the wide variety of factors considered in connection with its evaluation of the Arrangement and the complexity of these matters, the WWR Board did not attempt to quantify, rank or otherwise assign any relative or specific weights to the factors that it considered in reaching its determination to approve the Arrangement and the Arrangement Agreement. In addition, individual members of the WWR Board may have given differing weights to different factors. The WWR Board conducted an overall review of the factors described above and other material factors, including through discussions with, and inquiry of, WWR's management and outside legal and financial advisors regarding certain of the matters described above.
Recommendation of the WWR Board
After careful consideration of various factors described in the section entitled " The ArrangementWWR's Reasons for the Arrangement " beginning on page [ ] of this proxy statement, the WWR Board has unanimously determined that it is advisable and in the best interests of WWR and its stockholders to consummate the Arrangement as contemplated by the Arrangement Agreement. Accordingly, WWR Board unanimously recommends that WWR's stockholders vote " FOR " the approval of the issuance of shares of WWR common stock pursuant to the Arrangement Agreement.
Opinion of Financial Advisor to the WWR Board
On December 10, 2017, Roth rendered its written opinion to the WWR Board as to the fairness, from a financial point of view, to WWR and its stockholders of the aggregate consideration payable to Alabama Graphite securityholders provided for in the Arrangement pursuant to the Arrangement Agreement.
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Roth's opinion was directed to WWR Board (in its capacity as such) and only addressed the fairness to WWR and its stockholders, from a financial point of view, of the aggregate consideration payable to Alabama Graphite securityholders provided for in the Arrangement pursuant to execution drafts of the Arrangement Agreement and did not address any other aspect or implication of the Arrangement. The summary of Roth's opinion in this proxy statement is qualified in its entirety by reference to the full text of its written opinion, which is included as Annex C to this proxy statement and sets forth the procedures followed, assumptions made, qualifications and limitations on the review undertaken and other matters considered by Roth in preparing its opinion. However, neither Roth's opinion nor the summary of its opinion and the related analyses set forth in this proxy statement are intended to be, and do not constitute, advice or a recommendation to any WWR stockholder as to how such stockholder should act or vote with respect to any matter relating to the Arrangement.
In arriving at its opinion, Roth reviewed execution drafts of the Arrangement Agreement, Plan of Arrangement, and related ancillary documents, and, among other things:
In arriving at its opinion, Roth relied upon and assumed, without independent verification, the accuracy and completeness of the information that was publicly available or supplied or otherwise made
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available to Roth by WWR. With respect to the AGC Forecasts, Roth assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of Alabama Graphite as to the future financial performance of Alabama Graphite. Roth did not assess the achievability of any projections or the assumptions on which they were based, and expressed no view as to such projections or assumptions. In addition, Roth did not assume any responsibility for any independent valuation or appraisal of the assets, liabilities or business operations of WWR or Alabama Graphite, nor was it furnished with any such valuation or appraisal. In addition, Roth did not assume any obligation to conduct, nor did it actually conduct, any physical inspection of the properties or facilities of WWR or Alabama Graphite.
Both relied upon and assumed, without independent verification, that (a) the Arrangement will be consummated substantially in accordance with the terms set forth in the Arrangement Agreement and in compliance with the applicable provisions of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended, the Business Corporations Act, and all other applicable federal, state and local statutes, rules, regulations promulgated thereunder and the rules and regulations of The Nasdaq Stock Market, and any other applicable exchanges, (b) that the representations and warranties of each party in the Arrangement Agreement are true and correct, (c) that each party to the Arrangement will perform on a timely basis all covenants and agreements required to be performed by it under the Arrangement Agreement, and (d) that all conditions to the consummation of the Arrangement will be satisfied without waiver thereof. In addition, Roth relied upon and assumed, without independent verification, that the number of Alabama Graphite shareholders executing Dissent Rights (as defined in the Arrangement Agreement) will not be material to the Plan of Arrangement as a whole. Roth further relied upon and assumed, without independent verification, that the final Arrangement Agreement when signed by all relevant parties will conform in all material respects to the execution draft of the Arrangement Agreement as of December 10, 2017, and that the Arrangement will be consummated as described in the execution draft of the Arrangement Agreement. Roth also relied upon and assumed, without independent verification, that all governmental, regulatory and other consents and approvals contemplated by the execution draft of the Arrangement Agreement will be timely obtained and that, in the course of obtaining any of those consents and approvals, no modification, delay, limitation, restriction or condition will be imposed or waivers made that would have a material adverse effect on WWR or Alabama Graphite or on the contemplated benefits of the Arrangement.
In its opinion Roth addressed only the fairness, from a financial point of view to WWR and the holders of WWR shares, as of December 10, 2017, of the aggregate consideration payable to Alabama Graphite securityholders pursuant to the Plan of Arrangement. Its opinion did not in any manner address any other aspect or implication of the Plan of Arrangement or any agreement, arrangement or understanding entered into in connection with the Plan of Arrangement or otherwise, including, without limitation, the fairness of the amount or nature of any compensation to any officers, directors or employees of, or any class of such persons, relative to the consideration in the Plan of Arrangement. In its opinion Roth also does not address the relative merits of the Plan of Arrangement as compared to any alternative business strategies that might exist for WWR, the underlying business decision of WWR to proceed with the Plan of Arrangement, or the effects of any other transaction in which WWR might engage. The issuance of the opinion was approved by an authorized internal fairness committee of Roth in accordance with its customary practice. The opinion was necessarily based on economic, monetary, market, financial and other conditions as they existed and could be evaluated, and the information made available to Roth, as of December 10, 2017. Roth did not express any opinion as to the underlying valuation, future performance or long-term viability of WWR or Alabama Graphite. Further, Roth did not express any opinion as to the actual value of the shares of WWR when issued pursuant to the Arrangement Agreement or the prices at which shares of WWR will trade at any time before, after or during the Arrangement. Roth did not undertake, and is under no obligation, to update, revise or reaffirm its opinion based on any subsequent developments or events or otherwise,
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and expressly disclaimed any responsibility to do so. In its opinion, Roth did not address any legal, tax or accounting matters.
Roth was not requested to, and did not, solicit any expressions of interest from any other parties with respect to any other merger, sale or other business combination involving WWR.
Roth's opinion was furnished for use by WWR Board (in its capacity as such) in connection with its evaluation of the Arrangement and may not be used for any other purpose without Roth's prior written consent. Roth's opinion does not constitute a recommendation to any stockholder of WWR as to how such stockholder should vote or otherwise act or refrain from acting on any matter relating to the Arrangement.
The following is a summary of the material financial analyses performed by Roth in preparing its written opinion, dated December 10, 2017, to WWR Board.
For purposes of its analysis, Roth calculated the exchange ratio driven off of WWR's 20-day volume weighted average price ("VWAP") as of December 8, 2017, to be 0.08 WWR shares for one Alabama Graphite share. Based on this exchange ratio, WWR's share price (VWAP as of December 8, 2017) and the 20-day VWAP of WWR shares (as of December 8, 2017), Roth calculated the implied equity value of Alabama Graphite to be $15.8 million and, accounting for debt and cash figures provided by management, as of December 8, 2017, Roth calculated the implied enterprise value to be $18.5 million ("Implied Enterprise Value").
Roth reviewed the per share trading prices for Alabama Graphite common shares during the 52 week period prior to September 20, 2017, and observed the lowest price was $0.063 and the highest price was $0.154. Roth compared these prices to $0.09, the implied offer price to be paid per Alabama Graphite common share in the Arrangement, calculated using the exchange ratio and WWR's 20-day VWAP. Roth also reviewed Alabama Graphite's five year relative stock price performance as compared to the S&P 500 Index, Russell 2000 Index, S&P/TSX Global Mining Index, and against a peer group, and analyzed Alabama Graphite's two year volume history by price. Roth also reviewed Alabama Graphite's stock price performance based on volume and share pricing for the past two years, analyzing certain significant events in the company's recent history.
Roth performed an analysis of Alabama Graphite's offer multiple against the multiples of Canada Carbon, Canada Strategic Metals, Graphite One Resources, Northern Graphite, Nouveau Monde Graphite, and Mason Graphite. Roth chose these companies because of their similarities to the operations of Alabama Graphite. They are U.S. or Canada-listed, publicly traded metals and mining companies, with exposure to graphite and a market capitalization below $1 billion.
For Alabama Graphite and each of the selected companies, Roth calculated and compared various financial multiples and ratios of Alabama Graphite and the selected comparable companies based on management projections each respective company's public filings for historical information from Capital IQ.
In its review of the selected companies, Roth considered, among other things, (i) enterprise values ("EV"), (ii) EV as a multiple of reported revenue for the latest twelve-month period ("LTM"), (iii) EV as a multiple of reported earnings before interest, taxes, depreciation and amortization ("EBITDA") for
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the LTM, (iv) EV as a multiple of estimated revenue for the years 2017 and 2018 and (v) EV as a multiple of estimated EBITDA for the 2017 and 2018.
|
Mkt. Cap
(12/08/17) |
Enterprise
Value |
EV/LTM
Rev |
EV/LTM
EBITDA |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Minimum |
$ | 6.8 | $ | 6.0 | NM | 2.1x | |||||||
25th Percentile |
$ | 9.7 | $ | 9.6 | NM | 8.7x | |||||||
Median |
$ | 18.0 | $ | 17.1 | NM | 13.7x | |||||||
75th Percentile |
$ | 42.6 | $ | 39.8 | NM | 22.2x | |||||||
Maximum |
$ | 245.6 | $ | 237.7 | NM | 239.4x | |||||||
AGC |
$ | 15.8 | $ | 18.5 | NM | 4.7x |
Roth also considered the EV as a multiple of measured and indicated resources ("M&I Resources") based in millions of pounds.
|
Mkt. Cap
(12/08/17) |
Enterprise
Value |
M&I
Resource |
EV/M&I
Resource |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Minimum |
$ | 6.8 | $ | 6.0 | 0.03x | $ | 2.1x | ||||||
25th Percentile |
$ | 9.7 | $ | 9.6 | 1.32x | $ | 8.7x | ||||||
Median |
$ | 18.0 | $ | 17.1 | 2.48x | $ | 13.7x | ||||||
75th Percentile |
$ | 42.6 | $ | 39.8 | 5.12x | $ | 22.2x | ||||||
Maximum |
$ | 245.6 | $ | 237.7 | 9.48x | $ | 239.4x | ||||||
AGC |
$ | 15.8 | $ | 18.5 | 3.9x | $ | 4.7x |
Precedent Transaction Analysis
Roth performed an analysis of selected change of control transactions in the industrial metals space that in Roth's judgment were comparable for purposes of its analysis. The transaction values ranged from $1.2 million to $63.2 million and closed between January 1, 2015 and the present. Transactions without publicly available data were not considered in Roth's analysis. The target in each transaction had exposure to industrial metals, either via exploration, mining or development.
For each of the selected transactions, Roth reviewed the enterprise value in the transaction as a multiple of LTM revenue, LTM EBITDA, and LTM mineral resources, and reviewed Alabama Graphite's offer multiple against the multiples paid in these comparable transactions. Such multiples for the selected transactions were based on publicly available information at the time of the relevant transaction. The selected transactions analyzed are set out in the following table:
Date
|
Target | Buyer | ||
---|---|---|---|---|
07/24/17 | Cobalt X | Cohiba Minerals | ||
07/07/17 | MMG Limited-Avebury Mine | Dundas Mining | ||
05/30/17 | Lithium X | Pure Energy Minerals | ||
05/10/17 | Zoro Lithium | Far Resources | ||
12/05/16 | Eyre Peninsula Minerals | Renascor Resources | ||
12/01/16 | Dakota Minerals-Lynas Find Project | Pilbara Minerals | ||
07/21/16 | Glen Eagle Resources | Sayona Mining | ||
07/11/16 | Graphite Advancement | Armadale Capital | ||
06/08/16 | Lepidico Limited | Lepidico | ||
09/04/15 | Lithium Americas | Western Lithium | ||
03/31/15 | Ivanplats | CleanTeQ Metals |
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|
Transaction
Value ($M) |
EV/LTM
Revenue |
EV/LTM
EBITDA |
EV/Pound | |||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Minimum |
$ | 1.2 | NA | NA | $ | 0.5x | |||||||
25th percentile |
$ | 2.1 | NA | NA | $ | 0.8x | |||||||
Median |
$ | 3.2 | NA | NA | $ | 2.3x | |||||||
75th percentile |
$ | 9.3 | NA | NA | $ | 12.8x | |||||||
Maximum |
$ | 63.2 | NA | NA | $ | 28.4x | |||||||
Alabama Graphite |
$ | 18.5 | NM | NM | $ | 4.7x |
Roth performed an analysis of the premiums paid in 110 acquisitions, from January 1, 2017 to December 10, 2017, by publicly traded industrial mineral companies. Using publicly available information, Roth reviewed the transaction value, calculated the premium each transaction price represented relative to the stock price for the 1-day, 7-day and 30-day period, and then compared the premiums so calculated, to the premiums paid in comparable transactions.
Roth used the share prices listed above as the most appropriate time frame for comparison in its analysis. The results of this analysis are summarized in the following table:
Date
|
Target | Buyer | ||
---|---|---|---|---|
09/28/17 | Exa | Dassault Systemes | ||
09/18/17 | Dimension Therapeutics | Ultragenyx Pharmaceutical | ||
08/29/17 | The Advisory Board | Optum | ||
08/28/17 | Kite Pharma | Gilead Sciences | ||
08/28/17 | Maxpoint Interactive | Harland Clarke | ||
08/14/17 | Neff | United Rentals | ||
08/10/17 | Starwood Waypoint Homes | Invitation Homes | ||
08/09/17 | i-Cable | Communications Sharehlders | ||
07/31/17 | CDI | AE Industrial Partners | ||
07/27/17 | ShoreTel | Mitel Networks | ||
07/26/17 | State National Cos | Markel | ||
07/26/17 | Guidance Software | OpenText | ||
07/24/17 | NeuroDerm | Mitsubishi Tanabe Pharma | ||
07/24/17 | WebMD | Health Internet Brands | ||
07/18/17 | Rocket Fuel | Sizmek | ||
07/17/17 | Sevcon Borg | Warner | ||
07/09/17 | ClubCorp Holdings | Apollo Global Management | ||
07/04/17 | Monogram Residential Trust | Monogram Residential | ||
07/03/17 | NCI | HIG Capital | ||
07/03/17 | Bankrate | Red Ventures | ||
07/02/17 | MRV Communications | ADVA Optical Networking | ||
06/30/17 | Parkway | Canada Pension Plan | ||
06/29/17 | West Marine | Monomoy Capital | ||
06/28/17 | First Potomac Realty Trust | Govt Ppty Income | ||
06/28/17 | Spectranetics | Koninklijke Philips | ||
06/28/17 | Staples | Sycamore Partners | ||
06/22/17 | EnerNOC | EGP-NA | ||
06/21/17 | ARI Network Services | True Wind Capital | ||
06/20/17 | PAREXEL International | Pamplona Capital | ||
06/19/17 | Rice Energy | EQT | ||
06/16/17 | Whole Foods Market | Amazon.com |
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Date
|
Target | Buyer | ||
---|---|---|---|---|
06/14/17 | Rightside Group | Donuts | ||
06/14/17 | Wolverine Bancorp | Horizon Bancorp | ||
06/13/17 | ProPhase Labs | ProPhase Labs | ||
06/12/17 | First South Financial | Bancorp Carolina | ||
06/09/17 | DuPont Fabros Technology | Digital Realty Trust | ||
06/06/17 | Albany Molecular | Research Albany Molecular | ||
06/05/17 | Covisint | OpenText | ||
06/05/17 | Forestar Group | DR Horton | ||
05/30/17 | Atwood Oceanics | Ensco | ||
05/30/17 | Xactly | Vista Equity Partners | ||
05/29/17 | CardConnect | First Data | ||
05/24/17 | Fidelity & Guaranty | Life CF | ||
05/23/17 | Global Sources | Expo Holdings | ||
05/22/17 | Nutraceutical International | HGGC | ||
05/15/17 | Patheon | Thermo Fisher | ||
05/09/17 | Surgery Partners | Bain Capital | ||
05/09/17 | West | Apollo Global | ||
05/08/17 | Kate Spade & Co | Coach | ||
05/07/17 | Care Capital Properties | Sabra Health Care | ||
05/05/17 | VWR | Avantor Performance | ||
05/04/17 | Capital Bank Financial | First Horizon National | ||
05/02/17 | OneBeacon Insurance Group | Intact Financial | ||
05/01/17 | Angie's List | HomeAdvisor | ||
05/01/17 | Span-America Medical Systems | Savaria | ||
05/01/17 | Jive Software | Wave Systems | ||
05/01/17 | ASB Bancorp | First Bancorp | ||
04/27/17 | Park Sterling | South State | ||
04/25/17 | Nord Anglia Education | Bach Finance | ||
04/25/17 | AdvancePierre Foods | Tyson Foods | ||
04/24/17 | FelCor Lodging Trust | RLJ Lodging | ||
04/17/17 | Western Refining Logistics | Tesoro Logistics | ||
04/17/17 | MOCON | AMETEK | ||
04/13/17 | Nexvet Biopharma | Zoetis Bidco | ||
04/11/17 | UCP | Century Communities | ||
04/10/17 | RetailMeNot | Harland Clarke | ||
04/10/17 | Swift Transportation | Knight Transportation | ||
04/10/17 | Intrawest Resorts | Hawk Holding | ||
04/05/17 | Panera Bread | Investor Group | ||
04/04/17 | Innocoll Holdings | Lough Ree Tech | ||
04/03/17 | Syneron Medical | Lupert | ||
03/31/17 | TRC Cos | New Mountain | ||
03/29/17 | EXAR | MaxLinear | ||
03/19/17 | Dominion Diamond | The Washington | ||
03/17/17 | Wells Financial | Citizens Community | ||
03/15/17 | KCG Holdings | Virtu Financial | ||
03/14/17 | Air Methods | American Securities | ||
03/13/17 | Mobileye | Cyclops Holdings | ||
03/07/17 | Astoria Financial | Sterling Bancorp | ||
03/07/17 | Nimble Storage | Hewlett Packard | ||
03/07/17 | TerraForm Power | Brookfield Asset |
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Date
|
Target | Buyer | ||
---|---|---|---|---|
03/02/17 | VTTI Energy Partners | VTTI BV | ||
02/27/17 | Silver Bay Realty Trust | Tricon Capital Group | ||
02/24/17 | DigitalGlobe | MacDonald Dettwiler | ||
02/21/17 | Delta Natural Gas | Peoples Natural Gas Co | ||
02/21/17 | Popeyes Louisiana Kitchen | Restaurant Brands | ||
02/20/17 | Lumos Networks | EQT Infrastructure | ||
02/17/17 | FBR & Co | B Riley Financial | ||
02/16/17 | LMI Aerospace | Sonaca | ||
02/14/17 | Cynosure | Hologic | ||
02/13/17 | ZELTIQ Aesthetics | Allergan | ||
02/06/17 | Virtus Total Return | Zweig Fund | ||
02/02/17 | Ultratech Veeco Instruments | |||
02/01/17 | Mead Johnson Nutrition | Reckitt Benckiser Group | ||
02/01/17 | ONEOK Partners | ONEOK | ||
01/30/17 | IXIA | Keysight Technologies | ||
01/27/17 | Stonegate Mortgage Home | Point Financial | ||
01/27/17 | Midcoast Energy | Enbridge Energy | ||
01/24/17 | Arctic Cat | Textron | ||
01/24/17 | GenVec | Intrexon | ||
01/24/17 | Multi Packaging Solutions | WestRock | ||
01/23/17 | BNC Bancorp | Pinnacle Financial | ||
01/18/17 | CoLucid Pharmaceuticals | Eli Lilly & Co | ||
01/16/17 | Clayton Williams Energy | Noble Energy | ||
01/10/17 | Derma Sciences | Integra LifeSciences | ||
01/09/17 | Pacific Continental | Columbia Banking System | ||
01/09/17 | VCA | Mars | ||
01/09/17 | ARIAD Pharmaceuticals | Kiku Merger | ||
01/09/17 | Surgical Care Affiliates | Optum | ||
01/05/17 | CEB | Gartner |
Date
|
Transaction
Value ($M) |
1-Day Stock
Premium (%) |
7-Day Stock
Premium (%) |
30-Day Stock
Premium (%) |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Minimum |
$ | 1.9 | (32.1 | ) | (27.8 | ) | (26.3 | ) | |||||
25th Percentile |
$ | 222.8 | 7.9 | 9.8 | 12.6 | ||||||||
Median |
$ | 885.4 | 19.1 | 22.3 | 25.9 | ||||||||
75th Percentile |
$ | 2,177.1 | 34.4 | 34.4 | 38.4 | ||||||||
Maximum |
$ | 16,650.6 | 388.7 | 803.0 | 878.2 | ||||||||
Alabama Graphite |
$ | 18.5 | 19.5 | 17.9 | 5.4 |
Roth performed a net present value analysis of the Arrangement by calculating the estimated net present value of the unlevered, after-tax free cash flows attributable to shareholders of Alabama Graphite as forecasted to be generated in 2018 to 2049 by accounting for revenue, earnings before interest and taxes ("EBIT"), change in working capital, income tax, and life of mine capital ("LoM Capital"). All of the information used in Roth's analysis was based on publicly available sources and the financial projections provided by Alabama Graphite's management.
In performing its discounted cash flow analysis, Roth calculated the estimated present values of Alabama Graphite's unlevered, after-tax free cash flows attributable to shareholders of Alabama Graphite that Alabama Graphite forecasted to generate in 2018 to 2049 by applying a discount rate
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ranging from of 7.7% 11.7%, reflecting Roth's estimates of Alabama Graphite's weighted-average cost of capital. The weighted-average cost of capital was calculated by adding (a) the market value of debt as a percentage of the total market value of Alabama Graphite's capital, multiplied by Alabama Graphite's estimated after-tax market cost of debt, and (b) the market value of equity as a percentage of the total market value of Alabama Graphite's capital multiplied by Alabama Graphite's estimated cost of equity. Alabama Graphite's estimated cost of equity was calculated using the Capital Asset Pricing Model which took into account Alabama Graphite's beta, betas of comparable companies, the risk-free rate, a historical equity market risk premium, a historical small capitalization risk premium, which risk premiums were sourced from the 2015 Valuation Handbook an industry risk premium.
Based on the foregoing, to arrive at the implied price per share, Roth added the sum of the present value of free cash flows to the product of the measured and indicated industrial metals resources times the dollars per pound, and subtracted the enterprise value to arrive at the net present value ("NPV"). Roth then calculated the implied share prices for Alabama Graphite's shares by subtracting Alabama Graphite's net debt and adding Alabama Graphite's equity from the NPV and dividing the result by 176.7 million, the number of fully diluted Alabama Graphite common shares outstanding. The analysis resulted in an implied price per Alabama Graphite common share of $0.09.
Roth also considered additional facts and data, including the high and low trading prices for Alabama Graphite's stock over the 52 weeks prior to September 20, 2017 and the premiums paid for other listed metal and mining industry companies with exposure to industrial metals. Roth also analyzed the ratio of enterprise value to measured and indicated resource data for both publicly traded comparable companies and precedent transactions. Additionally, Roth analyzed more qualitative aspects of WWR's acquisition of Alabama Graphite including that upon consummation of the acquisition, WWR will be able to diversify its current industrial metals resource base and increase economies of scale. As a result of the latter, WWR will:
The summary set forth above does not purport to be a complete description of the analysis performed by Roth, but simply describes, in summary form, the material analysis that Roth conducted in connection with rendering its opinion.
The preparation of a fairness opinion is a complex process and not readily susceptible to partial analysis or summary description. In arriving at its opinion, Roth did not attribute any particular weight to any analysis or factors it considered and did not form an opinion as to whether any individual analysis or factor, considered in isolation, supported or failed to support its opinion. Rather, Roth considered the totality of the factors and analysis performed in determining its opinion. Accordingly, Roth believes that the summary set forth above and its analysis must be considered as a whole and that selecting portions thereof, without considering all of its analysis, could create an incomplete view of the processes underlying its analysis and opinion.
Roth based its analysis on numerous assumptions, including assumptions concerning general business and economic conditions and industry-specific factors. Roth's analyses are not necessarily indicative of actual values or actual future results that might be achieved, which values may be significantly higher or lower than those indicated. Moreover, Roth's analyses are not and do not purport to be appraisals or otherwise reflective of the prices at which businesses actually could be bought or sold.
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The WWR Board retained Roth based on Roth's experience and reputation. Roth is regularly engaged to render financial opinions in connection with mergers, acquisitions, divestitures, leveraged buyouts, recapitalizations, and for other purposes. Roth will receive a fee of $105,000 for its services and legal expenses, no portion of which is contingent upon the successful completion of the Arrangement. WWR has also agreed to reimburse Roth for certain expenses and to indemnify Roth, its affiliates and certain related parties against certain potential losses, claims, damages and liabilities arising out of Roth's engagement. In the four years prior to the date of its opinion, Roth has also provided services in connection with two financings for WWR and received placement agent fees of approximately $1.3 million in connection with such services.
In the ordinary course of Roth's investment banking business, Roth, its affiliates, directors and officers may at any time acquire, hold or sell, for its and its affiliates' own accounts or for the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of WWR or Alabama Graphite, and, accordingly, may at any time hold a long or a short position in such securities.
Certain Financial Advisory Fees Paid by WWR
WWR has incurred and will incur significant financial advisory fees as part of the Arrangement. Upon the delivery of the fairness opinion, WWR paid Roth a financial advisory fee of $105,000. Upon the execution of the Arrangement Agreement, WWR paid a financial advisory fee to Cantor Fitzgerald $195,000, and upon the closing of the Arrangement the remaining $300,000 will be due and payable to Cantor Fitzgerald.
Board of Directors and Management of the Combined Company Following the Arrangement; Headquarters
There will be no change to the WWR Board or WWR's management team following the Arrangement. WWR's headquarters will remain at 6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112. Telephone: (303) 531-0516.
Federal Securities Laws Consequences; Stock Transfer Restrictions
The shares of WWR common stock to be issued in the Arrangement have not been, and are not expected to be registered under the Securities Act or the securities laws of any other jurisdiction. The shares of WWR common stock to be issued in the Arrangement, including shares underlying replacement warrants and options, will be issued pursuant to an exemption from the registration requirements provided by Section 3(a)(10) of the Securities Act based on the approval of the Arrangement by the Supreme Court of British Columbia.
Section 3(a)(10) of the Securities Act exempts securities issued in exchange for one or more bona fide outstanding securities from the general requirement of registration where the fairness of the terms and conditions of the issuance and exchange of the securities have been approved by any court or authorized governmental entity, after a hearing upon the fairness of the terms and conditions of exchange at which all persons to whom the securities will be issued have the right to appear and to whom adequate notice of the hearing has been given. If the Supreme Court of British Columbia approves the Arrangement, its approval will constitute the basis for the shares of WWR common stock, WWR options and WWR warrants to be issued without registration under the Securities Act in reliance on the exemption from the registration requirements of the Securities Act provided by Section 3(a)(10) of the Securities Act.
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The shares of WWR common stock and WWR options issued in the Arrangement to Alabama Graphite shareholders will be freely transferable under U.S. federal securities laws, except by persons who are deemed to be "affiliates" (as that term is defined under the Securities Act) of WWR, including persons who are deemed to have been affiliates of WWR within 90 days before the date of the closing of the Arrangement. In the event that the shares and options issued by WWR in the Arrangement are in fact held by affiliates of WWR, those holders may transfer the shares and options (i) in accordance with the provisions of Rule 144 promulgated under the Securities Act, or (ii) as otherwise permitted under the Securities Act. Rule 144 generally provides that "affiliates" of WWR may not sell securities of WWR received in the Arrangement unless the sale is effected in compliance with the volume, current public information, manner of sale and timing limitations set forth in such rule. These limitations generally permit sales made by an affiliate in any three-month period that do not exceed the greater of 1% of the outstanding shares of WWR common stock or the average weekly reported trading volume in such securities over the four calendar weeks preceding the placement of the sale order, provided that the sales are made in unsolicited, open market "broker transactions" and that current public information on WWR is available. Persons who may be deemed to be affiliates of an issuer generally include individuals or entities that directly or indirectly control, are controlled by, or are under common control with, that issuer and may include officers and directors of the issuer as well as beneficial owners of 10% or more of any class of capital stock of the issuer.
WWR will file a registration statement covering the WWR common stock underlying the Alabama Graphite warrants assumed by WWR pursuant to the Arrangement Agreement following the closing of the Arrangement in order to permit the warrants to be exercised for WWR common stock to be issued to the warrant holders.
In accordance with US GAAP, the Arrangement will be accounted for as a business combination using the acquisition method of accounting. WWR will be treated as the acquiror for accounting purposes.
Material U.S. Federal Income and Estate Tax Consequences for Non-U.S. Holders of Shares of Common Stock
The following is a discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of shares of WWR's common stock acquired in the Arrangement by a "Non-U.S. Holder" (as defined below) that does not own, and has not owned, actually or constructively, more than 5% of shares of WWR's common stock. You are a Non-U.S. Holder if for U.S. federal income tax purposes you are a beneficial owner of shares of WWR's common stock that is:
You are not a Non-U.S. Holder if you are a nonresident alien individual present in the United States for 183 days or more in the taxable year of disposition, or if you are a former citizen or former resident of the United States for U.S. federal income tax purposes. You are also not a Non-U.S. Holder if you are present in the United States for 31 days or more during the year of disposition and a total of 183 days or more over the current year and two preceding calendar years, counting days in the first preceding year as 1/3 of a day and days in the second preceding year as 1/6 of a day. If you are any such person, you should consult your tax advisor regarding the U.S. federal income tax consequences of the ownership and disposition of shares of WWR's common stock.
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If you are a partnership (or an entity or arrangement treated as a partnership for U.S. federal income tax purposes), the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and your activities. Partners and beneficial owners in partnerships that own shares of WWR's common stock should consult their tax advisors as to the particular U.S. federal income and estate tax consequences applicable to them.
This discussion is based on the U.S. Internal Revenue Code of 1986, as amended (the "Code"), administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, in each case in effect as of the date hereof. These authorities may change or be subject to differing interpretations. Any such change or differing interpretation may be applied retroactively in a manner that could adversely affect a Non-U.S. Holder of WWR's common stock.
This discussion is limited to Non-U.S. Holders that hold WWR's common stock as a "capital asset" within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not describe all of the tax consequences that may be relevant to you in light of your particular circumstances, including alternative minimum tax and Medicare contribution tax consequences and does not address any aspect of state, local or non-U.S. taxation, or any taxes other than income and estate taxes. You should consult your tax advisor with regard to the application of the U.S. federal tax laws to your particular situation, as well as any tax consequences arising under the laws of any state, local or non-U.S. taxing jurisdiction.
If distributions are paid on shares of WWR's common stock, those distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. To the extent those distributions exceed WWR's current and accumulated earnings and profits, they will constitute a return of capital, which will first reduce your basis in shares of WWR's common stock, but not below zero, and then will be treated as gain from the sale of shares of WWR's common stock, as described below under "Gain on Disposition of Shares of WWR's Common Stock."
Dividends paid to you generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, you will be required to provide a properly executed applicable U.S. Internal Revenue Service ("IRS") Form W-8 certifying your entitlement to benefits under a treaty.
If dividends paid to you are effectively connected with your conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base maintained by you in the United States), you will generally be taxed on the dividends in the same manner as a U.S. person. In this case, you will be exempt from the withholding tax discussed in the preceding paragraph, although you will be required to provide a properly executed IRS Form W-8ECI in order to claim an exemption from withholding. You should consult your tax advisor with respect to other U.S. tax consequences of the ownership and disposition of shares of WWR's common stock, including the possible imposition of a branch profits tax at a rate of 30% (or a lower treaty rate) on your effectively connected earnings and profits (subject to certain adjustments) if you are a corporation.
See also the section below titled " FATCA " for additional withholding rules that may apply to dividends paid to certain foreign financial institutions or non-financial foreign entities.
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Gain on Disposition of Shares of WWR's Common Stock
Subject to the discussions below under " Information Reporting and Backup Withholding " and " FATCA ," you generally will not be subject to U.S. federal income or withholding tax on gain realized on a sale or other taxable disposition of shares of WWR's common stock unless:
If you recognize gain on a sale or other disposition of shares of WWR's common stock that is effectively connected with your conduct of a trade or business in the United States (and if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base maintained by you in the United States), you will generally be taxed on such gain in the same manner as a U.S. person. You should consult your tax advisor with respect to other U.S. tax consequences of the ownership and disposition of shares of WWR's common stock, including the possible imposition of a branch profits tax at a rate of 30% (or a lower treaty rate) if you are a corporation.
WWR believes WWR is not currently and does not anticipate becoming a USRPHC. Because the determination of whether WWR is a USRPHC depends on the fair market value of WWR's U.S. real property interests relative to the fair market value of WWR's other business assets, however, there can be no assurance WWR is not a USRPHC or will not become one in the future. Even if WWR is or was to become a USRPHC, gain will not be subject to tax as U.S. trade or business income if your holdings (actually and constructively) at all times during the applicable period described in the second bullet point above constituted 5% or less of shares of WWR's common stock, provided that shares of WWR's common stock were "regularly traded," as defined by applicable Treasury regulations, on an established securities market during such period.
Non-U.S. Holders should consult their tax advisors regarding potentially applicable income tax treaties that may provide for different rules.
Information Reporting and Backup Withholding
Information returns are required to be filed with the IRS in connection with payments of dividends on shares of WWR's common stock. Unless you comply with certification procedures to establish that you are not a U.S. person, information returns may also be filed with the IRS in connection with the proceeds from a sale or other disposition of shares of WWR's common stock. You may be subject to backup withholding on payments on shares of WWR's common stock or on the proceeds from a sale or other disposition of shares of WWR's common stock unless you comply with certification procedures to establish that you are not a U.S. person or otherwise establish an exemption. Your provision of a properly executed applicable IRS Form W-8 certifying your non-U.S. status will permit you to avoid backup withholding, provided that the applicable withholding agent does not have actual knowledge or reason to know that you are not a Non-U.S. Holder.
Copies of information returns that are filed with the IRS may also be made available under the provisions of an applicable treaty or agreement to the tax authorities of the country in which the Non-U.S. Holder resides or is established.
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Backup withholding is not an additional tax. Amounts withheld under the backup withholding rules may be refunded or credited against your U.S. federal income tax liability, provided the required information is timely furnished to the IRS.
The Foreign Account Tax Compliance Act ("FATCA") imposes a 30% withholding tax on certain types of payments made to "foreign financial institutions" and other specified non-U.S. entities unless certain due diligence, reporting, withholding and certification requirements are satisfied.
As a general matter, FATCA withholding tax applies to dividends on, and gross proceeds from the sale or other disposition of, WWR's common stock if paid to a foreign entity unless:
An intergovernmental agreement between the United States and an applicable non-U.S. government may modify these rules. Withholding is required with respect to dividends on WWR's common stock and for dispositions that occur on or after January 1, 2019, with respect to gross proceeds from a sale or other disposition of WWR's common stock.
If withholding is imposed under FATCA on a payment related to WWR's common stock, a beneficial owner that is not a foreign financial institution and that otherwise would not be subject to withholding (or that otherwise would be entitled to a reduced rate of withholding) generally may obtain a refund from the IRS by filing a U.S. federal income tax return (which may entail significant administrative burden). You should consult your tax advisors regarding the effect of FATCA in your particular circumstances.
Individual Non-U.S. Holders and entities the property of which is potentially includible in such an individual's gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty exemption, our shares of common stock will be treated as U.S.-situs property subject to U.S. federal estate tax.
No Dissenters or Appraisal Rights
Under the General Corporation Law of the State of Delaware, our Restated Certificate of Incorporation and our Amended and Restated Bylaws, the holders of WWR common stock will not be entitled to dissenter's rights or appraisal rights in connection with the issuance of WWR common stock, WWR options or WWR warrants to the stockholders of Alabama Graphite pursuant to the Arrangement Agreement.
Alabama Graphite's Securityholder Approval
Alabama Graphite will hold a special meeting of its stockholders on or about March [ ], 2018 to consider and vote upon the resolution to approve the Arrangement Agreement and the
63
contemplated Arrangement, which resolution must be approved, with or without variation, by the affirmative vote of (i) at least two-thirds of the votes cast on the resolution by Alabama Graphite shareholders present in person or represented by proxy at such special meeting and (ii) at least two-thirds of the votes cast on the resolution by Alabama Graphite securityholders present in person or represented by proxy at such special meeting.
Alabama Graphite Shareholder Voting and Support Agreements
On December 13, 2017, WWR and 1143738 B.C. LTD (the "Purchaser") entered into the Voting and Support Agreements (the "Voting Agreements") with each of the directors and officers of Alabama Graphite and certain related shareholders (the "Supporting Shareholders"). The Voting Agreements set forth, among other things, the agreement of such shareholders to vote their Alabama Graphite common shares in favor of the Arrangement and any other matter necessary for the consummation of the Arrangement. See "Material Contracts Between WWR and Alabama GraphiteAlabama Graphite Shareholder Voting and Support Agreements" .
WWR entered into a Loan Agreement with Alabama Graphite and Alabama Graphite Sub (collectively, the "Borrower"), pursuant to which WWR is providing a secured convertible non-revolving line of credit to the Borrower of up to $2.0 million. See "Material Contracts Between WWR and Alabama GraphiteLoan Agreement" .
Nasdaq Listing Notification Requirement
Under the Nasdaq Listing Rule 5250(e)(2)(D), a Nasdaq listed corporation must notify Nasdaq of the issuance of additional shares in connection with the issuance of common stock, or any security convertible into common stock in a transaction that may result in the potential issuance of common stock (or securities convertible into common stock) greater than 10% of either the total shares outstanding or the voting power outstanding on a pre-transaction basis. WWR has so notified Nasdaq.
We will notify the TSX Venture Exchange of our intention to delist the Alabama Graphite common shares from the TSX Venture Exchange.
We will notify the Frankfurt Exchange of our intention to delist the Alabama Graphite common shares from the Frankfurt Exchange.
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INFORMATION ABOUT THE COMPANIES
Westwater
Resources, Inc.
6950 S. Potomac Street, Suite 300
Centennial, Colorado 80112
Telephone: (303) 531-0516
Westwater Resources, Inc. is focused on developing energy-related minerals. WWR has developed a dominant land position in three prospective lithium brine basins in Nevada and Utah in preparation for exploration and potential development of any lithium resources that may be discovered there. In addition, WWR remains focused on advancing the Temrezli in-situ recovery (ISR) uranium project in Central Turkey when uranium prices permit economic development of this project. WWR controls extensive exploration properties in Turkey under eight exploration and operating licenses covering approximately 39,000 acres (over 16,000 ha) with numerous exploration targets, including the potential satellite Sefaatli Project, which is 30 miles (48 km) southwest of the Temrezli Project. In Texas, WWR has two licensed and currently idled uranium processing facilities and approximately 11,000 acres (4,400 ha) of prospective ISR uranium projects. In New Mexico, WWR controls mineral rights encompassing approximately 186,000 acres (75,300 ha) in the prolific Grants Mineral Belt, which is one of the largest concentrations of sandstone-hosted uranium deposits in the world. Incorporated in 1977, WWR also owns an extensive information database of historic drill hole logs, assay certificates, maps and technical reports for uranium properties located in the Western United States.
WWR's common stock is listed on the Nasdaq Capital Market under the symbol "WWR."
For more information about WWR, please visit WWR's Internet website at www.westwaterresources.net. WWR's Internet website address is provided as an inactive textual reference only. The information contained on WWR's Internet website is not incorporated into, and does not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC.
Management's Discussion and Analysis of WWR's Financial Condition and Results of Operations
For the period ended September 30, 2017
Recent Developments
Change in Corporate Name
Effective August 21, 2017, WWR changed its name from "Uranium Resources, Inc." to "Westwater Resources, Inc." The name change was made pursuant to Section 242 of the Delaware General Corporation Law and did not affect the rights of WWR's security holders.
Lithium Business Expansion
On June 20, 2017, WWR acquired its third lithium exploration project, through the staking of 9,270 acres of federal placer mining claims within the Railroad Valley of central Nevada. The Railroad Valley project is located approximately 75 miles west of Ely, Nevada.
Columbus Basin Data Review and Exploration Drilling
On April 5, 2017, WWR announced that its independent geophysical consultant has completed the review, integration and reinterpretation of historical geophysical survey data acquired by WWR and covering its Columbus Basin lithium brine exploration project in Nevada. Among other things, the results of the work indicated that the depth of the Columbus Salt Marsh basin is greater than
65
previously anticipated and identified certain targets for lithium brine exploration. In July 2017, WWR began a Phase-1 exploration drilling program at the Columbus Basin Project.
On October 31, 2017, WWR announced that it has completed the Phase 1 exploration project at the Columbus Basin lithium brine exploration project in Nevada and reported the following results:
Planning is underway for a Phase 2 exploration program at the Project. As part of the Phase 2 program, Westwater has filed a Notice of Intent to drill in the Nina claim block and is evaluating the Phase 1 results and the results of drilling by Caeneus Minerals Ltd.
Sal Rica Exploration Planning
A brine sampling program at the Sal Rica Project was designed and implemented to infill previous shallow aquifer sampling completed by Mesa Exploration Corp. in 2016. The resultant combination of the new Westwater data and the existing Mesa Exploration Corp. data now provide shallow aquifer lithium concentration data on variable 1 to 2 mile centers, depending on site accessibility, across the entirety of the 13,260 acre project area.
In addition to the recent groundwater sampling event, Westwater has also completed new geophysical interpretations of the Sal Rica Project area. This data is being integrated into a conceptual model of the exploration target, and will guide the ongoing planning of a drilling and hydrogeologic characterization program to further expand and define the shallow, lithium bearing, brine aquifer. So far this work has outlined a strong lithium brine anomaly that covers an area of over twenty (20) square miles, with lithium values up to 100 ppm, all at shallow depths.
Westwater has commenced the permitting process with the Bureau of Land Management ("BLM"), and the State of Utah, to field an exploration program that optimizes project access and limits environmental disturbance, minimizes cost, and maximizes overall data quality.
On December 18, 2017, WWR announced that it had completed an evaluation and analysis of previously acquired geophysical data covering the Sal Rica lithium brine exploration project in the Pilot Valley of western Utah, and WWR has commenced exploration drill program planning and permitting.
Option Agreement for Lithium Brine Claims
On March 24, 2017, WWR's wholly owned subsidiary Lithium Holdings Nevada LLC entered into an option agreement to purchase a block of unpatented placer mining claims covering an area of approximately 3,000 acres within the Columbus Salt Marsh area of Esmeralda County, Nevada. The claims adjoin a portion of WWR's current property holdings at its Columbus Basin Project, expanding the project area within the basin to approximately 14,200 acres. WWR has the right to conduct exploration activities on the claims during the one-year option period. Under the option agreement, WWR may acquire the mineral property claims on or before March 24, 2018 in exchange for 200,000 shares of WWR common stock and a 1% net smelter return royalty on the claims.
Retirement of the RCF Loan
On February 9, 2017, WWR paid $5.5 million in cash, plus accrued and unpaid interest, to Resource Capital Fund V L.P. ("RCF") to retire all of the obligations remaining under the loan
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agreement with RCF, dated November 13, 2013 (the "RCF Loan"), and thereafter, the loan agreement itself terminated pursuant to its terms. In addition, on July 31, 2017, WWR and RCF terminated the Stockholders' Agreement dated March 1, 2012, pursuant to which RCF had certain stock participation rights and Board rights.
Common Stock Purchase Agreement with Aspire Capital
On September 25, 2017, WWR entered into the Common Stock Purchase Agreement (the "CSPA") with Aspire Capital Fund, LLC ("Aspire Capital") to place up to $22.0 million in the aggregate of WWR's common stock on an ongoing basis when required by WWR over a term of 30 months. WWR will control the timing and amount of sales to Aspire Capital, and at a price based on market prices at that time. As consideration for Aspire Capital entering into the purchase agreement, WWR issued 880,000 shares of its common stock to Aspire Capital. The shares of common stock subject to the CSPA were registered pursuant to WWR's effective shelf registration statement on Form S-3.
On September 27, 2017, as a provision of the CSPA and after satisfaction of certain commencement conditions, Aspire Capital made an initial purchase of 1,428,571 shares of common stock for which WWR received proceeds of $2.0 million. There were no other sales of common stock pursuant to the CSPA and as of November 9, 2017, $20.0 million of the aggregate $22.0 million remained available for future sales under the CSPA.
Controlled Equity Offering Sales Agreement
On April 14, 2017, WWR entered into the into a Controlled Equity Offering Sales Agreement SM with Cantor Fitzgerald & Co. ("Cantor") acting as sales agent, pursuant to which WWR has registered the offer and sale from time to time of shares of its common stock having an aggregate offering price of up to $30.0 million (the "ATM Offering"), which shares are registered under a registration statement on Form S-3, which was declared effective on March 9, 2017. WWR pays Cantor a commission up to 3.0% of the gross proceeds from the sale of any shares pursuant to the ATM Offering. As of November 9, 2017, WWR had sold 673,853 shares of common stock for net proceeds of $1.1 million under the ATM Offering. As a result, WWR had approximately $28.9 million remaining available for future sales under the ATM Offering.
Other Offerings
On January 19, 2017, WWR raised $8.9 million in net proceeds through the registered sale of approximately 1.4 million shares of common stock and pre-funded warrants to purchase approximately 3.4 million shares of common stock at $0.01 per share. Also, on February 16, 2017, WWR raised approximately $4.5 million in additional net proceeds through the registered sale of 2.1 million shares of common stock and pre-funded warrants to purchase approximately 0.7 million shares of common stock at $0.01 per share. All of the pre-funded warrants were subsequently exercised.
Closing of Sale of HRI
On January 5, 2017, WWR completed the sale of its wholly owned subsidiary Hydro Resources Inc. ("HRI"), which held WWR's Crownpoint and Churchrock properties, to Laramide Resources Ltd. ("Laramide") for $2.5 million in cash, common stock and warrants from Laramide valued at $0.5 million, and a three-year installment promissory note in the amount of $5.0 million. WWR also retained a 4% Net Smelter Returns Royalty ("NSR Royalty") on the Churchrock project, which Laramide may purchase for $4.95 million during the first year following the closing of the transaction. In addition, WWR has an option to purchase Laramide's La Sal project for $3.0 million
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and an option to purchase Laramide's La Jara Mesa project in Cibola County, New Mexico for $5.0 million, both of which options expire in January 2018.
Results of Operations
Summary
Our consolidated net loss for the three months ended September 30, 2017 was $3.0 million, or $0.12 per share, as compared with $3.7 million, or $0.38 per share for the same period in 2016. For the three months ended September 30, 2017, the decrease in our consolidated net loss of $0.7 million from the respective prior period was mostly the result of a decrease in interest expense of $0.7 million.
Our consolidated net loss for the nine months ended September 30, 2017 was $3.8 million, or $0.16 per share, as compared with $12.6 million, or $1.81 per share for the same period in 2016. For the nine months ended September 30, 2017, the decrease in our consolidated net loss of $8.8 million from the respective prior period was the result of a gain on the disposal of our Churchrock and Crownpoint projects of $4.9 million, a decrease in interest expense of $2.2 million, a decrease in the impairment of uranium properties of $0.5 million, a decrease general administrative expenses of $1.1 million, a decrease in commitment fees of $0.3 million and a decrease of $0.1 million due to a loss on the sale of marketable securities in 2016. Offsetting these amounts was an increase in mineral property expenses of $0.7 million.
Mineral Property Expenses
The following table details our mineral property expenses for the three and nine months ended September 30, 2017 and 2016:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
|
(thousands of dollars)
|
||||||||||||
Restoration/Recovery expenses |
|||||||||||||
Rosita Project |
$ | 71 | $ | 18 | $ | 160 | $ | 6 | |||||
Total restoration/recovery expenses |
71 | 18 | 160 | 6 | |||||||||
Standby care and maintenance expenses |
|||||||||||||
Kingsville Dome Project |
153 | 166 | 477 | 467 | |||||||||
Rosita Project |
74 | 73 | 258 | 233 | |||||||||
Vasquez Project |
117 | 105 | 308 | 275 | |||||||||
Temrezli Project |
41 | 31 | 164 | 453 | |||||||||
Total standby care and maintenance expenses |
385 | 375 | 1,207 | 1,428 | |||||||||
Exploration and evaluation costs |
423 | 86 | 609 | 92 | |||||||||
Land maintenance and holding costs |
437 | 560 | 1,661 | 1,382 | |||||||||
Total mineral property expenses |
$ | 1,316 | $ | 1,039 | $ | 3,637 | $ | 2,908 |
For the three and nine months ended September 30, 2017, mineral property expenses increased by $0.3 million and $0.7 million, respectively, from the corresponding periods during 2016. For the three month period, exploration costs increased by $0.3 million, which was partially offset by a decrease in land and maintenance costs of $0.1 million. For the nine month period, exploration costs increased by $0.5 million, Rosita restoration costs increased by $0.2 million and land and maintenance costs increased by $0.3 million, and Temrezli standby costs decreased by $0.3 million.
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General and Administrative Expenses
Significant expenditures for general and administrative expenses for the three and nine months ended September 30, 2017 and 2016 were:
|
For the Three Months
Ended September 30, |
For the Nine Months
Ended September 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
|
(thousands of dollars)
|
||||||||||||
Stock compensation expense |
$ | 24 | $ | 75 | $ | 62 | $ | 545 | |||||
Salaries and payroll burden |
614 | 846 | 1,796 | 2,144 | |||||||||
Legal, accounting, public company expenses |
648 | 2,251 | 2,266 | ||||||||||
Insurance and bank fees |
149 | 127 | 370 | 405 | |||||||||
Consulting and professional services |
21 | 28 | 44 | 190 | |||||||||
Office expenses |
148 | 126 | 364 | 392 | |||||||||
Other expenses |
26 | 33 | 89 | 93 | |||||||||
Total |
$ | 1,700 | $ | 1,883 | $ | 4,976 | $ | 6,035 |
For the three months ended September 30, 2017, general and administrative charges decreased by $0.2 million as compared with the corresponding period in 2016. This decrease was primarily due to decreases in salaries expense and stock compensation expense of $0.3 million, which was partially offset by an increase in legal, accounting and public company expenses of $0.1 million.
For the nine months ended September 30, 2017, general and administrative charges decreased by $1.1 million as compared with the corresponding period in 2016. This decrease was primarily due to decreases in stock compensation expense and salaries and payroll burden of $0.8 million and consulting and professional services of $0.1 million.
Other Income and Expenses
Loss on Sale of Marketable Securities
On February 22, 2016, we received proceeds of $0.2 million from the sale of our 76,455 shares of Energy Fuels Inc. common stock that we received as partial consideration for the sale of our Roca Honda assets during 2015. We recorded a loss of $0.1 million as the difference between the fair value on the date we received the shares of $0.3 million and the proceeds received of $0.2 million.
Gain on Disposal of Uranium Properties
On January 5, 2017, we completed the sale of our wholly-owned subsidiary HRI, which holds the Churchrock and Crownpoint projects, to Laramide pursuant to the Laramide SPA. Under the terms of the Laramide SPA, executed on April 7, 2016 and amended on December 5, 2016, we received the following consideration:
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basis, provided however that no interest will be payable until March 31, 2018. Laramide will have the right to satisfy up to half of each of these payments by delivering shares of its common stock to WWR, which shares will be valued by reference to the VWAP for Laramide's common stock for the 20 trading days before the respective anniversary of January 5, on which each payment is due;
The divestiture of HRI was accounted for as an asset disposal and the non-cash consideration received from Laramide was recorded at fair value. The fair value of the shares of Laramide common stock received was determined using the closing share price of Laramide's stock on January 5, 2017. The fair value of the common stock purchase warrants was determined using the Black-Scholes method on April 27, 2017, which was the date that Laramide's stockholders approved the issuance of the warrants. The fair value of the notes receivable was determined using the present value of the future cash receipts discounted at a market rate of 9.5%. We did not record a separate fair value for the options as the exercise of the options would reduce the amount outstanding under the notes receivable. Due to the high degree of uncertainties surrounding future mine development and minerals prices, as well as limited marketability, WWR determined the fair value of the NSR Royalty to be nil. We recorded the following gain on disposal of uranium properties within our Condensed Consolidated Statement of Operations:
(thousands of dollars)
|
|
|||
---|---|---|---|---|
Total consideration received |
$ | 6,525 | ||
Carrying value of Churchrock project |
(2,123 | ) | ||
Carrying value of other plant and equipment |
(31 | ) | ||
Accounts payable |
1 | |||
Asset retirement obligation |
105 | |||
Royalty payable on Churchrock project |
450 | |||
| | | | |
Gain on disposal of HRI |
$ | 4,927 | ||
| | | | |
| | | | |
| | | | |
Loss on Extinguishment of Convertible Debt
On February 9, 2017, we repaid $5.5 million outstanding under the RCF Loan. Upon repayment, we recognized a loss of $39,000, which represented the difference between the $5.5 million principal amount and the carrying value of the RCF Loan on the date of repayment.
Interest income of $0.2 million for the three months ended September 30, 2017 consisted of accrued interest receivable of $0.1 million on the Laramide Notes and amortization of $0.1 million on the discount on the Laramide Notes.
Interest income of $0.4 million for the nine months ended September 30, 2017 consisted of accrued interest receivable of $0.2 million on the Laramide Notes and amortization of $0.4 million on the discount on the Laramide Notes. These amounts were partially offset by interest expense of $0.2 million associated with the RCF Loan prior to repayment.
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Interest expense of $0.7 million for the three months ended September 30, 2016 consisted of interest of $0.2 million payable to RCF, and amortization of the debt discount of $0.5 million.
Interest expense of $2.2 million for the nine months ended September 30, 2016 consisted of interest of $0.7 million payable to RCF, amortization of the debt discount of $1.4 million and amortization of the establishment fee of $0.1 million.
Commitment fees expense of $0.3 million for the nine-months ended September 30, 2016 was the result of the issuance of 75,000 shares of our common stock to Aspire Capital on February 4, 2016 as consideration for Aspire Capital entering into an option agreement with us. The shares had a fair value of $4.44 per share.
Financial Position
Operating Activities
Net cash used in operating activities was $8.9 million for the nine months ended September 30, 2017, as compared with $9.8 million for the same period in 2016. The decrease of $0.9 million in cash used is mostly due to a decrease in interest expense of $0.3 million, an increase in interest income of $0.4 million and an aggregated decrease in operating expenses of $0.3 million.
Investing Activities
Net cash provided by investing activities was $1.9 million for the nine months ended September 30, 2017, as compared with $0.3 million for the same period in 2016. For the 2017 period, we received $2.0 million, net of expenses, from the sale of our wholly-owned subsidiary, HRI to Laramide which closed on January 5, 2017. For the 2016 period, we received $0.2 million from the sale of short-term investments.
Financing Activities
Net cash provided by financing activities was $10.9 million for the nine months ended September 30, 2017. For the nine months ended September 30, 2017, net cash proceeds of $15.4 million were received upon equity financings completed in January, February and September 2017, respectively. Additionally, $1.0 million was received from the sale of common stock sold through WWR's ATM Offering. This increase was offset by the repayment of $5.5 million outstanding under the RCF Loan.
Net cash provided by financing activities was $12.5 million for the nine months ended September 30, 2016. For the nine months ended September 30, 2016, net cash proceeds of $0.8 million and $1.2 million were received upon equity financings completed on February 4, 2016 and April 4, 2016, respectively. $4.7 million in net proceeds were received from the sale of common stock to Aspire Capital under the terms of the 2016 Common Stock Purchase Agreement and $5.8 million in net proceeds were received from the sale of common stock sold through WWR's prior ATM program with BTIG.
Liquidity and Capital Resources
At September 30, 2017, WWR had working capital of $8.2 million, which along with the anticipated funding from the financing agreements described below is expected to provide it with the necessary liquidity through September 30, 2018. At December 31, 2016, WWR had a working capital
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deficit of $4.2 million. The increase in working capital of $12.4 million for the nine months ended September 30, 2017 was primarily due to the following:
Also during the nine months ending September 30, 2017, WWR entered into the following financing agreements and anticipates funding from these sources to sustain operations through 2018:
On April 14, 2017, WWR entered into the ATM Offering with Cantor acting as sales agent, pursuant to which WWR has registered the offer and sale from time to time of shares of its common stock having an aggregate offering price of up to $30.0 million of which approximately $28.9 million is available for future sales as of November 9, 2017. WWR is unable to sell shares of its common stock through the ATM Offering on dates that it places shares with Aspire Capital through its CSPA, as discussed below.
On September 25, 2017, WWR entered into a CSPA with Aspire Capital to place up to $22.0 million in the aggregate of its common stock over a term of 30 months. Upon execution of the CSPA, WWR issued 880,000 shares of common stock to Aspire Capital as a commitment fee. WWR cannot sell in excess of 5,033,677 shares of common stock, the Exchange Cap, including the 880,000 commitment shares, unless (i) stockholder approval is obtained, or (ii) the average price paid for all shares issued under the CSPA (including the 880,000 commitment shares) is equal to or greater than $1.38. As of November 9, 2017, WWR has dollar capacity of $20.0 million of common stock available for future sales, limited to the current Exchange Cap of 2.7 million shares of common stock unless conditions (i) or (ii) above are met. See Note 9 to the accompanying condensed consolidated financial statements on page F.1-[ ] for further details.
WWR believes that the ATM Offering and the CSPA, along with its existing working capital balance, will provide it with the necessary liquidity to fund operations through 2018. WWR will also continue to explore additional opportunities to raise capital, further monetize its non-core assets and identify ways to reduce its cash expenditures.
While WWR has been successful in the past raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available to it in amounts sufficient to meet WWR's needs or on terms acceptable to WWR. In the event that funds are not available, WWR may be required to materially change its business plans.
Off-Balance Sheet Arrangements
WWR does not have any off-balance sheet arrangements.
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For the period ended December 31, 2016
Recent Developments
Equity Financings
On February 16, 2017, we completed a registered direct offering for gross proceeds of $4.5 million with Aspire Capital whereby Aspire Capital purchased 2,100,000 shares of common stock at a price of $1.58 and 748,101 pre-funded common stock purchase warrants at a price of $1.57. The warrants have an exercise price of $0.01 per share and a term of three years. As of March 2, 2017 all of the warrants have been exercised.
On January 19, 2017, WWR completed a registered public offering for gross proceeds of $9.7 million. WWR sold 1,399,140 shares of common stock at a price of $2.01 per share and 3,426,731 pre-funded warrants at a price of $2.00 per warrant. The warrants have an exercise price of $0.01. As of March 2, 2017 all of the warrants have been exercised.
On April 4, 2016, WWR completed a registered direct offering with Aspire Capital for gross proceeds of $1.25 million. WWR sold 375,000 shares of common stock at a price of $2.17 per share and 200,000 pre-funded warrants at a price of $2.16 per warrant, which was paid at closing. The warrants have an exercise price of $0.01 and a term of three years. On June 3, 2016, Aspire Capital exercised all 200,000 outstanding warrants for shares of WWR's common stock.
On February 3, 2016, WWR completed a registered direct offering with Aspire Capital for gross proceeds of $0.8 million. WWR sold 296,666 shares of common stock at a price of $2.82 per share. Net proceeds to WWR, after deducting offering expenses, were approximately $0.8 million.
Laramide Asset Sale
On January 5, 2017, WWR completed the sale of its wholly-owned subsidiary Hydro Resources, Inc., which holds the Churchrock and Crownpoint projects, to Laramide. Under the terms of the Laramide SPA, as amended on December 5, 2016, WWR received the following consideration:
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Exchange Agreement and RCF Loan Retirement
On December 5, 2016, WWR entered into the Esousa MEA with Esousa. Pursuant to the Esousa MEA, Esousa obtained the unilateral right to acquire shares of our common stock in exchange for one or more convertible promissory notes issued pursuant to that certain loan agreement dated November 13, 2013 (the "RCF Loan") by and among WWR, certain of its subsidiaries and Resource Capital Fund V L.P. ("RCF"), which RCF Loan evidenced $8.0 million of indebtedness of WWR. Esousa acquired or has the right to acquire the RCF Loan from RCF. On December 5, 2016, Esousa acquired $2.5 million of the RCF Loan from RCF and exchanged such amount for 2,487,562 shares of our common stock. Additional exchanges of the RCF Loan for shares of our common stock were subject to the prior approval of WWR's stockholders and the effectiveness of a registration statement covering the resale of the shares of our common stock. WWR called to order its Special Meeting of Stockholders on February 8, 2017 at which a quorum was not reached. Accordingly the Special Meeting was not duly convened. Following the Special Meeting, WWR and Esousa agreed to terminate the Esousa MEA. Upon termination of the Esousa MEA, WWR's Board of Directors agreed to repay the $5.5 million principal and accrued unpaid interest in cash on February 9, 2017 to retire all of the obligations remaining under the RCF Loan.
Acquisition of Lithium Properties
During 2016, WWR staked approximately 11,220 acres of placer mining claims covering a prospective target for lithium-enriched brines in the Columbus Salt Marsh area of west-central Nevada. The target area, known as the Nina property, is situated within a region of known lithium mineralization and is located approximately 45 miles west of Tonopah, Nevada. WWR now calls this the Columbus Basin project.
On October 19, 2016, WWR closed the Mesa SPA with Mesa to acquire approximately 9,900 acres of certain placer mining claims comprising the Sal Rica project. The target area is situated within a region of known brine-hosted lithium mineralization and is approximately 25 miles north of the town of Wendover, Utah. Subsequent to the purchase of these mining claims from Mesa, WWR staked an additional 3,360 acres of placer mining claims to expand the project area. As a result, the Sal Rica project is comprised of approximately 13,260 acres of placer mining claims covering a prospective target for lithium-enriched brines.
Under the terms of the Mesa SPA, WWR acquired a 100% interest in the Sal Rica project, subject to a 2% NSR Royalty, for the following consideration: (i) $50,000 cash paid to Mesa on October 19, 2016; (ii) 100,000 unregistered shares of WWR's common stock on October 19, 2016, with a resale registration statement filed with the SEC on November 16, 2016; and (iii) 100,000 unregistered shares of WWR's common stock to be issued on October 19, 2017, with a resale registration statement to be filed with the SEC by November 17, 2017.
Common Stock Purchase Agreement with Aspire Capital
On April 8, 2016, WWR entered into the CSPA with Aspire Capital to place up to $12.0 million in the aggregate of WWR's common stock on an ongoing basis when required by WWR over a term of 30 months. WWR will control the timing and amount of sales to Aspire Capital, and at a price based on the market at that time. As consideration for Aspire Capital entering into the CSPA, WWR issued 240,000 shares of its common stock to Aspire Capital upon WWR's receipt of shareholder approval at its Annual General Meeting of Stockholders which was held on June 7, 2016. These shares had a fair value of $2.18 per share, which has been included as additional paid in capital in WWR's Balance Sheet as of December 31, 2016. WWR began selling shares of its common stock to Aspire Capital under the terms of the CSPA following receipt of stockholder approval for the issuance of up to 5.0 million shares of common stock under the CSPA and effectiveness of an S-1 registration statement relating to the resale of the shares. As of December 31, 2016, WWR had sold 4,760,000 shares of common stock for net proceeds of $6.7 million under the CSPA.
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Reverse Stock Split
On February 11, 2016, at a Special Meeting of Stockholders, WWR received approval for a charter amendment permitting WWR to effect a reverse split. On March 7, 2016, following the close of trading, WWR effected a one-for-twelve reverse split of its common shares. The consolidated common shares began trading on a split-adjusted basis on March 8, 2016. The primary purpose of the reverse split was to bring WWR into compliance with the Nasdaq's $1.00 minimum bid price requirement to maintain WWR's stock listing on Nasdaq.
The reverse split reduced the number of WWR's outstanding common stock from 61,820,734 shares to 5,151,692 shares of common stock. In addition, effective upon the reverse stock split, the number of authorized shares of WWR's common stock was reduced from 200 million to 100 million. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would have resulted were settled in cash.
All share data herein has been retroactively adjusted for the reverse stock split.
Results of Operations
Summary
Our consolidated net loss for the years ended December 31, 2016 and 2015 was $19.6 million and $15.1 million or $3.73 and $5.63 per share, respectively. The principal components of these year-over-year changes are as follows:
|
For the year ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
Mineral property expenses |
$ | (3,248 | ) | $ | (4,470 | ) | |
General and administrative |
(7,650 | ) | (7,488 | ) | |||
Acquisition related expenses |
| (3,048 | ) | ||||
Other operating expenses |
(2,400 | ) | (1,746 | ) | |||
Non-operating income/(expenses) |
(6,307 | ) | 1,609 | ||||
| | | | | | | |
Total |
$ | (19,605 | ) | $ | (15,143 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
Mineral property expenses
Mineral property expenses for the year ended December 31, 2016 were $3.2 million, as compared with $4.5 million for the year ended December 31, 2015.
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The following table details our mineral property expenses for the years ended December 31, 2016 and 2015.
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
Restoration/Recovery expenses |
|||||||
Kingsville Dome project |
$ | | $ | | |||
Rosita project |
9 | 77 | |||||
Vasquez project |
| | |||||
| | | | | | | |
Total restoration/recovery expenses |
9 | 77 | |||||
Standby care and maintenance expenses |
|
|
|||||
Kingsville Dome project |
612 | 646 | |||||
Rosita project |
298 | 406 | |||||
Vasquez project |
365 | 416 | |||||
Temrezli project |
498 | 407 | |||||
| | | | | | | |
Total standby care and maintenance expenses |
1,773 | 1,875 | |||||
Exploration and evaluation costs |
486 |
620 |
|||||
Land maintenance and holding costs |
980 |
1,898 |
|||||
| | | | | | | |
Total mineral property expenses |
$ | 3,248 | $ | 4,470 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the year ended December 31, 2016, mineral property expenses decreased by $1.2 million as compared with the corresponding period in 2015. This decrease was due to reductions in land maintenance and holding costs of $0.9 million, exploration and evaluation costs of $0.1 million, standby care and maintenance expenses of $0.1 million and restoration/recovery expenses of $0.1 million, which were the result of the following:
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General and administrative expenses
Significant expenditures for general and administrative expenses for the years ended December 31, 2016 and 2015 were:
|
For the year ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
Stock compensation expense |
$ | 195 | $ | 950 | |||
Salaries and payroll burden |
3,055 | 2,276 | |||||
Legal, accounting, public company expenses |
3,129 | 2,557 | |||||
Insurance and bank fees |
525 | 571 | |||||
Consulting and professional services |
104 | 443 | |||||
Office expenses |
541 | 568 | |||||
Other expenses |
101 | 123 | |||||
| | | | | | | |
Total |
$ | 7,650 | $ | 7,488 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
General and administrative expenses increased by $0.2 million as compared with the corresponding period in 2015. This increase was mostly due to the following:
Acquisition related expenses
During 2015, we incurred acquisition related costs associated with the Anatolia Transaction of $3.0 million. These costs were mostly the result of legal and accounting costs of $1.7 million and consultant fees, including investment banking fees, of $1.3 million.
Non-operating income and expenses
Loss on extinguishment of convertible debt
On December 5, 2016 WWR entered into the Esousa MEA with Esousa whereby Esousa purchased $2.5 million of WWR's convertible debt and exchanged such debt into shares of common stock of WWR. As a result, the exchange of shares was considered an inducement under accounting rules and WWR recorded a loss of $3.3 million which was the difference between the fair value of shares exchanged and the fair value of the shares issuable pursuant to the terms of the RCF Loan.
Gain on disposal/exchange of uranium properties
On June 26, 2015, we entered into a Purchase and Exchange Agreement ("PEA") with Energy Fuels Inc. and a subsidiary of Energy Fuels Inc. (collectively, "Energy Fuels"), pursuant to which at closing on July 31, 2015 subsidiaries of WWR transferred ownership of the Roca Honda project, including mineral fee lands and unpatented lode mining claims to Energy Fuels. In exchange, Energy
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Fuels delivered to WWR (i) $2.5 million in cash, (ii) 76,455 shares of Energy Fuels common stock with a fair value upon closing of $0.3 million, which we sold on February 22, 2016 for $0.2 million (iii) Energy Fuels' 4% gross royalty covering 5,640 acres on seven mineral leases in the state of Wyoming at the Kendrick and Barber areas of the Lance uranium ISR project, which is currently under construction by Peninsula Energy Limited, and (iv) unpatented lode mining claims covering 640 acres located near Churchrock, New Mexico, which are contiguous with our Churchrock project.
We also retained a 4% royalty on Section 17 of the Roca Honda project. The royalty can be repurchased by Energy Fuels upon payment to WWR of $5.0 million cash at any time at Energy Fuel's sole discretion prior to the date on which the first royalty payment becomes due.
The divestiture of the Roca Honda project was accounted for as an asset disposal and the non-cash considerations received from Energy Fuels was recorded at fair value. The fair value of the shares of Energy Fuels common stock received was determined using the closing share price of Energy Fuels stock on July 31, 2015. The fair value of the unpatented lode mining claims and mineral leases was determined based upon the per pound value of similar transactions involving unproved uranium assets within the last three years. We determined that the Lance Royalty had de minimus value and therefore determined the fair value to be nil. The following gain was included in our Statement of Operations and was determined using the fair value amounts of the purchase consideration less the carrying value of the Roca Honda project:
(thousands of dollars)
|
|
|||
---|---|---|---|---|
Total Consideration Received |
$ | 4,916 | ||
Carrying value of Roca Honda project |
(648 | ) | ||
| | | | |
Gain on disposal of Roca Honda project |
$ | 4,268 | ||
| | | | |
| | | | |
| | | | |
Interest expense
Interest expense of $2.8 million for the year ended December 31, 2016 consisted of interest of $0.9 million payable to RCF, amortization of the debt discount of $1.8 million and amortization of the establishment fee of $0.1 million. Interest expense of $2.6 million for the year ended December 31, 2015 consisted of interest of $0.7 million payable to RCF, amortization of the debt discount of $1.8 million and amortization of the establishment fee of $0.1 million.
Commitment fees expense of $0.3 million for the nine months ended December 31, 2016 was the result of WWR's issuance of 75,000 shares of common stock to Aspire Capital on February 4, 2016 as consideration for Aspire Capital entering into the Option Agreement. The shares had a fair value of $4.44 per share.
Financial Position
Operating Activities
Net cash used in operating activities was $12.3 million for the year ended December 31, 2016, as compared with $12.0 million for the year ended December 31, 2015. The increase of $0.3 million in cash used is primarily due to an increase in cash used for accounts payable of $3.5 million in 2016, which was partially offset by a decrease in cash expenditures related to acquisition costs for the Anatolia Transaction of $3.0 million in 2015 which was not replicated in 2016.
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Investing Activities
Net cash provided by investing activities was $0.3 million for the year ended December 31, 2016, as compared with $1.1 million for the same period in 2015. For the 2016 period, WWR received $0.2 million from the sale of short-term investments and $0.1 million from the release of restricted cash accounts in Turkey. For the 2015 period, WWR received $2.5 million from Energy Fuels Inc. as partial consideration for the sale of the remaining Roca Honda project assets, which was offset by cash paid for the Anatolia Transaction of $1.4 million, which represented the amount loaned by WWR to Anatolia Energy to fund operations prior to completion of the Anatolia Transaction, offset by cash received from Anatolia Energy upon completion of the Anatolia Transaction.
Financing Activities
Net cash provided by financing activities was $14.5 million for the year ended December 31, 2016. During 2016, we received net cash proceeds of $0.8 million and $1.2 million upon closing the February 4, 2016 and April 4, 2016 registered direct offerings, respectively, $6.7 million in net proceeds were received from the sale of common stock to Aspire Capital under the terms of the CSPA and $5.8 million in net proceeds were received from the sale of common stock sold through WWR's ATM program.
Net cash provided by financing activities was $6.3 million for the year ended December 31, 2015. For 2015, we received net proceeds of $5.4 million from a registered direct offering completed on March 6, 2015, net proceeds of $0.7 million from a registered direct offering completed on December 18, 2015 and $0.3 million in net proceeds from common stock sold through our ATM program. Partially offsetting these amounts were payments made for withholding taxes on net share settlements of equity awards of $0.1 million.
Liquidity and Capital Resources
At December 31, 2016, WWR had a working capital deficit of $4.2 million as compared with a working capital deficit of $8.9 million as of December 31, 2015. The decrease in the working capital deficit of $4.7 million was primarily due to an increase in cash and cash equivalents of $2.4 million and an aggregate decrease in accounts payable and accrued liabilities of $2.0 million. The increase in cash and cash equivalents and the decrease in accounts payable and accrued liabilities reflect WWR's fundraising efforts during 2016, which included the completion of registered direct offerings on April 4, 2016 and February 4, 2016 for net proceeds of $1.2 million and $0.8 million, respectively, $6.7 million in net proceeds from the sale of common stock to Aspire Capital under the terms of the CSPA and $5.8 million in net proceeds from the sale of common stock sold through WWR's at-the-market sales program.
Subsequent to December 31, 2016, WWR received $2.2 million upon completion of the sale of its wholly-owned subsidiary Hydro Resources, Inc to Laramide on January 5, 2017 and received an aggregate $13.4 million upon completion of a public offering on January 19, 2017 and a registered direct offering on February 16, 2017. In addition, WWR repaid the remaining $5.5 million outstanding under the RCF Loan on February 9, 2017.
As a result of the above, WWR's cash balances were $10.4 million at February 28, 2017, which WWR expects will provide it the necessary liquidity through the first quarter of 2018. WWR also has $4.3 million available for future sales under the CPSA with Aspire Capital, but would need to obtain stockholder approval before issuing any additional shares under the CSPA. WWR continues to explore additional opportunities to raise capital, further monetize its non-core assets and identify ways to reduce its cash expenditures.
While WWR has been successful in the past raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be
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available to it in amounts sufficient to meet WWR's needs or on terms acceptable to WWR. In the event that funds are not available, WWR may be required to materially change its business plans.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Critical Accounting Policies
Our significant accounting policies are described in Note 3 to the consolidated financial statements in on page F.1-[ ]. We believe our most critical accounting policies involve those requiring the use of significant estimates and assumptions in determining values or projecting future costs.
Property, Plant and Equipment
We review and evaluate our long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows or upon an estimate of fair value that may be received in an exchange transaction. Future cash flows are estimated based on estimated quantities of recoverable minerals, expected U3O8 prices (considering current and historical prices, trends and related factors), production levels, operating costs of production, availability and cost of capital and restoration and reclamation costs, based upon the projected remaining future uranium production from each project.
The significant assumptions used in determining the future cash flows for our uranium properties and uranium plant assets at December 31, 2016 included an average long-term U3O8 price of $51.40 per pound and average operating costs and capital expenditure costs based on third-party and internal cost estimates. Estimates and assumptions used to assess recoverability of our long-lived assets and measure fair value of our uranium properties are subject to risk uncertainty. Changes in these estimates and assumptions could result in the impairment of our long-lived assets. Events that could result in the impairment of our long-lived assets include, but are not limited to, decreases in the future U3O8 prices, decreases in the estimated recoverable minerals and any event that might otherwise have a material adverse effect on our costs.
During 2016 and 2015, we recorded impairments of $1.7 million and $1.0 million, respectively, to reduce the carrying value of property, plant and mine equipment. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of uranium properties upon acquisition and, subsequently, in determining whether the assets are impaired. The term "recoverable minerals" refers to the estimated amount of uranium that will be obtained after taking into account losses during processing and treatment. In estimating future cash flows, assets are grouped at the lowest level for which there is identifiable cash flows that are largely independent of future cash flows from other asset groups.
Asset Retirement Obligations
Regarding our reserve for asset retirement obligations, significant estimates were utilized in determining the future costs to complete the groundwater restoration, plugging and abandonment of wellfields and surface reclamation at our ISR sites. Estimating future costs can be difficult and unpredictable as they are based principally on current legal and regulatory requirements and ISR site closure plans that may change materially. The laws and regulations governing ISR site closure and remediation in a particular jurisdiction are subject to review at any time and may be amended to impose additional requirements and conditions which may cause our provisions for environmental liabilities to be underestimated and could materially affect our financial position or results of operations. Estimates of future asset retirement obligation costs are also subject to operational risks such as acceptability of treatment techniques or other operational changes.
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Alabama
Graphite Corp.
First Canadian Place
100 King Street West
Suite 5700
Toronto, Ontario, M5X 1C7, Canada
Telephone: (416) 309-8641
Alabama Graphite Corp. is currently primarily engaged in exploration and evaluation of its 100%-owned Coosa graphite property, located in Alabama, USA and associated secondary processing to produce value-added graphite products, such as coated spherical purified graphite ("CSPG"). Alabama Graphite's secondary-processing, battery-ready research and development efforts are intended to find and discover ways to potentially produce downstream value-added graphite products, which involves further purification, micronization and, in the case of anode material for Li-ion batteries, shaping and coating efforts and capabilities. There has been no determination whether Alabama Graphite's exploration and evaluation assets contain mineral reserves and resources that are economically viable. There is no assurance that Alabama Graphite will eventually be able to commercially produce and sell any downstream, value-added graphite products from the Coosa graphite project or otherwise. Alabama Graphite has a disclosure of its Mineral Resource Estimate and Preliminary Economic Assessment for the Coosa Project in Coosa County, Alabama, USA, filed on SEDAR on October 13, 2015 and November 27, 2015 respectively.
Alabama Graphite Corp. was incorporated under the Business Corporations Act (British Columbia) on April 13, 2006. On August 28, 2012, Alabama Graphite changed its name to Alabama Graphite Corp. Alabama Graphite's common shares are currently listed for trading on the TSX Venture Exchange ("TSXV") (symbol "CSPG") and also trade on the OTCQB (symbol "CSPGF"). Alabama Graphite is a reporting issuer in British Columbia, Alberta and Ontario.
Management's Discussion and Analysis of Alabama Graphite's Financial Condition, Results of Operations, Properties and Other Information
Note: The functional currency of Alabama Graphite is Canadian dollar. "$" in this section " Management's Discussion and Analysis of Alabama Graphite's Financial Condition, Results of Operations, Properties and Other Information ", unless otherwise indicated, refers to Canadian dollars.
Property Descriptions & Exploration Work
CHESTNUT CREEK PROPERTY, CHILTON COUNTY, ALABAMA, USA
(PROPERTY ONE OF TWO WHICH COMPRISE THE BAMA MINE PROJECT)
On August 5, 2014, Alabama Graphite acquired a 100% right to explore, develop and mine the Chestnut Creek Property located in Chilton County, Alabama for a period of 10 years' renewable every five years thereafter for a maximum of 70 years. The Chestnut Creek Property comprises of approximately 1,160 acres located about 4 miles west of the Coosa County line and approximately 25 miles from Alabama Graphite's Coosa Graphite Project. Please refer to the notes to the financial statements under " Exploration and Evaluation Assets " on page F.2-[ ] for costs and terms of the acquisition agreement.
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BAMA PROPERTY, CHILTON COUNTY, ALABAMA, USA
(PROPERTY TWO OF TWO WHICH COMPRISE THE BAMA MINE PROJECT)
On September 1, 2014, Alabama Graphite entered into a mining lease agreement whereby Alabama Graphite acquired a 100% right to explore, develop and mine the Bama Property located in Chilton County, Alabama for a period of 10 years, renewable every five years thereafter for a maximum of 70 years. The Bama Property is comprised of approximately 200 acres located about 4 miles west of the Coosa County line. Please refer to the notes to the financial statements under " Exploration and Evaluation Assets " on page F.2-[ ] for costs and terms of the acquisition agreement.
On September 18, 2014, Alabama Graphite announced that it had entered into a mineral lease on a land package that includes the prior producing Bama flake graphite mine in Chilton County, Alabama, USA. The mineral lease comprises 200 acres. Alabama Graphite also signed a mineral exploration lease on several parcels comprising 1,160 acres adjacent to the Bama Mine called the Chestnut Creek Property. With the addition of these mineral rights properties in Chilton County, Alabama Graphite has a significant foothold within the Alabama Graphite Belt with two advanced-stage projects. Alabama Graphite considers The Chestnut Creek and Bama properties to be a single project, referred to as the Bama Mine.
The prior producing Bama Mine was the southern-most graphite mine in Alabama and the only one in Chilton County. It was one of the larger graphite mines and included an electrostatic separator in the mill building. As with the other graphite mines in Alabama, the Bama Mine shut down prior to the end of World War II, but not before a substantial volume of ore was extracted from the existing pit. In the late 1940s the US Bureau of Mines sampled all the known occurrences of graphite in Alabama and the published results showed the Bama Mine to be unique. A sample taken from the pit wall not only registered the highest percentage of graphite (7.85% Cg), but also contained 17% jumbo flake.
Alabama Graphite has conducted airborne Time Domain Electromagnetic (TDEM), magnetic and radiometric surveys over the area of interest in Chilton County. A 5 kg sample from the existing pit wall was collected for both graphitic carbon analyses and metallurgical testing.
The 5 kg composite sample was taken from the upper 50 ft of the existing Bama Mine pit wall. The following table presents the size flake distribution and concentrate purities of the sample. The sample's low sulphur content at 0.02% is noteworthy (see press release dated September 24, 2014).
Flake Size
|
Weight % | Assays %C(t) | |||||
---|---|---|---|---|---|---|---|
+48 mesh (Jumbo) |
17.8 | 98.5 | |||||
+65 mesh (Large) |
25.2 | 96.8 | |||||
+80 mesh (Large) |
11.7 | 96.4 | |||||
+100 mesh |
10.4 | 96.3 |
As with Alabama Graphite's Coosa Graphite Property, the Bama Mine Property contains a thick oxidized zone where weathering has both removed sulphide minerals and significantly reduced the hardness of the graphitic schist host.
On October 1, 2014, Alabama Graphite announced that it began surface exploration at its Bama Property and it had conducted detailed channel sampling. Of the six samples taken in total, four were taken from the existing pit wall of the prior producing Bama Mine and showed grades ranging from 2.81% to 5.24% Cg. In addition, KLM Geosciences concurrently performed a ground-based GEM2 geophysical survey.
Alabama Graphite has received the results of preliminary channel samples taken at the Bama Property. The majority of these samples were taken either across the historic workings within the Bama Mine pit or along roads around the mine. In all cases, multiple samples were taken to arrive at the
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composite sample width. Because no corrections were made for the dip of the compositional layering in the graphitic schists, they should be regarded as apparent rather than true widths. Samples CH-01, CH-02, CH-09 and CH-10 all came from locations along the existing pit wall and show grades ranging from 2.81% to 5.24% Cg. The other 2 samples (CH-06 & CH-08) were from outcrops surrounding the existing pit. These samples were analyzed by Activation Laboratories Ltd. ("Actlabs") in Ancaster, Ontario. Complete channel sample results are included in the table below:
Channel Number
|
Width | % Cg | |||||
---|---|---|---|---|---|---|---|
CH-01 |
15' | 3.91 | % | ||||
CH-02 |
10' | 5.24 | % | ||||
CH-06 |
20' | 2.94 | % | ||||
CH-08 |
25' | 3.01 | % | ||||
CH-09 |
10' | 4.62 | % | ||||
CH-10 |
30' | 2.81 | % |
On October 9, 2014, Alabama Graphite announced that it had completed ground geophysical surveys at the Bama Property. The surveys were conducted by KLM Geoscience using a GEM2 device. An additional 80.7 kilometers were run at the Bama Property.
On November 18, 2014, Alabama Graphite announced metallurgical results from three new composite samples taken from the upper 50 ft of the pit walls at the Bama Property. Using only simple floatation (without optimization, chemical or thermal treatment) sample V1 showed a head grade of 4.06% C(t) with 49.4 in the large and jumbo flake +80 mesh size fraction (of which 14.5% is jumbo, +48 mesh), sample V2 had a head grade of 3.48% with 46.10% +80 mesh (of which 15.4% is +48 mesh) and V3 had a head grade of 3.58% C(t) and 30.2% in the +80-mesh category (of which 7.6% is +48 mesh). The total range of purities started from a low of 93.8% C(t) to a high of 97.9% C(t) across all three samples. Complete results, including full results from the original sample, can be found on Alabama Graphite's filings on the SEDAR website released on September 24, 2014 from the exploratory cleaning batch.
Of note, the purities remained high even for the smaller flake sizes suggesting that the high purity could be maintained throughout the deposit using simple, less expensive, environmentally friendly, non-acidic processes. Most graphite operations either stockpile or sell at extremely low prices their small to medium flake because these flake sizes typically do not have high purities without expensive, chemical and heat treatment. The relatively high purity of the small to medium flake graphite at the Bama deposit suggests that this material may be marketable.
The composite samples were taken from the existing pit wall from three different locations than that of the original sample reported from the Bama Property on September 24, 2014. SGS Labs in Lakefield, Ontario, conducted analyses of the samples. SGS used 2 kg of feed material per sample for their analysis. Grinding, flotation and sieving analysis confirms preliminary results, which showed that the graphitic schists at the Bama Property are notable both for their high proportion of large flakes and their purity.
In November 2014, Alabama Graphite received the required permits from the Alabama Department of Environmental Management (ADEM) to begin exploration. Alabama Graphite initiated a trenching program at the site in January of 2015 followed by drilling to delineate the extent of the graphitic mineralization at the Bama Property.
On January 16, 2015, Alabama Graphite entered into an agreement with Harper Lumber LLC ("Harper Lumber") whereby Alabama Graphite acquired the right to conduct exploration within nine acres of certain properties situated in Chilton County during the period from January 16, 2015 to April 24, 2015. In consideration, Alabama Graphite agreed, among other conditions, to pay Harper
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Lumber $20,000 in cash. In connection with this agreement, Alabama Graphite started an exploration program in the Bama Mine Property within the Chilton County commencing from January 19, 2015.
On April 7, 2015, Alabama Graphite announced that it has received final assay results from a trenching program conducted at its Bama Mine Project in early 2015. The results identified new targets in close proximity to the historic Bama Mine with a number of sections averaging over 3% Cg. The purpose of the trenching was both to further evaluate areas adjacent to the historic mine as well as to test new areas where airborne geophysical anomalies and/or surface channel sampling has identified prospective targets. Bulk samples were also collected for future metallurgical testing.
Trenching was performed by a contractor using an excavator with all sampling and logging conducted by Alabama Graphite's personnel. Assay work was conducted by Actlabs. Samples were collected on five-foot intervals with the majority of the trenches cut perpendicular to the strike of foliation. In keeping with Alabama Graphite's environmental commitment, trenches are backfilled and reclaimed after sampling. Please refer to Alabama Graphite's news release dated April 7, 2015 for results of trenches.
Alabama Graphite wishes to emphasize that all of the results presented are from soft, oxidized material which differentiates the Alabama graphite deposits relative to other flake graphite occurrences in North America. The Bama Mine is of significant interest as both historical records and our own metallurgical testing indicates a very high proportion of coarse flake graphite. Alabama Graphite's test results suggest that there is the potential to develop another resource in close proximity to the former mine.
On May 26, 2015, Alabama Graphite also announced preliminary metallurgical results from trench samples taken from the Bama Project. Preliminary results are presented in the table below:
Sample
|
BT-1 | BT-3 | ||
---|---|---|---|---|
Location |
Bama North | Bama West | ||
Grade |
3.25% Cg | 3.11% Cg | ||
+80 mesh |
37.1% | 37.7% |
The above results show that Alabama Graphite continues to find large graphite flakes with soft oxidized material from surface trenching.
COOSA PROPERTY, COOSA COUNTY, ALABAMA, USA
In August and November 2012, Alabama Graphite acquired a 100% interest in the Coosa Property consisting of 41,964.38 acres (16,982.38 hectares) and located in Coosa County, Alabama, 50 miles ("mi") (80 kilometers) ("km") south-southeast of Birmingham. Please refer to the notes to the financial statements under " Exploration and Evaluation Assets " on page F.2-[ ] for costs and terms of the acquisition agreement.
The Coosa Graphite Project is located in the western part of Coosa County, State of Alabama, USA. The property covers parts of townships T. 21 N., T. 22 N., T. 23 N. and T. 24 N. and ranges R. 16 E., R. 17 E., R. 18 E. and R. 19 E. The western boundary is approximately the Coosa River. The center of the drill grid is at 32°54'30"N, 86°24'00" W. The property covers approximately 10 miles (16 kilometers) of strike length of graphitic schists, which includes several bands of graphitic schist in a zone up to 6 miles (9.6 km) wide.
The project is 50 mi (80 km) south-southeast of Birmingham (which has a population of approximately 1.1 million in the Birmingham-Hoover metropolitan area, per the 2010 US Census). Access to the project is by driving southeast from Birmingham-Shuttlesworth International Airport on U.S. Highway 280 for approximately 52 mi (84 km) to Sylacauga (which has a population of approximately 12,750, per the 2010 US Census) which is the closest small city with hotels and services.
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Alabama Graphite has its field office and core store here. Sylacauga's nickname is the "Marble City" as it is known for its fine white marble bedrock (specifically, calcium carbonate). This was discovered shortly after settlers moved into the area and has been quarried ever since. The marble industry was the first recorded industry in the Sylacauga area and is home to the world's largest marble quarryowned and operated by Imreys Carbonates LLC, a private company and a wholly owned subsidiary of Imreys S.A.which operates 24 hours a day, 365 days a year. From Sylacauga, it is approximately 24 mi (39 km) by road to Alabama Graphite's Coosa Graphite Project. The driving time from Birmingham to the project is approximately 90 to 120 minutes, and from Sylacauga to the property it is 45 to 60 minutes.
The property is close to centers of population which could supply the workforce and logistical needs of a graphite mine. The area within 10 mi (16 km) of the property is very sparsely populated, so a mine would directly affect very few people. Mining has been a traditional industry in the area.
There is no infrastructure in the immediate area of the property, other than a network of well-maintained logging access roads. An electrical transmission line occurs approximately 1 mi (1.6 km) west of the drill grid. Water is abundant in small streams and in Lake Mitchell, a large impoundment on the Coosa River at the western edge of the property.
Cautionary Notes to U.S. Investors Regarding Alabama Graphite's Estimates of Measured, Indicated and Inferred Resources
Alabama Graphite is a Canadian company and its mineral estimates in its Canadian securities filings and in this proxy statement have been prepared in accordance with the requirements of the securities laws in effect in Canada, which differ from the requirements of United States securities laws. As used in this proxy statement, the terms "mineral reserve" and "mineral resource" are Canadian mining terms as defined in accordance with Canadian National Instrument 43-101 "Standards of Disclosure for Mineral Projects" ("NI 43-101") and the Canadian Institute of Mining, Metallurgy and Petroleum (the "CIM") CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. These definitions differ from the definitions in the United States Securities and Exchange Commission ("SEC") Industry Guide 7 ("SEC Industry Guide 7"). Under SEC Industry Guide 7 standards, a "final" or "bankable" feasibility study is required to report reserves, the three-year historical average price is used in any reserve or cash flow analysis to designate reserves, and the primary environmental analysis or report must be filed with the appropriate governmental authority.
In addition, the terms "mineral resource", "measured mineral resource", "mineral resource stimate", "indicated mineral resource" and "inferred mineral resource" are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under SEC Industry Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC. Investors are cautioned not to assume that all or any part of a mineral deposit in these categories will ever be converted into reserves. "Inferred mineral resources" have a great amount of uncertainty as to their existence, and great uncertainty as to their economic and legal feasibility. It cannot be assumed that all, or any part, of an inferred mineral resource will ever be upgraded to a higher category. Under Canadian rules, estimates of inferred mineral resources may not form the basis of feasibility or pre-feasibility studies, except in rare cases. Investors are cautioned not to assume that all or any part of an inferred mineral resource exists or is economically or legally mineable. The SEC normally only permits issuers to report mineralization that does not constitute "reserves" by SEC Guide 7 standards as in place tonnage and grade without reference to unit measures.
Accordingly, information contained in this proxy statement contain descriptions of Alabama Graphite's mineral deposits that may not be comparable to similar information made public by U.S. companies subject to the reporting and disclosure requirements under the United States federal securities laws and the rules and regulations thereunder.
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Preliminary Economic Assessment
In summary, exploration works to date have defined a graphitic schist band with a strike length of 5,980 feet ("ft") (1,822.7 meters) ("m") with a true width of 1,200 ft. (365.8 m). Graphitic material is present in two types of schist, quartz-graphite schist (QGS) and intermediate QGS to quartz muscovite-biotite-graphite-schist (INT), that generally have grades > 1% Cg. The graphitic rich band is overlain and underlain by quartz-biotite-graphite-schist (QMBGS). This usually has grade <1% Cg, but with locally higher grades. The graphitic schist band has not been fully tested along strike and remains open in both directions.
On September 15, 2015, Alabama Graphite announced the construction of a pilot plant at SGS Mineral Services of Lakefield, Ontario with a 200-ton bulk sample of material from the Coosa Graphite Project.
On October 13, 2015, Alabama Graphite announced the completion of an updated Mineral Resource Estimate for the Coosa Graphite Project. The updated mineral resource estimate is based on both the 2012 and 2014-15 exploration and drilling programs, consisting of a total of 109 drill holes totaling 25,905 ft of drilling (including 40 new holes totaling 5,665.5 ft), plus 11 new trenches totaling 3,425 ft of sampling. The estimate was prepared by Metal Mining Consultants Inc. ("Metal Mining") of Highlands Ranch, Colorado, who also prepared an initial mineral resource estimate for the Coosa Graphite Project in 2013.
Alabama Graphite has filed its Preliminary Economic Assessment ("PEA") technical report, dated November 27, 2015, entitled, "Alabama Graphite Corp. Coosa Graphite Project, Alabama, USA Preliminary Economic Assessment" under Alabama Graphite's SEDAR profile at www.sedar.com and on its website at www.alabamagraphite.com. The Internet website addresses are provided as an inactive textual reference only. The information contained on the Internet websites are not incorporated into, and do not form a part of, this proxy statement or any other report or document on file with or furnished to the SEC.
On November 30, 2015, Alabama Graphite announced the results of a positive PEA for the Coosa Graphite Project. The PEA technical report was prepared pursuant to Canadian Securities Administrators' NI 43-101 by the independent engineering firm AGP Mining Consultants Inc. ("AGP") of Barrie, Ontarioin conjunction with Metal Mining; co-authors of the PEA and authors of the Coosa Graphite Project's updated Mineral Resource Estimate technical reportand demonstrates that the Coosa Graphite Project has strong economics and excellent potential to become a near-term producer of high-value, ultra-high-purity, specialty natural flake graphite products for the burgeoning American green-energy markets. The technical report concluded that the PEA is positive and recommends the Coosa Graphite Project be advanced to the feasibility stage of development.
Alabama Graphite's PEA diverges from most others in the flake graphite development space in that it addresses both primary and secondary processing to produce specialty, ultra-high-purity graphite products (finished products), as opposed to sole primary processing to make traditional graphite concentrates (unfinished products; an industrial mineral). Alabama Graphite does not intend to sell any graphite concentrate. This is a significant point of differentiation between Alabama Graphite and most other flake graphite development companies. Recent known flake graphite development companies' PEAs and Feasibility Studies have been based solely or primarily on the production of significant quantities of primary processed, run-of-mine ("ROM") graphite concentrates of various purities and flakes sizes. Alabama Graphite intends to divert 100% of its planned primary processed graphite to secondary processing to produce specialty graphite, specifically, Coated Spherical Purified Graphite ("CSPG") for use in secondary (rechargeable) lithium-ion ("Li-ion") batteries and Purified Micronized Graphite ("PMG") for use in primary (non-rechargeable) lithium batteries, lead-acid batteries, alkaline batteries, polymer, plastic and rubber composites, powder metallurgy, energy materials, and friction materials, among other applications. Note, PMG is a byproduct of Alabama Graphite's CSPG
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manufacturing process. As a result, Alabama Graphite's PEA incorporates mining and primary ROM processing capital and operating expenditures, as well as secondary processing, specialty battery-ready graphite capital and operating expenditures.
Highlights of the Coosa Graphite Project's PEA are summarized below:
Note: All dollar amounts are based in U.S. currency unless otherwise noted:
Cautionary Note to US Investors: The terms Indicated Resources as described above is as defined in Canadian National Instrument 43-101. This term is not defined under SEC Industry Guide 7 and is not recognized by the SEC. See " Cautionary Notes to US Investors Regarding Estimates of Measured, Indicated, and Inferred Resources " above.
A significant portion of the Coosa Graphite Project is characterized by graphite-bearing material that is oxidized and has been weathered into extremely soft rock. The Coosa property has infrastructure in place, is within close proximity to major highways, rail, power and water, and is approximately three hours (by truck or train) to the Port of Mobile, the Alabama State Port Authority's deep-seawater port
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and the ninth largest port by tonnage in the United States (source: U.S. Army Corps of Engineers/USACE). The state of Alabama's hospitable climate allows for year-round mining operations.
Coosa Graphite Project Mineral Resource Estimate
@ 1.0% Cg Cutoff
(effective date: October 13, 2015)
Resource Category
|
Tonnage
(Tons) |
Graphitic
Carbon (Cg %) |
Contained
Graphite (Tons) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
Indicated |
78,488,000 | 2.39 | 1,876,000 | |||||||
Inferred |
79,433,000 | 2.56 | 2,034,000 |
Cautionary Note to US Investors: The terms Indicated Resource and Inferred Resource as described in the table above are as defined in Canadian National Instrument 43-101. These terms are not defined under SEC Industry Guide 7 and are not recognized by the SEC. See "Cautionary Notes to US Investors Regarding Estimates of Measured, Indicated, and Inferred Resources" above.
Alabama Graphite's strategy is to exclusively target the oxide portion of the Coosa Graphite Project's mineral resource and, subsequently, to divert 100% of primary graphite production to secondary-processed, specialty high-purity graphite utilizing Alabama Graphite's proprietary low-temperature purification process. This was highlighted in Alabama Graphite's September 29, 2015 news release announcing Alabama Graphite's preliminary graphite purification trials. Those trials achieved 99.99% Cg purityacross all flake sizes from Coosa Graphite Project graphite concentrateat one of North America's premier, independent metallurgical laboratories.
The PEA proposes a 27-year, open-pit mine with a mill and primary processing plant located onsite at the Coosa Graphite Project. A purification plant for secondary processing to produce specialty graphite products is to be located in the vicinity of Rockford, Alabama (approximately 19 miles south from the Coosa Graphite Project mine site with access via County Roads 29 and 22). Access to natural gas in this location is key for Alabama Graphite's purification plant furnaces. Alabama Graphite intends to locate primary and secondary processing plants within close proximity of each other in order to generate a potentially strong annual cash flow and a high rate of return.
The PEA indicates that the Coosa Graphite Project has excellent potential to become a low-cost U.S. source of ultra-high-purity specialty graphite productswithout the use of dangerous and environmentally harmful hydrofluoric acid (as is commonly used in Chinese graphite production). The principal high-value specialty graphite product Alabama Graphite intends to produceCSPG for Li-ion batterieshas significant, enduring future forecasted demand; however, consumers are increasingly holding manufacturers accountable for where they source their critical input materials and, as importantly, how said input materials are produced. Environmental considerations are now more critical than ever when sourcing critical input materials for green-energy-based applications, such as Li-ion batteries.
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Financial and Operational Highlights
The Coosa Graphite Project's PEA is not based on producing a final ROM graphite concentrate product, nor has the PEA been modeled on the Coosa Graphite Project being developed as a conventional flake graphite product. Instead, the PEA is based on Coosa producing two finished (final) secondary-processed, specialty graphite products: (1) a Coated Spherical Purified Graphite or CSPG product and (2) a Purified Micronized Graphite or PMG product.
For the first five years of operation, production is scheduled to be 5,500 tons (5,000 tonnes) of finished specialty graphite products, expanding capacity to 16,500 tons (15,000 tonnes) of finished specialty graphite products in year seven. The capital costs associated with increasing production capacity (11,000 tons or 10,000 tonnes) are planned to be paid for via Alabama Graphite's free cash flow.
Capital Costs
Initial capital expenditures for mining operation and both primary and secondary processing plants for the first five years of production are estimated to be $43.2 million. Subsequent capital expenditures for production expansioncommencing in year five onwardare estimated to be $84.4 million, representing a grand total of $127.6 million in capital expenditures for the 27-year LOM, and would be funded through free cash flow.
Project Economics
Category
|
Unit | Pre-Tax (US$) | Post-Tax (US$) | ||||||
---|---|---|---|---|---|---|---|---|---|
CSPG (15 microns) >99.95% Carbon |
$/tonne | $ | 9,000 | $ | 9,000 | ||||
PMG (5 microns >80%) >98% Carbon |
$/tonne | $ | 2,000 | $ | 2,000 | ||||
CSPG Annual Production |
tonnes | 9,500 | 9,500 | ||||||
PMG Annual Production |
tonnes | 3,200 | 3,200 | ||||||
NPV (0%) |
$ Million | $ | 1,779 | $ | 1,299 | ||||
NPV (8%) |
$ Million | $ | 444 | $ | 320 | ||||
NPV (10%) |
$ Million | $ | 329 | $ | 236 | ||||
NPV (12%) |
$ Million | $ | 247 | $ | 176 | ||||
IRR% |
% | 52.2 | % | 45.7 | % | ||||
Payback Period |
Years | 1.9 | 2.0 | ||||||
Net Revenue (less royalty) |
$ Million | $ | 2,439.5 | $ | 2,439.5 | ||||
Total Operating Cost |
$ Million | $ | 532.8 | $ | 532.8 | ||||
Total Capital Cost |
$ Million | $ | 127.6 | $ | 127.6 | ||||
Pre-Tax Cash Flow |
$ Million | $ | 1,779.0 | n/a | |||||
Post-Tax Cash Flow |
$ Million | n/a | $ | 1,298.7 |
Operating Costs (Life of Mine)
As the Coosa Graphite Project's PEA is modeled on producing two finished (final) specialty, secondary-processed graphite productsa coated spherical graphite product (CSPG) and a purified micronized flake graphite (PMG) productthe operating costs per ton (and per tonne) for the 27-year life of mine (LOM) are blended and presented below. Operating costs per ton (and per tonne) include
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mining, milling and floatation, general and administrative expenses, filter cake transport, and purification.
|
Cost Per Ton | Cost Per Tonne | |||||
---|---|---|---|---|---|---|---|
Mine, Process and Admin Cost |
$ | 1,410 | $ | 1,555 |
Selling Prices
Product
|
Percentage of
Annual Production |
Selling Price | |||
---|---|---|---|---|---|
>99.95% Cg CSPG (15µ) |
75 | % | $8,165 per ton ($9,000 per tonne) | ||
>98% Cg PMG (5µ) |
25 | % | $1,814 per ton ($2,000 per tonne) |
Pricing Assumptions:
According to UK-based Benchmark Mineral Intelligence, widely regarded as one of the world's leading independent sources on battery input materials' prices, sales and demand forecasts, selling prices for coated spherical graphite (CSPG) for Li-ion batteries range from US$7,000 to US$12,000 per tonne. For Alabama Graphite's CSPG product, Alabama Graphite has utilized a conservative US$9,000 per tonne selling price in the Coosa Graphite Project PEA. Selling prices for purified micronized flake graphite (PMG) range from US$1,800 to US$2,800 per tonne. For Alabama Graphite's PMG product, Alabama Graphite has utilized a conservative US$2,000 per tonne selling price in the Coosa Graphite Project PEA.
Notes to Preliminary Economic Assessment
Cautionary Note to the Preliminary Economic Assessment
This PEA is considered by Alabama Graphite to meet the requirements of a Preliminary Economic Assessment as defined in NI 43-101. The economic analysis contained in the technical report is based, in part, on Inferred Resources (as defined in NI 43-101) and is preliminary in nature. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. There is no guarantee that all or any part of the Mineral Resource will be converted into a Mineral Reserve. Inferred Resources are considered too geologically speculative to have mining and economic considerations applied to them and to be categorized as Mineral Reserves (as defined in NI 43-101). Additional trenching and/or drilling will be required to convert Inferred Mineral Resources to Measured or Indicated Mineral Resources. Mineral Resources that are not Mineral Reserves do not have demonstrated economic viability. There is no certainty that the reserve's development, production and economic forecasts on which the PEA is based will be realized.
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Cautionary Note to US Investors: The terms Mineral Reserve, Indicated Mineral Resources and Inferred Mineral Resource as described above are as defined in Canadian National Instrument 43-101. These terms are not defined under SEC Industry Guide 7 and are not recognized by the SEC. These estimated mineral resources are not SEC Industry Guide 7 proven and probable reserves. See " Cautionary Notes to US Investors Regarding Alabama Graphite's Estimates of Measured, Indicated, and Inferred Resources " above.
Qualified Persons
Independent engineering firms AGP Mining Consultants Inc. and Metal Mining Consultants Inc. completed the Coosa Graphite Project Preliminary Economic Assessment technical report and are independent of Alabama Graphite under NI 43-101 guidelines. The information in this " Management's Discussion and Analysis of Alabama Graphite's Financial Condition, Results of Operations, Properties and Other Information " relating to the mining and metallurgy portions of the 2015 Coosa Graphite Project Preliminary Economic Assessment is based upon the information prepared by AGP Mining Consultants Inc.'s Mr. Gordon Zurowski, P.Eng., an independent Qualified Person as defined by National Instrument 43-101 guidelines, and Mr. Andy Holloway, P.Eng., an independent Qualified Person as defined by NI 43-101 guidelines. The information pertaining to the geology and mineral resource estimation portions of the PEA is based upon information prepared by Mr. Scott E. Wilson, C.P.G. from Metal Mining Consultants Inc., an independent Qualified Person as defined by NI 43-101 guidelines.
Company Disclosures for the Quarter Ending August 31, 2017
ALABAMA GRAPHITE APPOINTS AUBURN UNIVERSITY PROFESSOR EMERITUS DR. ROBERT COOK, P.G. AS STRATEGIC ADVISOR
On June 19, 2017, Alabama Graphite announced the appointment of Dr. Robert. B. Cook, P.G., Ph.D., M.S., E.M., has been appointed as Strategic Advisor to Alabama Graphite. Dr. Cook is one of America's most accomplished professional geologists, with more than 40 years of experience in both the state of Alabama and surrounding region. Dr. Cook is a Professor Emeritus in the Department of Geology at Auburn University in Auburn, Alabama and headed the University's Department of Geology for more than two decades. Dr. Cook's professional specialties are mineral exploration, environmental geology, and mining.
Dr. Cook holds a Doctorate degree and Master of Science graduate degree in Geology from the University of Georgia, in addition to a degree in Mining Engineering from the Colorado School of Mines. Dr. Cook has consulted for the United States Department of Defense ("DoD"), the National Aeronautics and Space Administration ("NASA"), the United States Department of Justice ("DOJ"), and the United Nations ("UN"). Dr. Cook has been a member of American Institute of Mining and Metallurgical Engineers, Alabama Academy of Science, Geological Society of America, Alabama Geological Society, Georgia Geological Society, and the Society of Exploration Geochemists, among several other professional organizations.
Honored with the Robert B. Cook Endowed Chair in Geology, established at Auburn University in 2009, Dr. Cook's publication record includes over 200 papers and articles, as well as two state mineralogies (Alabama and Georgia), a U.S. Geological Survey Professional Paper, and a variety of Alabama state geological survey bulletins. An Executive Editor of Rocks and Minerals magazine for more than 25 years, Dr. Cook is a Fellow of the Society of Economic Geologists, Inc. ("SEG"), and a registered Professional Geologist (P.G.) in Alabama, Georgia and Florida. The uranium mineral 'bobcookite' was named in his honor by a group of American and Russian scientists.
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ALABAMA GRAPHITE CORP. ANNOUNCES ANALYST REPORT PUBLISHED BY EDISON INVESTMENT RESEARCH
On July 10, 2017, Alabama Graphite announced that UK-based Edison Investment Research Inc. ("Edison")a leading independent investment research company, generating and distributing research to a global audience, including, investment banks, institutional investors, as well as professional investors and relevant members of the global investment communityhad published its equity analyst Initiation of Coverage report on Alabama Graphite, entitled, ' Alabama Graphite: Proven battery graphite for the US and beyond '.
Edison's research report on Alabama Graphite, dated July 10, 2017, was written and produced by senior Edison analysts Associate Director Tom Hayes and Director of Mining Charles Gibson, as an independent analysis of Alabama Graphite's activities and progress.
ALABAMA GRAPHITE CORP. AWARDS COOSA GRAPHITE PROJECT FEASIBILITY STUDY TO AGP MINING; CONTRACTS THOMPSON ENGINEERING FOR ENVIRONMENTAL AND MINE PERMITTING
On July 12, 2017, Alabama Graphite announced that independent engineering firm AGP Mining Consultants Inc. ("AGP") of Barrie, Ontario has been awarded the definitive contract by Alabama Graphite for the Feasibility Study of Alabama Graphite's Coosa Graphite Project. AGP produced Alabama Graphite's Preliminary Economic Assessment ("PEA") technical report for the Coosa Graphite Project
In conjunction with the forthcoming Feasibility Study, Alabama Graphite will concurrently commence a second Pilot Plant ("Pilot Plant 2") for secondary processing, exclusively for the production of CSPG and byproduct PMG. The flowsheet and equipment for Pilot Plant 2 are currently being finalized. Per Alabama Graphite's May 1, 2017 announcement, entitled, 'Alabama Graphite Corp. Commences Production of greater than 150 Kilogram Stockpile of Sourced-and-Manufactured-in-USA Specialty Battery-Ready Graphite for End User Qualification' , Alabama Graphite is also currently producing and testing its more than 150-kilogram stockpile of sourced-and-manufactured-in-USA battery-ready graphite products. This stockpile development work will provide the basis for Pilot Plant 2.
Alabama Graphite also announces that it has completed a positive preliminary environmental survey on the Coosa Graphite Project to commence the necessary environmental and mine permitting processes for the mining and primary-processing operations at the Coosa project site, which consists of 41,964 acres (16,982 hectares or more than 65 square miles), located on private land. The permitting process for the Coosa Graphite Project involves state-level permitting only via the Alabama Department of Environmental Management ("ADEM"). Independent engineering firm Thompson Engineering, of Mobile, Alabama is contracted as Alabama Graphite's consultant leading the permitting process for the Coosa Graphite Project with ADEM.
Readers are cautioned that Alabama Graphite is not yet in production and there is no guarantee that Alabama Graphite will advance to full-scale production. If, following the completion of a Feasibility Studywhich has not yet been commencedAlabama Graphite is able to advance the Coosa Graphite Project into production, the resulting graphite products would be sourced from within the contiguous United States and, as such, Alabama Graphite may have a potential competitive advantage over other producers of value-added graphite materials sourced from other countries, regardless of whether said materials were processed and/or manufactured in the United States of America.
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ALABAMA GRAPHITE RECEIVES ADEM PERMIT FOR FINAL INFILL TRENCHING PROGRAM FOR THE COOSA GRAPHITE PROJECT FEASIBILITY STUDY
On July 24, 2017, Alabama Graphite announced receipt of the necessary National Pollutant Discharge Elimination System ("NPDES") Construction Storm Water General Permit from the Alabama Department of Environmental Management ("ADEM") for the potential discharges associated with the exploration activities necessary to complete the pending Feasibility Study for Alabama Graphite's 100%-owned Coosa Graphite Project, located in Coosa County, Alabama, USAthe only natural flake graphite project in the contiguous United Statesto be commenced by independent engineering firms AGP Mining Consultants Inc. ("AGP") and Thompson Engineering, in conjunction with Alabama Graphite's geology team. Please refer Alabama Graphite's July 12, 2017 announcement entitled, 'Alabama Graphite Corp. Awards Coosa Graphite Project Feasibility Study to AGP Mining; Contracts Thompson Engineering for Environmental and Mine Permitting'.
The Clean Water Act ("CWA") and Federal regulations require construction site operators to obtain NPDES permit coverage for regulated land disturbances and associated discharges of storm water runoff to State waters. AGP has determined that if a small, infill trenching program within the Indicated Resource area can confirm the presence of graphite mineralization, in particular higher-grade bands within the larger deposit, as predicted by the current resource model, a significant portion of the Indicated Resource can be upgraded to a Measured Reserve, as is required for the Feasibility Study.
Per Alabama Graphite's Preliminary Economic Assessment ("PEA"), "Based on the favorable exploration results to date, the Coosa Project is of sufficient merit to warrant further exploration and mineral resource definition. In order to better define the high-grade trends identified in the resource area, a surface trenching program consisting of 15,000 ft. of trenching and sampling is recommended to help define and demonstrate grade continuity between existing drill holes and trenches in the oxide and transitional zones of the defined graphite resource. The data collected will be utilized to update the geologic model and further increase the confidence in the graphite resource. The program is estimated to cost US$230,000".
Alabama Graphite's Disclosures Subsequent to the Quarter Ending August 31, 2017
ALABAMA GRAPHITE RECEIVES POSITIVE EVALUATION RESULTS FOR ULTRA-PMG PRODUCT FROM RSR TECHNOLOGIES; IMPROVED DYNAMIC CHARGE ACCEPTANCE (DCA) BY 194%
On September 21, 2017, Alabama Graphite announced positive evaluation results for its downstream high-purity, natural flake Purified Micronized Graphite ("PMG") productmarketed under the tradename ULTRA-PMGfrom Dallas, Texas-based RSR Technologies Inc. ("RSRT"). RSRT is a leading research and development company focused on advancing lead-acid battery technologies. Alabama Graphite's ULTRA-PMG was used as a leady-oxide additive for lead-acid batteries and was tested in 48 battery cells built by RSRT.
The most critical evaluation metric in RSRT's analysis was battery-cell testing, which included micro-hybrid test ("MHT"), dynamic charge acceptance ("DCA"), Capacity (C20 and C), and breakdown analysis. When Alabama Graphite's ULTRA-PMG was added to RSRT's control, there was an improvement in capacity of 7%, from 87 to 93 mAh/mg. MHT improved 63% (from 8,000 to 13,000 cycles), and DCA increased more than 194% (from 0.17 to 0.50 A/Ah) with the addition of ULTRA-PMG. When ULTRA-PMG was added to RSRT's SUPERSOFT-HYCYCLE formulationRSRT's top-of-the-line leady-oxide active material productthere was negligible improvement in capacity; however, the already significant MHT test results improved 5%, from 42,000 cycles to 44,000 cycles. DCA increased 64% (from 0.55 to 0.90 A/Ah). ULTRA-PMG prolonged cycle life approximately 4.5 times longer when compared to conventional leady oxide. RSRT's MHT cycling
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test typically takes 45 days to complete; however, due to ULTRA-PMG's significant cycle life increase, testing data took more than 200 days to acquire.
Dr. Matthew Raiford, RSRT's Process Engineer, and supervisor of the evaluation, commented, "Alabama Graphite's ULTRA-PMG product outperformed all other standard commercially available carbon products we have tested, including carbon black. There are barely any impurities, and of the impurities none of them are even a remote concern for gassing in lead-acid batteries. This was the purest graphite product we have ever studied and analyzedby a significant margin."
Alabama Graphite conveyed samples of various particle sizes of its ULTRA-PMG to RSRT for characterization and evaluation. The first series of analytic testing determined elemental concentrations of impurities using inductively coupled plasma optical emission spectrometry ("ICP-OES"), which confirmed the ultra-high purity of Alabama Graphite's graphite. The Alabama Graphite ULTRA-PMG samples were introduced during the paste-making process, and studies were conducted at each phase. The battery testing and performance summaries for the battery cells, including MHT, DCA and Capacity, can be seen in Table 1 below. RSRT's positive test results demonstrate when Alabama Graphite's ULTRA-PMG is added to either a typical standard lead paste (control) or to RSRT's proprietary SUPER-SOFT HYCYCLE formulation, all performance metrics improve.
TABLE 1: Performance Summary for Battery Cells Built with and without Alabama Graphite's ULTRA-PMG
Product
|
Capacity
mAh/mg |
Micro-Hybrid
Test Cycle Life |
Dynamic
Charge Acceptance (A/Ah) |
17.5% Depth of
Discharge (DoD) |
||||
---|---|---|---|---|---|---|---|---|
Control |
87 | 8,000 | 0.17 (2V) | 1,000 (2V) | ||||
Control +3.8 µm Alabama Graphite ULTRA-PMG |
93 | 13,000 | 0.50 (2V) | 1,000 (2V) | ||||
RSRT SUPERSOFT-HYCYCLE |
114 | 42,000 | 0.55 (2V) | 1,900 (2V) | ||||
RSRT SUPERSOFT-HYCYCLE +3.8 µm Alabama Graphite ULTRA-PMG |
115 | 44,000 | 0.90 (2V) | 1,900 (2V) | ||||
Test Method |
Battery Council International (BCI) | European Standard (EN) EN-50432-6 | European Standard (EN) EN-50432-7 | Battery Council International (BCI) |
Note: mAh/mg = milliampere hour (mAh) per milligram (mg); A/Ah = amperes (A) per ampere hour (Ah) of battery capacity.
Micro-Hybrid Test or MHT evaluates the ability of a battery to provide the power to restart an engine after frequent stop phases, recovering state of charge ("SoC") and aging effects due to shallow load pulses.
Dynamic Charge Acceptance or DCA is the ability of a battery to accept instantaneous energy during charging. The higher the DCA of a battery, the more the energy recovered and stored.
Depth of Discharge or DoD is used to describe how deeply the battery is discharged. If a battery is 100% fully charged, the DoD of the battery is 0%. If a battery has delivered 17.5% of its energy (meaning, 82.50% energy reserved), the DoD of the battery is 17.5%. If a battery is 100% empty, the DoD of the battery is 100%. DoD always can be treated as how much energy that the battery delivered.
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ALABAMA GRAPHITE ANNOUNCES LETTER OF INTENT (LOI) TO SUPPLY BATTERY-READY GRAPHITE PRODUCTS TO U.S. LEAD-ACID BATTERY MANUFACTURER
On October 10, 2017, Alabama Graphite announced it had executed a Letter of Intent ("LOI") with an established United States-based lead-acid battery manufacturer (the "Buyer") to supply high-purity, natural flake premium Purified Micronized Graphite ("PMG") productmarketed under the tradename ULTRA-PMGand Delaminated Expanded Graphite ("DEXDG") conductivity enhancement materials for applications in the negative electrodes of advanced lead-acid battery systems. The identity of the Buyer, who has been in business for more than 50 years, is being withheld for reasons of commercial confidentiality. The Buyer became interested in engaging with Alabama Graphite after reviewing Alabama Graphite's September 21, 2017 announcement, entitled, ' Alabama Graphite Receives Positive Evaluation Results for ULTRA-PMG product from RSR Technologies; Improved Dynamic Charge Acceptance (DCA) by 194% '. For more information on Alabama Graphite's DEXDG, please refer to the March 28, 2017 announcement, entitled, ' Independent Test Results: Alabama Graphite Corp. Succeeds in Producing High-Performance Conductivity-Enhancement Graphite for Lithium-ion Batteries '. A material evaluation/qualification program utilizing Alabama Graphite's battery-ready graphite products in the Buyer's lead-acid batteries is currently underway. The testing involves:
The LOI calls for Alabama Graphite to supply an estimated 10 tonnes per year of both ULTRA-PMG and premium, proprietary DEXDG conductivity enhancement materials to the Buyer, commencing in 2018 for the Buyer's forthcoming proprietary pilot line of fast-charge automotive and stationary batteries. The Buyer will be ramping up to full-scale production of this particular battery line in 2020 and expects to require larger quantities of Alabama Graphite's graphite products.
ALABAMA GRAPHITE PROVIDES CORPORATE UPDATE
On October 16, 2017, Alabama Graphite provided an update on its operational and business activities.
As of August 31, 2017, Alabama Graphite incurred capitalized costs for exploration and evaluation assets totaling $7,563,149 (2016$6,866,760). For details, please refer to notes the financial statements under section for " Exploration and Evaluation Assets " on page F.2-[ ].
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Summary of Quarterly Results
The following table sets forth selected quarterly financial information for each of the last eight most recently completed quarters. Alabama Graphite did not generate revenue of any kind in the past eight months.
Quarter Ended
|
Total
Revenue ($) |
Income (Loss) and
Comprehensive Income (Loss) ($) |
Net Income
(Loss) per Share Basic and Fully Diluted ($) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
31-Aug-17 |
| (622,559 | ) | | ||||||
31-May-17 |
| (696,266 | ) | (0.01 | ) | |||||
28-Feb-17 |
| (565,797 | ) | | ||||||
30-Nov-16 |
| (1,322,109 | ) | (0.01 | ) | |||||
31-Aug-16 |
| (418,808 | ) | | ||||||
31-May-16 |
| (561,368 | ) | | ||||||
29-Feb-16 |
| (346,644 | ) | | ||||||
30-Nov-15 |
| (401,909 | ) | |
The decrease in the net loss for the quarter ended August 31, 2017 was primarily due to the share-based payments expenses as a majority of options were granted in the first quarter and a decrease in travel, business development, investor relations activities, and consulting fees which were offset in part by an increase in professional fees.
Three Months Ended August 31, 2017
Alabama Graphite incurred a net loss of $622,559 during the three months ended August 31, 2017 compared to a net loss of $418,808 during the same period of the previous year. The increase in net loss of $203,751 was primarily due to the following changes:
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Year Ended August 31, 2017
Alabama Graphite incurred a net loss of $3,206,731 during the year ended August 31, 2017 compared to a net loss of $1,728,730 during the same period of the previous year. The increase in net loss of $1,478,001 was primarily due to the following changes:
At August 31, 2017, Alabama Graphite had current assets of $652,289 (2016$314,786) and total current liabilities of $495,990 (2016$521,343). At August 31, 2017, Alabama Graphite had a working capital of $156,299 (2016working capital deficiency of $206,557). The liquidity position of Alabama Graphite is strengthened as compared to last year ended August 31, 2016 mainly due to capital raised via three non-brokered private placements in September 2016 and May 2017. However, Alabama Graphite will likely face a working capital deficiency again if additional capital is not raised in the next fiscal quarter. Although on December 13, 2017, Alabama Graphite announced a secured loan from Westwater for up to US$2.0 million (more see more information on page 32).
Alabama Graphite has binding consulting agreements with two officers that contain both termination clauses and change of control provisions, totaling $440,400, provided said Consulting Agreements are terminated by Alabama Graphite or the contractor within six months of the event giving rise to the change of control.
Year ended August 31, 2017
|
Revenue |
Operating
Loss |
Fully
Diluted Loss per share |
Total Assets |
Long-Term
Liabilities |
Cash
Dividends |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
2017 |
$ | | $ | 3,206,731 | $ | 0.02 | $ | 8,216,993 | $ | | $ | | |||||||
2016 |
$ | | $ | 1,728,730 | $ | 0.01 | $ | 7,184,481 | $ | | $ | | |||||||
2015 |
$ | | $ | 2,197,855 | $ | 0.02 | $ | 7,953,897 | $ | | $ | |
Alabama Graphite had liquid cash and cash equivalents at August 31, 2017 of $508,993 compared to $95,665 at August 31, 2016. At August 31, 2017, management believed that its current financial resources would allow Alabama Graphite to perform necessary regulatory and compliance work, but
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not for the long term. Without additional financing or other satisfactory arrangements, Alabama Graphite's financial resources would not be sufficient to develop its projects. The above conditions raised significant doubt about Alabama Graphite's ability to continue as a going concern for the following twelve months. Alabama Graphite's ability to continue as a going concern is dependent upon the ability of Alabama Graphite to obtain necessary financing or other satisfactory arrangements to fund its operating expenses and interest expense until development financing is obtained to allow Alabama Graphite to be self-sufficient. Alabama Graphite's ability to continue its development activities is dependent on management's ability to secure additional financing in the future, which may be completed in a number of ways including, but not limited to, a combination of strategic partnerships, joint venture arrangements, project debt finance, royalty financing and other capital market alternatives. Management would pursue such additional financial sources when required, and while management has been successful in securing financing in the past, there can be no assurance it will be able to do so in the future or that these sources of funding or initiatives will be available for Alabama Graphite or that they will be available on terms which are acceptable to Alabama Graphite.
As of the date of this proxy statement and due to the interim funding provided by Westwater pursuant to the Loan Agreement that was announced on December 13, 2017, Alabama Graphite believes that it does have sufficient working capital to meet its short term ongoing financial obligations. However, Alabama Graphite will require additional financing in order to complete its Feasibility Study.
During the past several years, Alabama Graphite has always been able to operate and develop its business without the financial support of any revenues from its operations. It has been able to continually do this due to Alabama Graphite's ability to procure new funds for itself, primarily from the equity capital markets. During the fall of 2017, Alabama Graphite considered a variety of funding sources and alternate funding techniques and also considered a traditional discounted equity private placement. Alabama Graphite recognized that the capital required for its sustainability and especially for its desired growth and project development plans, while considered feasible if pursued determinedly, would likely result in significantly discounted and dilutive financing solutions that would not be consistent with maximizing shareholder value. Accordingly, one of the important considerations of Alabama Graphite's Special Committee and its Board of Directors in regard to pursuing and approving the transaction with WWR announced on December 13, 2017 was to obtain interim loan financing on terms that would maximize shareholder value and join forces with an impressive company with, among other strengths, superior financial resourcefulness. If Alabama Graphite defaults on the loan agreement with Westwater and is required to repay the loan prior to the completion of the Westwater acquisition transaction announced on December 13, 2017, then Alabama Graphite will likely lose the assets it has pledged as collateral to Westwater and, without those assets, Alabama Graphite would not likely be able to obtain any new financing or continue as a going concern.
During the year Ended August 31, 2017
On September 6, 2016, Alabama Graphite completed a private placement of 4,916,745 units at a price of $0.15 per unit for total proceeds of $737,512 (an officer of Alabama Graphite subscribed for 33,334 units for gross proceeds of $5,000). Each unit comprised of one common share of Alabama Graphite and one common share purchase warrant. Each one whole common share purchase warrant entitles the holder to purchase one additional common share of Alabama Graphite at an exercise price of $0.20 per share until September 6, 2018.
On September 21, 2016, Alabama Graphite completed a private placement of 7,124,338 units at a price of $0.15 per unit for total proceeds of $1,068,651 (officers and directors of Alabama Graphite subscribed for 2,363,338 units for gross proceeds of $354,500). Each unit comprised of one common share of Alabama Graphite and one common share purchase warrant. Each one whole common share
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purchase warrant entitles the holder to purchase one additional common share of Alabama Graphite at an exercise price of $0.20 per share until September 21, 2018.
On September 30, 2016, 150,000 warrants were exercised to acquire 150,000 common shares at an exercise price of $0.10 per share and on October 4, 2016, 5,000 stock options were exercised to acquire 5,000 common shares at an exercise price of $0.105 per share.
On December 20, 2016, 128,571 warrants were exercised to acquire 128,571 common shares at an exercise price of $0.10 per share.
During the month of January 2017, 4,464,586 warrants were exercised to acquire 4,464,586 common shares at an exercise price of $0.10 per share, 275,000 stock options were exercised to acquire 275,000 common shares at an exercise price of $0.145 per share and 100,000 stock options were exercised to acquire 100,000 common shares at an exercise price of $0.155 per share.
On May 5, 2017, Alabama Graphite completed the first tranche of a private placement of 5,660,000 units at a price of $0.15 per unit for total proceeds of $849,000 (an officer and director of Alabama Graphite subscribed for 2,666,666 units for gross proceeds of $400,000). Each unit comprised of one common share of Alabama Graphite and one common share purchase warrant. Each one whole common share purchase warrant entitles the holder to purchase one additional common share of Alabama Graphite at an exercise price of $0.20 per share until May 5, 2020. In connection with the private placement, Alabama Graphite paid cash compensation in the amount of $17,062 and issued 113,750 agent's warrants. Each agent's warrant entitles the holder to purchase one unit at a price of $0.15 per unit on or before May 5, 2020. Each unit consists of one common share of Alabama Graphite and one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of Alabama Graphite at a price of $0.20 per share for a period of 36 months following the date of issue.
On May 10, 2017, Alabama Graphite completed the second tranche of a private placement of 3,180,000 units at a price of $0.15 per unit for total proceeds of $477,000 (an officer of Alabama Graphite subscribed for 1,000,000 units for gross proceeds of $150,000). Each unit comprised of one common share of Alabama Graphite and one common share purchase warrant. Each one whole common share purchase warrant entitles the holder to purchase one additional common share of Alabama Graphite at an exercise price of $0.20 per share until May 10, 2020. In connection with the private placement, Alabama Graphite paid cash compensation in the amount of $4,444 and issued 29,400 agent's warrants. Each agent's warrant entitles the holder to purchase one unit at a price of $0.15 per unit on or before May 10, 2020. Each unit consists of one common share of Alabama Graphite and one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of Alabama Graphite at a price of $0.20 per share for a period of 36 months following the date of issue.
During the Year Ended August 31, 2016
On May 19, 2016, Alabama Graphite completed a private placement of 3,476,334 units at a price of $0.15 per unit for total proceeds of $521,450 (a director and officer of Alabama Graphite subscribed for 670,000 units for gross proceeds of $100,500). Each unit comprised of one common share of Alabama Graphite and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one additional common share of Alabama Graphite at an exercise price of $0.20 per share until May 19, 2018. In connection with the private placement, Alabama Graphite paid cash compensation of $17,675 and issued 117,833 agent's warrants. Each agent's warrant entitles the holder to purchase one unit at a price of $0.15 per unit on or before May 19, 2017. Each unit consists of one common share of Alabama Graphite and one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of Alabama Graphite at a price of $0.20 per share until May 19, 2018.
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During the year ended August 31, 2016, 1,811,000 warrants were exercised at the price of $0.10 per share.
As at August 31, 2017, the amounts due to directors and officers are included in accounts payable and accrued liabilities as follows:
|
August 31,
2017 |
August 31,
2016 |
|||||
---|---|---|---|---|---|---|---|
1163863 Ontario Limited, a private company controlled by Donald K. D. Baxter, former President, CEO and Director |
$ | 18,833 | $ | 74,449 | |||
Bolton & Bolton Inc., a private company controlled by Douglas C. Bolton, CFO |
8,475 | 22,642 | |||||
Dinwoodie Consulting Ltd., a private company controlled by Tyler W. P. Dinwoodie, President and Corporate Secretary |
10,050 | | |||||
G&W Consulting Inc., a private company controlled by Ann-Marie M. Pamplin, Vice President, Investor Relations |
7,000 | | |||||
Jean Depatie, Director and Chairman |
| 668 | |||||
Daniel P. Goffaux, Director |
| 175 | |||||
Jesse R. Edmondson, Project Geologist, Director of Business Development and Director of Community Relations |
11,589 | 10,226 | |||||
Richard Keevil, former VP, Project Development |
| 29,380 | |||||
| | | | | | | |
|
$ | 55,947 | $ | 137,540 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.
At August 31, 2017, Alabama Graphite had cash and cash equivalents of $508,993 (2016$95,665). As of the date of this MD&A and due to the interim funding provided by Westwater pursuant to the Loan Agreement that was announced on December 13, 2017, Alabama Graphite believes that it does have sufficient working capital to meet its short term ongoing financial obligations. However, Alabama Graphite will require additional financing in order to complete its Feasibility Study.
Latest share capital information
As of the date of this report, the following securities were outstanding:
Common Shares |
145,315,187 | |
Stock Options |
4,550,000 (see Stock Options table below) | |
Warrants |
26,804,730 (see Stock Warrants table below) |
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Expiry Date
|
Number of
Options |
Exercise
Price(1) |
Exercisable | |||||||
---|---|---|---|---|---|---|---|---|---|---|
May 19, 2018 |
350,000 | $ | 0.155 | 350,000 | ||||||
September 3, 2018 |
180,000 | $ | 0.35 | 180,000 | ||||||
September 19, 2018 |
400,000 | $ | 0.16/$0.19 | 400,000 | ||||||
January 20, 2019 |
15,000 | $ | 0.105 | 15,000 | ||||||
February 3, 2019 |
125,000 | $ | 0.145 | 125,000 | ||||||
September 2, 2019 |
650,000 | $ | 0.16 | 650,000 | ||||||
January 3, 2020 |
760,000 | $ | 0.155 | 760,000 | ||||||
June 12, 2020 |
295,000 | $ | 0.27 | 295,000 | ||||||
November 10, 2020 |
525,000 | $ | 0.16 | 525,000 | ||||||
January 3, 2021 |
500,000 | $ | 0.155 | 500,000 | ||||||
April 26, 2021 |
250,000 | $ | 0.17 | 250,000 | ||||||
May 10, 2021 |
500,000 | $ | 0.15 | 500,000 | ||||||
| | | | | | | | | | |
|
4,550,000 | 4,550,000 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Note: Pursuant to the terms of the Arrangement, management, staff, and directors of Alabama Graphite Corp. surrendered 8,741,000 stock options on December 13, 2017 so that Westwater is not required to issue replacement securities for these Alabama Graphite securities. The 8,741,000 stock options are not reflected in the above table.
Expiry Date
|
Number of
Warrants |
Number of Shares
if Exercised |
Exercise Price
per Share(1) |
|||||||
---|---|---|---|---|---|---|---|---|---|---|
May 19, 2018 |
2,806,334 | 2,806,334 | $ | 0.20 | ||||||
June 30, 2018 |
7,137,500 | 7,137,500 | $ | 0.35 | ||||||
September 6, 2018 |
4,883,411 | 4,883,411 | $ | 0.20 | ||||||
September 21, 2018 |
4,827,668 | 4,827,668 | $ | 0.20 | ||||||
May 5, 2020 |
4,326,667 | 4,326,667 | $ | 0.20 | ||||||
May 5, 2020 (Finders Warrants) |
||||||||||
Common share |
113,750 | 113,750 | $ | 0.15 | ||||||
Compensation Unit Warrant |
113,750 | $ | 0.20 | |||||||
May 10, 2020 |
2,680,000 | 2,680,000 | $ | 0.20 | ||||||
May 10, 2020 (Finders Warrants) |
||||||||||
Common share |
29,400 | 29,400 | $ | 0.15 | ||||||
Compensation Unit Warrant |
29,400 | $ | 0.20 | |||||||
| | | | | | | | | | |
|
26,804,730 | 26,947,880 | ||||||||
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
Note: Pursuant to the terms of the Arrangement, management, staff, and directors of Alabama Graphite Corp. have surrendered 4,883,337 warrants on December 13, 2017 so that Westwater is not required to issue replacement securities for these Alabama Graphite securities. The 4,883,337 warrants are not reflected in the above table.
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Off-Balance Sheet Arrangements
Alabama Graphite has no off-balance sheet arrangements.
Critical accounting policies and estimates
Please refer to the notes of the audited consolidated financial statements for the year ended August 31, 2017 under sections "Basis of Presentation" and "Significant Accounting Policies".
Financial instruments and Risk Management
Subsequent to the fiscal year-end of Alabama Graphite, Alabama Graphite entered into the Loan Agreement with Westwater and Alabama Graphite. See " Material Contracts Between WWR and Alabama GraphiteLoan Agreement" on page [ ] for more information regarding the Loan Agreement.
For additional information about financial instruments and their associated risks, please refer to notes to Alabama Graphite's financial statements for the year ended August 31, 2017 under the section "Significant Accounting Policies".
The current directors and officers of Alabama Graphite are as follows:
Name
|
Position | Effective Date | ||
---|---|---|---|---|
Dr. Gareth P. Hatch | Executive Director | December 13, 2017 | ||
Interim Chief Executive Officer | December 13, 2017 | |||
Tyler W. P. Dinwoodie | President | December 13, 2017 | ||
Corporate Secretary | September 1, 2017 | |||
Ann-Marie M. Pamplin | Vice President, Investor Relations | November 1, 2015 | ||
Douglas C. Bolton | Chief Financial Officer | October 22, 2015 | ||
Daniel P. Goffaux | Independent Director | May 14, 2014 | ||
Jean Depatie | Chairman of the Board | November 22, 2012 |
Accounting Standards Issued, but Not Yet Effective
Please refer to of the notes to the financial statements for the year ended August 31, 2017 under the section for "Accounting Standards Issued, but Not Yet Effective".
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Risks and Uncertainties
Dependence on Outside Parties
Alabama Graphite depends on outside parties, researchers, consultants, engineers and laboratory staff in respect of Alabama Graphite's downstream value-added graphite battery-ready products. Substantial expenditures are required to construct mines, to establish mineral reserves through drilling, to carry out environmental and social impact assessments, to develop metallurgical processes and, in the case of new properties, to develop the exploration and plant infrastructure at any particular site. If such parties' work is deficient or negligent or is not completed in a timely manner, it could have a material adverse effect on Alabama Graphite. In addition, Alabama Graphite's proprietary methods and intellectual properties related to its downstream value-added graphite processing methods are held and exist through know how, trade secrets and co-operative relationships with third party researchers and developers. Alabama Graphite does not currently have any patents or patents pending in regard to these methods. Although it is a goal of Alabama Graphite to enhance its protection and rights related to these methods once further development ensues and/or Alabama Graphite's financial resources improve, there is no assurance that Alabama Graphite will be able defend or protect these downstream processing methods and obtain and maintain any enforceable exclusivity over them.
Litigation
Commencing in Alabama Graphite's fourth fiscal quarter of 2017 and continuing as at the date hereof, Alabama Graphite is involved with a litigation matter involving alleged online chatroom defamation that is preliminary in nature, with no apparent evidence that the plaintiff has incurred any material damages or would be able to substantiate any such damages. Notwithstanding the foregoing, there can be no assurances that this litigation matter will not have a material adverse effect upon Alabama Graphite's business, results of operations and/or financial condition.
Alabama Graphite has entered into legally binding agreements with various third parties on, among other things, a consulting basis. Although no unsettled litigation currently exists between Alabama Graphite and any consultants, the interpretation of the rights and obligations that arise from such agreements is open to interpretation and Alabama Graphite may disagree with the position taken by the various other parties resulting in a dispute that could potentially initiate litigation and cause Alabama Graphite to incur legal costs in the future.
Given the speculative and unpredictable nature of litigation, the outcome of any such disputes could be time-consuming, result in costly litigation or otherwise have a material adverse effect on Alabama Graphite.
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The following summary describes the material provisions of the Arrangement Agreement, dated December 13, 2017. The provisions of the Arrangement Agreement are complicated and not easily summarized. This summary may not contain all of the information about the Arrangement Agreement that is important to you. The Arrangement Agreement is attached to this proxy statement as Annex A and is incorporated by reference into this proxy statement. You are encouraged to read it carefully in its entirety for a more complete understanding of the Arrangement Agreement and the Arrangement.
The summary of the terms of the Arrangement Agreement is not intended to provide you with any factual information about WWR or Alabama Graphite. The representations, warranties and covenants made in the Arrangement Agreement were made solely to the parties to, and solely for the purposes of, the Arrangement Agreement and as of specific dates and were qualified and subject to important limitations agreed to by WWR and Alabama Graphite in connection with negotiating the terms of the Arrangement Agreement. In particular, representations and warranties were negotiated with the principal purposes of allocating risk between the parties to the Arrangement Agreement, rather than establishing matters as facts. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and reports and documents filed with the SEC, and the assertions embodied in the representations and warranties contained in the Arrangement Agreement (and summarized below) are qualified by information in disclosure schedules provided by WWR to Alabama Graphite and by Alabama Graphite to WWR in connection with the signing of the Arrangement Agreement and by certain information contained in certain of WWR's filings with the SEC. These disclosure schedules and SEC filings contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Arrangement Agreement. In addition, information concerning the subject matter of the representations and warranties may have changed or may change after December 13, 2017, which subsequent information may or may not be fully reflected in public disclosures by Alabama Graphite and WWR. Accordingly, you should not rely on the representations and warranties in the Arrangement Agreement (or the summaries contained herein) as characterizations of the actual state of facts about Alabama Graphite or WWR.
The Arrangement will be carried out pursuant to the Arrangement Agreement and the Plan of Arrangement. The following is a summary of the principal terms of the Arrangement Agreement. This summary does not purport to be complete and is qualified in its entirety by reference to the Arrangement Agreement, which attached hereto as Annex A .
Pursuant to, and subject to the terms and conditions of, the Arrangement Agreement and the Plan of Arrangement, WWR will acquire all of the issued and outstanding shares of Alabama Graphite's common shares in exchange for shares of common stock of WWR at a ratio of 0.08 of a share of the WWR's common stock for each Alabama Graphite's common share. In addition, issued and outstanding options and warrants to acquire Alabama Graphite's common shares will be converted into rights to purchase shares of common stock of WWR at the same exchange ratio.
Effective Date and Conditions of Arrangement
If the WWR and Alabama Graphite's stockholders' approvals are obtained, the Final Order of the Supreme Court of British Columbia is obtained approving the Arrangement and all other conditions to the Arrangement becoming effective are satisfied or waived, the Arrangement will become effective at
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the "Effective Time" (anticipated to be 12:01 a.m. (Vancouver time) on the "Effective Date"). It is currently expected that the Effective Date will be on or about March [ ], 2018.
Representations and Warranties
The Arrangement Agreement contains customary representations and warranties of each of Alabama Graphite, WWR and the Purchaser. Those representations and warranties were made solely for purposes of the Arrangement Agreement and may be subject to important qualifications, limitations and exceptions agreed to by the parties in connection with negotiating its terms. In particular, some of the representations and warranties are subject to a contractual standard of materiality or Material Adverse Effect (as defined in the Arrangement Agreement) different from that generally applicable to public disclosure to Alabama Graphite shareholders, or are used for the purpose of allocating risk between the parties to the Arrangement Agreement. For the foregoing reasons, you should not rely on the representations and warranties contained in the Arrangement Agreement as statements of factual information at the time they were made or otherwise.
The representations and warranties of Alabama Graphite in the Arrangement Agreement relate to matters that include, among other things, organization and qualification, corporate authorization, execution and binding agreement, governmental authorization, non-contravention, capitalization, shareholders' agreements, subsidiaries, securities law matters, financial statements, disclosure controls and internal control over financial reporting, auditors, no undisclosed liabilities, absence of certain changes or events, ordinary course, long term and derivative transactions, related party transactions, no "collateral benefit", compliance with laws, authorizations and licenses, opinions of financial advisor, finders' fees, board and special committee approval, material contracts, real property, personal property, title to assets, condition of properties, no options, technical reports, interest in properties and mineral rights, operational matters, intellectual property, restrictions on conduct of business, litigation, corrupt practices legislation, environmental matters, employment matters, employee plans, insurance, taxes, disclosure, and confidentiality agreements.
The representations and warranties of WWR and the Purchaser in the Arrangement Agreement relate to matters that include, among other things, organization and qualification, corporate authorization, execution and binding agreement, governmental authorization, non-contravention, capitalization, shareholders' agreements, subsidiaries, securities law matters, financial statements, disclosure controls and internal control over financial reporting, auditors, no undisclosed liabilities, absence of certain changes or events, ordinary course, compliance with laws, interest in properties and mineral rights, operational matters, litigation, corrupt practices legislation, environmental matters, taxes, and disclosure.
Conditions to the Arrangement Becoming Effective
In order for the Arrangement to become effective, certain conditions must have been satisfied or waived which conditions are summarized below.
The respective obligations of Alabama Graphite, WWR and the Purchaser to complete the Arrangement are subject to the satisfaction or mutual wavier of the following conditions on or before the Effective Date:
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The foregoing conditions are for the mutual benefit of the parties and may be waived, in whole or in part, by mutual consent of Alabama Graphite, WWR and the Purchaser at any time.
WWR and the Purchaser Conditions
The obligation of WWR and the Purchaser to complete the Arrangement is subject to the satisfaction of the following additional conditions on or before the Effective Date:
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The foregoing conditions are for the exclusive benefit of WWR and the Purchaser and may be waived by WWR and the Purchaser at any time, in whole or in part, without prejudice to any other rights that WWR and the Purchaser may have.
The obligation of Alabama Graphite to complete the Arrangement is subject to the satisfaction of the following additional conditions on or before the Effective Date:
The foregoing conditions are for the exclusive benefit of Alabama Graphite and may be waived by Alabama Graphite at any time, in whole or in part, without prejudice to any other rights that Alabama Graphite may have.
Alabama Graphite has covenanted and agreed that, except as expressly contemplated by the Arrangement Agreement, Alabama Graphite shall not and shall cause its representatives to not, directly or indirectly through any other person:
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Notwithstanding the above, if at any time prior to obtaining the required securityholders' approval for the Arrangement, Alabama Graphite receives a written Acquisition Proposal, Alabama Graphite may (a) contact the person making such Acquisition Proposal and its representatives solely for the purpose of clarifying the terms and conditions of such Acquisition Proposal, and (b) engage in or participate in discussions or negotiations with such person regarding such Acquisition Proposal, and may, for a maximum of 10 calendar days after the day on which access or disclosure is first afforded to the person making the Acquisition Proposal, provide copies of, access to or disclosure of information, properties, facilities, books or records of Alabama Graphite or its subsidiaries, if and only if, in the case of this clause (b):
Alabama Graphite has also agreed that if Alabama Graphite or any of its subsidiaries or any of its representatives, receives or otherwise becomes aware of any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to an Acquisition Proposal, or any request for copies of, access to, or disclosure of, confidential information relating to Alabama Graphite or any subsidiary in connection with an Acquisition Proposal, Alabama Graphite shall promptly notify WWR
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and the Purchaser, at first orally, and then as soon as practicable and in any event within 24 hours in writing, of such Acquisition Proposal, inquiry, proposal, offer or request, including a description of its material terms and conditions, the identity of all persons making the Acquisition Proposal, inquiry, proposal, offer or request, and shall provide WWR and the Purchaser with copies of all written documents, material or substantive correspondence or other material received in respect of, from or on behalf of any such persons. Alabama Graphite has agreed to keep WWR and the Purchaser fully informed on a current basis of the status of developments and negotiations with respect to such Acquisition Proposal, inquiry, proposal, offer or request, including any changes, modifications or other amendments to any such Acquisition Proposal, inquiry, proposal, offer or request and shall provide to the Purchaser copies of all material or substantive correspondence if in writing or electronic form, and if not in writing or electronic form, a description of the material terms of such correspondence communicated to Alabama Graphite by or on behalf of any person making any such Acquisition Proposal, inquiry, proposal, offer or request.
If Alabama Graphite receives an Acquisition Proposal that constitutes a Superior Proposal prior to receipt of the required approval of the resolutions to approve the Arrangement, Alabama Graphite may, subject to compliance with the relevant provisions of the Arrangement Agreement, enter into a definitive agreement with respect to such Acquisition Proposal, if and only if:
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advisors, that the failure by the Alabama Graphite Board to recommend that Alabama Graphite enter into a definitive agreement with respect to such Superior Proposal would be inconsistent with its fiduciary duties; and
During the Matching Period, or such longer period as Alabama Graphite may approve in writing for such purpose: (a) the Alabama Graphite Board shall review any offer made by WWR and the Purchaser to amend the terms of the Arrangement Agreement and the Arrangement in good faith in order to determine whether such proposal would, upon acceptance, result in the Acquisition Proposal previously constituting a Superior Proposal ceasing to be a Superior Proposal; and (b) Alabama Graphite shall negotiate in good faith with WWR and the Purchaser to make such amendments to the terms of the Arrangement Agreement and the Arrangement as would enable WWR and the Purchaser to proceed with the transactions contemplated by the Arrangement Agreement on such amended terms. If the Alabama Graphite Board determines that such Acquisition Proposal would cease to be a Superior Proposal, Alabama Graphite shall promptly so advise WWR and the Purchaser and Alabama Graphite and WWR and the Purchaser shall amend the Arrangement Agreement to reflect such offer made by WWR and the Purchaser, and shall take and cause to be taken all such actions as are necessary to give effect to the foregoing.
WWR has agreed that, prior to the Effective Date, Alabama Graphite may purchase customary "tail" policies of directors' and officers' liability insurance providing protection no less favorable in the aggregate than the protection provided by the policies maintained by Alabama Graphite which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date and WWR and the Purchaser will, or will cause Alabama Graphite to maintain such tail policies in effect without any reduction in scope or coverage for six (6) years from the Effective Date; provided that neither WWR nor the Purchaser will be required to pay any amounts in respect of such coverage prior to the Effective Time and provided further that the cost of such policies shall not exceed 200% of Alabama Graphite's current annual aggregate premium for policies currently maintained by Alabama Graphite.
The Arrangement Agreement may be terminated prior to the Effective Time in certain circumstances, many of which lead to payment of the expense reimbursement fee, including:
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party of any of its representations or warranties or the failure of such party to perform any of its covenants or agreements under the Arrangement Agreement;
111
Board recommendation, or publicly proposes or states its intention to do so, (2) accepts, approves, endorses or recommends, or publicly proposes to accept, approve, endorse or recommend an Acquisition Proposal or takes no position or remains neutral with respect to a publicly announced, or otherwise publicly disclosed, Acquisition Proposal for more than five business days (or beyond the third business day prior to the date of the Alabama Graphite special meeting of the securityholders, if sooner), (3) accepts or enters into (other than a confidentiality agreement permitted by and in accordance with Section 5.3(4) of the Arrangement Agreement) or publicly proposes to accept or enter into any agreement, understanding or arrangement in respect of an Acquisition Proposal, or (4) fails to publicly recommend or reaffirm the Alabama Graphite Board recommendation within five business days after having been requested in writing by WWR to do so (or in the event that the Meeting is scheduled to occur within such five business day period, prior to the third business day prior to the date of the Alabama Graphite special meeting of the securityholders), or (B) the Alabama Graphite breaches the non-solicitation provisions in the Arrangement Agreement in any material respect;
Upon the occurrence of any of the following events, Alabama Graphite shall pay to WWR the expense reimbursement fee in accordance with the terms of the Arrangement Agreement:
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its subsidiaries, directly or indirectly, in one or more transactions, enters into a contract in respect of such Acquisition Proposal (whether or not such Acquisition Proposal is the same Acquisition Proposal referred to in paragraph (a) above) and such Acquisition Proposal is later consummated or effected (whether or not such Acquisition Proposal is later consummated or effected within 365 days after such termination)
For purposes of the foregoing, the term "Acquisition Proposal" shall have the meaning specified in the Arrangement Agreement, except that references to "20% or more" in the definition of "Acquisition Proposal" in the Arrangement Agreement shall be deemed to be references to "50% or more".
The Arrangement Agreement may be amended by the written agreement of WWR, Alabama Graphite and the Purchaser at any time before or after the stockholder meeting, except that any amendment after a stockholders' meeting, which requires approval by stockholders, may not be made without such approval.
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MATERIAL CONTRACTS BETWEEN WWR AND ALABAMA GRAPHITE
Alabama Graphite Shareholder Voting Agreements
On December 13, 2017, WWR and the Purchaser entered into the Voting and Support Agreements (the "Voting Agreements") with each of the directors and officers of Alabama Graphite and certain related stockholders (the "Supporting Shareholders"). The Voting Agreements set forth, among other things, the agreement of such stockholders to vote their Alabama Graphite common shares in favor of the Arrangement and any other matter necessary for the consummation of the Arrangement. As of December 13, 2017, 6,129,241 of the outstanding Alabama Graphite common shares were subject to the Voting Agreements, representing approximately 4.28% of the outstanding Alabama Graphite common shares. As of the record date, [ ] of the outstanding common shares were subject to the Voting Agreements, representing approximately [ ]% of the outstanding common shares.
The Voting Agreements require voting support and prevent the Supporting Shareholders from exercising dissent rights. Each Supporting Shareholder has agreed to vote any Alabama Graphite common shares owned legally or beneficially by such shareholder (directly or indirectly) or over which he or she exercises control or direction (directly or indirectly) in favor of the Arrangement and against any acquisition proposal and/or any matter that could reasonably be expected to delay, prevent, impede or frustrate the completion of the Arrangement. Under the terms of the Voting Agreements, WWR and the Purchaser have acknowledged that any Supporting Shareholder who is also a director or officer of Alabama Graphite is bound under the Voting Agreement only in such person's capacity as a shareholder, and not in his or her capacity as a director or officer.
The Voting Agreements terminate upon: (i) mutual agreement; (ii) a party's election following certain breaches of the other party's covenants, representations or warranties; or (iii) automatically following the termination of the Arrangement Agreement in accordance with the terms thereof.
WWR entered into a Loan Agreement with Alabama Graphite and Alabama Graphite Sub (collectively, the "Borrower"), pursuant to which WWR is providing a secured convertible non-revolving line of credit to the Borrower of up to $2.0 million (the "Loan"). WWR advanced approximately $0.7 million to the Borrower following the signing of the Arrangement Agreement and the closing of the Loan Agreement. As of the date of this proxy statement, WWR has advanced in the aggregate approximately $1.0 million to the Borrower. Subject to the satisfaction of certain conditions, the Borrower may continue to submit additional draw requests for disbursements of Loan proceeds pursuant to the Loan Agreement.
The Loan will mature on June 30, 2018 and carries a 3% annual interest rate, which interest rate will increase during the occurrence of an event of default. Subject to certain TSX Venture Exchange approval and certain notice requirements, WWR may convert the Loan into Alabama Graphite common shares at a price calculated based on the per share volume adjusted market price of Alabama Graphite during the five (5) trading days after the signing of the Loan Agreement (CAD$0.0878 per share) at any time prior to the maturity of the Loan. Interest will be payable in the form of Alabama Graphite shares valued at the time of the interest payment, or in cash at the election of WWR. The Loan Agreement contains customary representations, warranties, covenants and events of default.
The Loan is secured against 100% of the shares of Alabama Graphite Sub, and by substantially all of the Borrower's real and personal property, which includes Alabama Graphite Sub's leasehold interest in the Coosa Graphite Project and the Bama Mine Project.
The occurrence of either termination of the Arrangement Agreement or a change of control of the Borrower constitutes an event of default under the Loan Agreement, whereupon WWR may accelerate
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the Loan by delivering a notice to the Borrower, on which date the entire outstanding Loan amount, including all accrued and unpaid interests, will become immediately due and payable in full. The Borrower can voluntarily prepay the Loan at any time without penalty. If the full $2.0 million Loan is converted into Alabama Graphite shares on, WWR would have held up to an approximate [ ]% interest in Alabama Graphite (assuming a market price of $[ ], the last closing price of Alabama Graphite common share on [ ], 2018).
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PROPOSAL 1: ISSUANCE OF WWR SHARES PURSUANT TO THE ARRANGEMENT AGREEMENT
WWR Board has unanimously adopted a resolution authorizing, approving, declaring advisable and recommending to WWR stockholders for their approval the issuance of shares of WWR common stock to Alabama Graphite's stockholders in connection with the Arrangement including WWR shares underlying replacement options and warrants.
Nasdaq Stock Market Listing Rule 5635(a) requires stockholder approval for the issuance of WWR common stock in connection with the acquisition of the stock or assets of another company if the issuance would result in an increase of 20% or more of the total number of shares of WWR common stock outstanding before any such proposed issuance.
As [ ], 2018, [ ] shares of WWR common stock were issued and outstanding and [ ] shares were held as treasury stock. Upon the consummation of the Arrangement, Alabama Graphite's shareholders will acquire an aggregate of 11,625,215 shares of WWR common stock, representing approximately 29.5% of the outstanding common stock of the combined company immediately after the completion of the Arrangement. In addition, WWR will issue replacement options and warrants to holders of Alabama Graphite options and warrants. Such replacement options and warrants will relate to 2,508,378 shares of WWR common stock. See " The Arrangement ", " The Arrangement Agreement " and " Risk Factors " for important information about the Arrangement.
Required Vote and WWR Board's Recommendation
Assuming the presence of a quorum, in order to become effective this proposal requires the affirmative vote of the holders of a majority of the shares of WWR common stock properly cast on the proposal at the meeting. Abstentions, failures to submit a proxy (if you do not attend the special meeting in person) and any broker non-votes will have no effect on the outcome of the vote on this proposal.
WWR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THIS PROPOSAL.
116
PROPOSAL 2: VOTE TO ADJOURN THE WWR SPECIAL MEETING
If WWR fails to receive a sufficient number of votes to approve the proposal to approve the WWR Stock Issuance, WWR may propose to adjourn the Special Meeting, whether or not a quorum is present, for the purpose of soliciting additional proxies to approve the WWR Stock Issuance.
Required Vote and WWR Board's Recommendation
The affirmative vote of the holders of a majority of the shares of WWR common stock represented and voting either in person or by proxy at the Special Meeting and entitled to vote is required for approval of the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes in favor of the proposal to adopt the Arrangement Agreement and approve the transactions contemplated thereby.
WWR BOARD UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL OF THIS PROPOSAL.
117
The table below sets forth information as of January 10, 2018 regarding the beneficial ownership (as defined by Rule 13d-3(d)(1) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) of our common stock by:
To our knowledge, no person or group beneficially owns more than five percent of our common stock.
In accordance with applicable rules of the Securities and Exchange Commission (the "SEC"), beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant to stock options that are exercisable, and shares subject to restricted stock units that vest, within 60 days of January 10, 2018. Shares issuable pursuant to the exercise of stock options, and restricted stock units that vest, in the 60 days following January 10, 2018, are deemed outstanding for the purpose of computing the ownership percentage of the person holding such options, or shares subject to restricted stock units, but are not deemed outstanding for computing the ownership percentage of any other person. The percentage of beneficial ownership for the following table is based on 27,790,324 shares of common stock outstanding as of January 10, 2018.
Name of Individual or Group(1)
|
Number of Shares of
WWR Common Stock Beneficially Owned(2) |
Percent of
Class |
|||
---|---|---|---|---|---|
Terence Cryan |
32,766 | * | |||
Christopher M. Jones |
62,042 | * | |||
Jeffrey L. Vigil |
22,207 | * | |||
Marvin K. Kaiser |
1,882 | * | |||
Dain A. McCoig |
13,953 | * | |||
Patrick N. Burke |
0 | * | |||
Tracy D. Pagliara |
0 | * | |||
All current directors and executive officers as a group (7 persons) |
132,850 | * |
Representatives of Hein & Associates LLP, now Moss Adams LLP, are not expected to be present at the Special Meeting to answer questions from the stockholders. None of our directors or executive officers has any substantial interest, direct or indirect, in Moss Adams LLP.
118
The WWR Board knows of no other matters to be brought before the Special Meeting. However, if other matters should come before the Special Meeting, it is the intention of each person named in the proxy to vote such proxy in accordance with his own judgment on such matters.
Delivery of Stockholder Documents
The SEC has adopted rules that permit companies and intermediaries (e.g., brokers) to satisfy the delivery requirements for proxy statements and annual reports with respect to two or more stockholders sharing the same address by delivering a single proxy statement and annual report addressed to those stockholders. This process, which is commonly referred to as "householding," potentially means extra convenience for stockholders and cost savings for companies.
A number of brokers with account holders who are WWR stockholders may be householding our proxy materials, to the extent such stockholders have given their prior express or implied consent in accordance with SEC rules. A single proxy statement and Annual Report will be delivered to multiple stockholders sharing an address unless contrary instructions have been received from the affected stockholders. Once you have received notice from your broker that it will be householding communications to your address, householding will continue until you are notified otherwise or until you revoke your consent, which is deemed to be given unless you inform the broker otherwise when you receive the original notice of householding. If, at any time, you no longer wish to participate in householding and would prefer to receive separate proxy materials, please notify your broker to discontinue householding and direct your written request to receive a separate proxy statement and annual report to WWR at: Westwater Resources, Inc., Attention: Secretary, 6950 S. Potomac Street, Suite 300, Centennial, Colorado 80112, or by calling (303) 531-0516, and we will promptly deliver a separate proxy statement and annual report per your request. Stockholders who currently receive multiple copies of the proxy materials at their address and would like to request householding of their communications should contact their broker.
119
In order to include a stockholder proposal in WWR's proxy statement and form of proxy for the annual meeting to be held in June 2018, we must receive the proposal at our principal executive offices, addressed to the Secretary, no later than January 23, 2018. Any stockholder proposal or director nomination submitted to us for consideration at the 2018 annual meeting but which is not intended to be included in the related proxy statement and form of proxy, must be received between March 20, 2018 and April 19, 2018; otherwise, the proposal will be considered by us to be untimely and not properly brought before the meeting. Stockholders who wish to submit a proposal or a director nominee must meet the eligibility requirements of the SEC and comply with the requirements of our Bylaws and the SEC. In addition, pursuant to the rules and regulations of the SEC, the persons appointed as proxies for the annual meeting to be held in 2018 will have discretionary authority to vote any proxies they hold at such meeting on any matter for which WWR has not received notice by April 8, 2018.
120
WHERE YOU CAN FIND MORE INFORMATION
WWR files annual, quarterly and current reports, proxy statements and other information with the SEC. You may read and copy these reports, statements or other information filed by WWR at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. The SEC filings of WWR are also available to the public from commercial document retrieval services and at the website maintained by the SEC at www.sec.gov. In addition, information relating to WWR, including WWR's SEC filings, is available through WWR's website at www.westwaterresources.net.
WWR's Internet website address is provided as an inactive textual reference only. The information provided on WWR's website is not incorporated into, and does not form a part of, this proxy statement.
If you have any questions concerning the Arrangement, the Special Meeting or the proxy statement, would like additional copies of the proxy statement or need help voting your shares of common stock, please contact our proxy solicitor, Regan & Associates, at (212) 587-3005.
121
INDEX TO WWR'S FINANCIAL STATEMENTS
Interim Financial Statements |
|
|||
(Please note unless otherwise indicated, dollar amounts refer to U.S. dollars) |
||||
Condensed Consolidated Balance Sheets |
F.1-1 |
|||
Condensed Consolidated Statements of Operations |
F.1-2 | |||
Condensed Consolidated Statements of Cash Flows and Supplemental Cash Flow Information |
F.1-3 | |||
Condensed Consolidated Statements of Stockholders' Equity |
F.1-4 | |||
Notes |
F.1-5 | |||
Annual Financial Statements |
|
|||
(Please note unless otherwise indicated, dollar amounts refer to U.S. dollars) |
||||
(Please note Westwater Resources, Inc. was formerly named Uranium Resources, Inc.) |
||||
Report of Independent Registered Public Accounting Firm |
F.1-16 |
|||
Consolidated Balance Sheets |
F.1-17 | |||
Consolidated Statements of Operations |
F.1-18 | |||
Consolidated Statements of Stockholders' Equity |
F.1-19 | |||
Consolidated Statements of Cash Flows and Supplemental Cash Flow Information |
F.1-20 | |||
Notes |
F.1-21 |
INDEX TO ALABAMA GRAPHITE'S FINANCAIL STATEMENTS
Annual Financial Statements |
|
|||
(Please note unless otherwise indicated, dollar amounts refer to Canadian dollars) |
||||
Independent Auditor's Report |
F.2-1 |
|||
Consolidated Statements of Financial Position |
F.2-3 | |||
Consolidated Statements of Loss and Comprehensive Loss |
F.2-4 | |||
Consolidated Statements of Changes in Shareholders' Equity |
F.2-5 | |||
Consolidated Statements of Cash Flows |
F.2-6 | |||
Notes |
F.2-7 |
122
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
CONDENSED CONSOLIDATED BALANCE SHEETS
(expressed in thousands of dollars, except share amounts)
(unaudited)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F.1-1
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in thousands of dollars, except share and per share amounts)
(unaudited)
|
|
For the Three Months
Ended Sep 30, |
For the Nine Months
Ended Sep 30, |
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Notes | 2017 | 2016 | 2017 | 2016 | ||||||||||
Operating Expenses: |
|||||||||||||||
Mineral property expenses |
6 | $ | (1,316 | ) | $ | (1,039 | ) | $ | (3,637 | ) | $ | (2,908 | ) | ||
General and administrative |
(1,700 | ) | (1,883 | ) | (4,976 | ) | (6,035 | ) | |||||||
Accretion of asset retirement obligations |
8 | (132 | ) | (120 | ) | (395 | ) | (360 | ) | ||||||
Depreciation and amortization |
(27 | ) | (56 | ) | (104 | ) | (188 | ) | |||||||
Impairment of uranium properties |
| | | (534 | ) | ||||||||||
| | | | | | | | | | | | | | | |
Total operating expenses |
(3,175 | ) | (3,098 | ) | (9,112 | ) | (10,025 | ) | |||||||
| | | | | | | | | | | | | | | |
Non-Operating Income/(Expenses): |
|||||||||||||||
Loss on extinguishment of convertible debt |
| | (39 | ) | | ||||||||||
Interest income/(expense) |
3,7 | 186 | (671 | ) | 424 | (2,194 | ) | ||||||||
Commitment fees |
| | | (333 | ) | ||||||||||
Loss on sale of marketable securities |
| | | (116 | ) | ||||||||||
Gain on disposal of uranium properties |
3 | | 4,927 | | |||||||||||
Other income, net |
6 | 25 | 22 | 44 | |||||||||||
| | | | | | | | | | | | | | | |
Total other income/(expense) |
192 | (646 | ) | 5,334 | (2,599 | ) | |||||||||
| | | | | | | | | | | | | | | |
Net Loss |
$ | (2,983 | ) | $ | (3,744 | ) | $ | (3,778 | ) | $ | (12,624 | ) | |||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
Other Comprehensive Loss |
|||||||||||||||
Unrealized fair value decrease on marketable securities |
$ | (126 | ) | $ | | $ | (287 | ) | $ | (49 | ) | ||||
Transfer to realized loss upon sale of available-for-sale securities |
| | | 116 | |||||||||||
| | | | | | | | | | | | | | | |
Comprehensive Loss |
$ | (3,109 | ) | $ | (3,744 | ) | $ | (4,065 | ) | $ | (12,557 | ) | |||
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
BASIC AND DILUTED LOSS PER SHARE |
$ | (0.12 | ) | $ | (0.38 | ) | $ | (0.16 | ) | $ | (1.81 | ) | |||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
25,037,203 | 9,741,331 | 23,763,842 | 6,963,869 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F.1-2
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
CASH FLOW INFORMATION
(expressed in thousands of dollars)
(unaudited)
The accompanying notes are an integral part of these condensed consolidated financial statements.
F.1-3
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(expressed in thousands of dollars, except share amounts)
(unaudited)
|
Common Stock |
|
Accumulate
Other Comprehensive Loss |
|
|
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Paid-In
Capital |
Accumulated
Deficit |
Treasury
Stock |
|
||||||||||||||||||
|
Shares | Amount | Total | |||||||||||||||||||
Balances, January 1, 2017 |
16,667,394 | $ | 17 | $ | 280,191 | $ | | $ | (236,902 | ) | $ | (258 | ) | $ | 43,048 | |||||||
Net loss |
| | | | (3,778 | ) | | (3,778 | ) | |||||||||||||
Common stock issued, net of issuance costs |
9,776,396 | 10 | 15,172 | | | | 15,182 | |||||||||||||||
Common stock issued for commitment fees |
880,000 | 1 | 1,213 | | | | 1,214 | |||||||||||||||
Common stock issued for investor relations fees |
150,000 | | 300 | | | | 300 | |||||||||||||||
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
3,120 | | 62 | | | | 62 | |||||||||||||||
Minimum withholding taxes on net share settlements of equity awards |
| | (1 | ) | | | | (1 | ) | |||||||||||||
Unrealized holding loss on marketable securities |
| | | (287 | ) | | | (287 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balances, September 30, 2017 |
27,476,910 | $ | 28 | $ | 296,937 | $ | (287 | ) | $ | (240,680 | ) | $ | (258 | ) | $ | 55,740 | ||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
F.1-4
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements for Westwater Resources, Inc. (the "Company," "we," "us," or "WWR"), formerly known as Uranium Resources, Inc., have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q and Rule 8-03 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The accompanying statements should be read in conjunction with the audited financial statements included in Westwater Resources, Inc.'s 2016 Annual Report on Form 10-K. In the opinion of management, all adjustments (which are of a normal, recurring nature) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, 2017 are not necessarily indicative of the results that may be expected for any other period including the full year ending December 31, 2017.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (ASU 2017-01), Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business when determining whether a company has acquired or sold a business. The ASU applies to all entities and is effective for annual periods ending after December 15, 2017, and interim periods thereafter, with early adoption permitted under certain circumstances. The Company does not believe that the adoption of this guidance will have a material impact on our financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows: Restricted Cash, which will require that a statement of cash flows explain the change during period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU applies to all entities and is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years beginning after December 15, 2019, with early adoption permitted. As a result, upon adoption, the Company will include the restricted cash amount in its beginning-of-period and end-of-period reconciliations of cash on its statement of cash flows. For the nine months ended September 30, 2017, this would have resulted in the Company including an additional $4.0 million in its beginning-of-period cash balance and an additional $3.7 million in its end-of-period cash balance. The Company also would not have recorded a release of restricted cash of $0.3 million in the investing section of its statement of cash flows.
2. LIQUIDITY
At September 30, 2017, the Company had working capital of $8.2 million, which along with the anticipated funding from the financing agreements described below, is expected to provide it with the necessary liquidity through September 30, 2018. At December 31, 2016, the Company had a working
F.1-5
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. LIQUIDITY (Continued)
capital deficit of $4.2 million. The increase in working capital of $12.4 million for the nine months ended September 30, 2017 was primarily due to the following:
Also during the nine months ending September 30, 2017, the Company entered into the following financing agreements and anticipates funding from these sources to sustain operations through 2018:
On April 14, 2017, the Company entered into a Controlled Equity Offering Sales Agreement with Cantor Fitzgerald & Co. ("Cantor") acting as sales agent, pursuant to which the Company has registered the offer and sale from time to time of shares of its common stock having an aggregate offering price of up to $30.0 million (the "ATM Offering"), of which approximately $28.9 million is available for future sales as of November 9, 2017. The Company is unable to sell shares of its common stock through the Controlled Equity Offering Sales Agreement on dates that it places shares with Aspire Capital through its CSPA, as discussed below.
On September 25, 2017, the Company entered into a Common Stock Purchase Agreement ("CSPA") with Aspire Capital Fund, LLC ("Aspire Capital") to place up to $22.0 million in the aggregate of its common stock over a term of 30 months. Upon execution of the CSPA, the Company issued 880,000 shares of common stock to Aspire Capital as a commitment fee. The Company cannot sell in excess of 5,033,677 shares of common stock, including the 880,000 commitment shares ("Exchange Cap"), unless (i) stockholder approval is obtained, or (ii) the average price paid for all shares issued under the Purchase Agreement (including the 880,000 commitment shares) is equal to or greater than $1.38. As of November 9, 2017, the Company has dollar capacity of $20.0 million of common stock available for future sales, limited to the current Exchange Cap of 2.7 million shares of common stock unless conditions (i) or (ii) above are met. See Note 9 below for further details.
The Company believes that the ATM Offering and the CSPA, along with its existing working capital balance, will provide it with the necessary liquidity to fund operations through 2018. The
F.1-6
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
2. LIQUIDITY (Continued)
Company will also continue to explore additional opportunities to raise capital, further monetize its non-core assets and identify ways to reduce its cash expenditures.
While the Company has been successful in the past raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available to it in amounts sufficient to meet the Company's needs or on terms acceptable to the Company. In the event that funds are not available, the Company may be required to materially change its business plans.
3. DISPOSAL OF HYDRO RESOURCES, INC.
On January 5, 2017, Laramide and the Company closed the sale of the Company's wholly-owned subsidiary HRI, which holds the Churchrock and Crownpoint projects, pursuant to a Share Purchase Agreement (the "Laramide SPA"). Under the terms of the Laramide SPA, executed on April 7, 2016 and amended on December 5, 2016, the Company received the following consideration:
The divestiture of HRI was accounted for as an asset disposal and the non-cash consideration received from Laramide was recorded at fair value. The fair value of the shares of Laramide common stock received was determined using the closing share price of Laramide's stock on January 5, 2017.
F.1-7
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
3. DISPOSAL OF HYDRO RESOURCES, INC. (Continued)
The fair value of the common stock purchase warrants was determined using the Black-Scholes method on April 27, 2017, which was the date that Laramide's stockholders approved the issuance of the warrants. The fair value of the notes receivable was determined using the present value of the future cash receipts discounted at a market rate of 9.5%. The Company did not record a separate fair value for the options as the exercise of the options would reduce the amount outstanding under the notes receivable. Due to the high degree of uncertainties surrounding future mine development and minerals prices, as well as limited marketability, the Company determined the fair value of the NSR Royalty to be nil. The following fair value amounts were recorded as the purchase consideration:
(thousands of dollars)
|
Fair Value | |||
---|---|---|---|---|
Cash, less transaction costs |
$ | 1,950 | ||
Laramide common stock |
568 | |||
Laramide common stock purchase warrants |
506 | |||
Notes receivable |
3,501 | |||
| | | | |
Total consideration received |
$ | 6,525 | ||
| | | | |
| | | | |
| | | | |
The fair value of the shares of Laramide's common stock and common stock purchase warrants received were valued using Level 1 inputs of the fair value hierarchy and the fair value of the notes receivable was valued using Level 2 inputs, as defined in Note 4 below.
The Company recorded the following gain on disposal of uranium properties within its Condensed Consolidated Statement of Operations:
(thousands of dollars)
|
|
|||
---|---|---|---|---|
Total consideration received |
$ | 6,525 | ||
Carrying value of Churchrock project |
(2,123 | ) | ||
Carrying value of other plant and equipment |
(31 | ) | ||
Accounts payable |
1 | |||
Asset retirement obligation |
105 | |||
Royalty payable on Churchrock project |
450 | |||
| | | | |
Gain on disposal of HRI |
$ | 4,927 | ||
| | | | |
| | | | |
| | | | |
4. FINANCIAL INSTRUMENTS
Applicable accounting standards define fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):
F.1-8
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
4. FINANCIAL INSTRUMENTS (Continued)
The Company believes that the fair values of our assets and liabilities approximate their reported carrying amounts. The following table presents information about assets that were recorded at fair value on a recurring basis as of September 30, 2017 and December 31, 2016 and indicate the fair value hierarchy:
|
September 30, 2017 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Current Assets |
|||||||||||||
Marketable securities and short term investments |
$ | 1,060 | $ | | $ | | $ | 1,060 | |||||
| | | | | | | | | | | | | |
Total current assets recorded at fair value |
$ | 1,060 | $ | | $ | | $ | 1,060 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Non-Current Assets |
|||||||||||||
Restricted cash |
3,668 | | | 3,668 | |||||||||
| | | | | | | | | | | | | |
Total non-current assets recorded at fair value |
$ | 3,668 | $ | | $ | | $ | 3,668 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
|
December 31, 2016 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Non-Current Assets |
|||||||||||||
Restricted cash |
$ | 3,964 | $ | | $ | | $ | 3,964 | |||||
| | | | | | | | | | | | | |
Total non-current assets recorded at fair value |
$ | 3,964 | $ | | $ | | $ | 3,964 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
5. PROPERTY, PLANT AND EQUIPMENT
|
Net Book Value of Property, Plant and Equipment
at September 30, 2017 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Turkey | Texas |
New
Mexico |
Corporate | Total | |||||||||||
Uranium plant |
$ | | $ | 8,447 | $ | | $ | | $ | 8,447 | ||||||
Mineral rights and properties |
17,968 | | 19,102 | | 37,071 | |||||||||||
Other property, plant and equipment |
20 | 1,132 | | 214 | 1,366 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
$ | 17,988 | $ | 9,579 | $ | 19,102 | $ | 214 | $ | 46,883 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F.1-9
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
5. PROPERTY, PLANT AND EQUIPMENT (Continued)
|
Net Book Value of Property, Plant and Equipment
at December 31, 2016 |
|||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Turkey | Texas |
New
Mexico |
Corporate | Total | |||||||||||
Uranium plant |
$ | | $ | 8,459 | $ | | $ | | $ | 8,459 | ||||||
Mineral rights and properties |
17,968 | | 19,102 | | 37,070 | |||||||||||
Other property, plant and equipment |
22 | 1,224 | | 141 | 1,387 | |||||||||||
| | | | | | | | | | | | | | | | |
Total |
$ | 17,990 | $ | 9,683 | $ | 19,102 | $ | 141 | $ | 46,916 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
6. MINERAL PROPERTY EXPENDITURES
Mineral property expenditures by geographical location for the three and nine months ended September 30, 2017 and 2016 are as follows:
|
For the Three
Months Ended Sep 30, |
For the Nine
Months Ended Sep 30, |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
2017 | 2016 | 2017 | 2016 | |||||||||
|
(thousands of dollars)
|
||||||||||||
Temrezli project, Turkey |
$ | 63 | $ | 31 | $ | 186 | $ | 453 | |||||
| | | | | | | | | | | | | |
Total Turkey projects |
63 | 31 | 186 | 453 | |||||||||
Kingsville Dome project, Texas |
197 | 214 | 616 | 624 | |||||||||
Rosita project, Texas |
188 | 130 | 472 | 290 | |||||||||
Vasquez project, Texas |
117 | 105 | 399 | 365 | |||||||||
Other projects, Texas |
26 | 11 | 30 | 80 | |||||||||
| | | | | | | | | | | | | |
Total Texas projects |
528 | 460 | 1,517 | 1,359 | |||||||||
Cebolleta project, New Mexico |
| | 538 | 537 | |||||||||
Juan Tafoya project, New Mexico |
38 | 37 | 354 | 48 | |||||||||
Other projects, New Mexico |
| 32 | 2 | 32 | |||||||||
| | | | | | | | | | | | | |
Total New Mexico projects |
38 | 69 | 894 | 617 | |||||||||
Columbus Basin project, Nevada |
481 | 113 | 667 | 113 | |||||||||
Railroad Valley project, Nevada |
80 | | 238 | | |||||||||
Other projects, Nevada |
8 | 14 | 11 | 14 | |||||||||
| | | | | | | | | | | | | |
Total Nevada projects |
569 | 127 | 916 | 127 | |||||||||
Sal Rica project, Utah |
118 | 352 | 124 | 352 | |||||||||
| | | | | | | | | | | | | |
Total Utah projects |
118 | 352 | 124 | 352 | |||||||||
Total expense for the period |
$ | 1,316 | 1,039 | $ | 3,637 | $ | 2,908 | ||||||
| | | | | | | | | | | | | |
On June 20, 2017, the Company acquired its third lithium exploration project through the staking of 9,270 acres of federal placer mining claims within the Railroad Valley of central Nevada.
F.1-10
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
6. MINERAL PROPERTY EXPENDITURES (Continued)
On March 24, 2017, the Company's wholly owned subsidiary Lithium Holdings Nevada LLC entered into an option agreement to purchase a block of unpatented placer mining claims covering an area of approximately 3,000 acres within the Columbus Salt Marsh area of Esmeralda County, Nevada. The claims adjoin a portion of the Company's current property holdings at its Columbus Basin project, expanding the project area within the basin to approximately 14,200 acres. The Company has the right to conduct exploration activities on the claims during the one-year option period. Under the option agreement, the Company may acquire the mineral property claims on or before March 24, 2018 in exchange for 200,000 shares of its common stock and a 1% NSR Royalty on the claims. The Company paid $75,000 for this option, which has been included as exploration expense for the Columbus Basin project.
7. CONVERTIBLE LOAN
On November 13, 2013, the Company entered into a loan agreement (the "RCF Loan") with Resource Capital Fund V L.P. ("RCF"), whereby RCF agreed, subject to the terms and conditions set forth in the RCF Loan, to provide a secured convertible loan facility of up to $15.0 million to the Company, which was subsequently amended on April 29, 2014 to reduce the amount available thereunder from $15.0 million to $8.0 million. The Company exchanged $2.5 million in principal for shares of its common stock in December 2016 and repaid the $5.5 million outstanding balance under the RCF Loan on February 9, 2017. No further obligations remain under the RCF Loan following the repayment. In addition, on July 31, 2017, the Company and RCF terminated the Stockholders' Agreement dated March 1, 2012, pursuant to which RCF had certain stock participation rights and Board rights.
As a result of the repayment, the Company recorded a loss of $39,000 on the extinguishment of debt which represented the difference between the principal amount of $5.5 million and the carrying value of the RCF Loan on the date of repayment.
F.1-11
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
8. ASSET RETIREMENT OBLIGATIONS
The following table summarizes the changes in the reserve for future restoration and reclamation costs on the balance sheet:
(thousands of dollars)
|
September 30,
2017 |
December 31,
2016 |
|||||
---|---|---|---|---|---|---|---|
Balance, beginning of period |
$ | 4,894 | $ | 4,468 | |||
Liabilities settled |
(37 | ) | (54 | ) | |||
Liabilities disposed |
(106 | ) | |||||
Accretion expense |
395 | 480 | |||||
| | | | | | | |
Balance, end of period |
5,146 | 4,894 | |||||
Less: Current portion |
(121 | ) | (121 | ) | |||
Less: Liabilities held for sale |
| (105 | ) | ||||
| | | | | | | |
Non-current portion |
$ | 5,025 | $ | 4,668 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company is currently performing surface reclamation activities at its Rosita project located in Duval County, Texas. The Company's current liability of $0.1 million consists of the estimated costs associated with current surface reclamation activities through September 2018 at the Company's Rosita project.
9. COMMON STOCK
Common Stock Issued, Net of Issuance Costs
Confidentially Marketed Public Offering
On January 19, 2017, the Company completed a registered public offering for net proceeds of $8.9 million. The Company sold 1,399,140 shares of common stock at a price of $2.01 per share and 3,426,731 pre-funded warrants at a price of $2.00 per warrant. The warrants have an exercise price of $0.01. All of the pre-funded warrants have been exercised.
On February 16, 2017, the Company completed a registered direct offering for net proceeds of $4.5 million with Aspire Capital whereby Aspire Capital purchased 2,100,000 shares of common stock at a price of $1.58 and 748,101 pre-funded common stock purchase warrants at a price of $1.57. The warrants have an exercise price of $0.01 per share and a term of three years. All of the pre-funded warrants have been exercised.
Controlled Equity Offering Sales Agreement
On April 14, 2017, the Company entered into the ATM Offering with Cantor acting as sales agent. Under the ATM Offering, the Company may from time to time sell shares of its common stock having an aggregate offering amount up to $30.0 million in "at-the-market" offerings, which shares are registered under a registration statement on Form S-3, which was declared effective on March 9, 2017.
F.1-12
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
9. COMMON STOCK (Continued)
The Company pays Cantor a commission equal to 2.5% of the gross proceeds from the sale of any shares pursuant to the ATM Offering. As of November 9, 2017, the Company had sold 673,853 shares of common stock for net proceeds of $1.1 million under the ATM Offering. As a result, the Company had approximately $28.9 million remaining available for future sales under the ATM Offering.
Common Stock Purchase Agreement with Aspire Capital
On September 25, 2017, the Company entered into the CSPA with Aspire Capital to place up to $22.0 million in the aggregate of the Company's common stock on an ongoing basis when required by the Company over a term of 30 months. The Company will control the timing and amount of sales to Aspire Capital, and at a price based on market prices at that time. As consideration for Aspire Capital entering into the purchase agreement, the Company issued 880,000 shares of its common stock to Aspire Capital. The shares of common stock subject to the CSPA were registered pursuant to the Company's effective shelf registration statement on Form S-3.
On September 27, 2017, pursuant to the CSPA and after satisfaction of certain commencement conditions, Aspire Capital made an initial purchase of 1,428,571 shares of common stock for which the Company received proceeds of $2.0 million. There were no other sales of common stock pursuant to the CSPA and as of November 9, 2017, $20.0 million of the aggregate $22.0 million remained available for future sales under the CSPA.
Common Stock Issued for Investor Relations Fees
On February 28, 2017, the Company issued 150,000 shares with a fair market value of $0.3 million or $2.00 per share as partial consideration for investor relations services that will be provided to the Company over the ensuing 12 months.
10. STOCK-BASED COMPENSATION
Stock-based compensation awards consist of stock options, restricted stock units ("RSUs") and restricted stock awards ("RSAs") issued under the Company's equity incentive plans which include: the 2013 Omnibus Incentive Plan (the "2013 Plan"); the 2007 Restricted Stock Plan (the "2007 Plan"); the Amended and Restated 2004 Directors' Stock Option and Restricted Stock Plan (the "2004 Directors' Plan"); and the 2004 Stock Incentive Plan (the "2004 Plan"). Upon approval of the 2013 Plan by the Company's stockholders on June 4, 2013, the Company's authority to grant new awards under all plans other than the 2013 Plan was terminated. On July 18, 2017, the Company's stockholders approved an amendment to the 2013 Plan to increase the authorized number of shares of common stock available and reserved for issuance under the 2013 Plan by 1.0 million shares and to re-approve the material terms of the performance goals under such plan. As of November 9, 2017, the Company had 561,232 shares available for future issuances under the 2013 Plan.
For the three months ending September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $24,279 and $75,495, respectively. For the nine months ending September 30, 2017 and 2016, the Company recorded stock-based compensation expense of $62,356 and $545,166,
F.1-13
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. STOCK-BASED COMPENSATION (Continued)
respectively. Stock-based compensation expense has been included in general and administrative expense.
In addition to the plans above, upon closing of the Company's acquisition of Anatolia Energy Limited in November 2015, the Company issued 374,749 replacement options and performance shares to the option holders and performance shareholders of Anatolia Energy Limited. The number of replacement options and performance shares was based upon the Black-Scholes value with the exercise prices of the replacement options and performance shares determined using the exchange rate of 0.00548. The options and performance shares were issued with the same terms and conditions as were applicable prior to the acquisition of Anatolia Energy Limited. As of September 30, 2017, 98,646 replacement options remain outstanding.
Stock Options
The following table summarizes stock options outstanding and changes for the nine-month periods ending September 30, 2017 and 2016:
|
Sep 30, 2017 | Sep 30, 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
Stock Options |
Weighted
Average Exercise Price |
Number of
Stock Options |
Weighted
Average Exercise Price |
|||||||||
Stock options outstanding at beginning of period |
110,828 | $ | 18.24 | 326,424 | $ | 24.90 | |||||||
Granted |
189,164 | 1.40 | | | |||||||||
Expired |
(6,001 | ) | 104.67 | (215,346 | ) | 27.64 | |||||||
| | | | | | | | | | | | | |
Stock options outstanding at end of period |
293,991 | $ | 5.64 | 111,078 | $ | 19.60 | |||||||
| | | | | | | | | | | | | |
Stock options exercisable at end of period |
104,722 | $ | 13.26 | 110,869 | $ | 19.57 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table summarizes stock options outstanding and exercisable by stock option plan at September 30, 2017:
|
Outstanding Stock Options | Exercisable Stock Options | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stock Option Plan
|
Number of
Outstanding Stock Options |
Weighted
Average Exercise Price |
Number of
Exercisable Stock Options |
Weighted
Average Exercise Price |
|||||||||
2004 Plan |
4,792 | $ | 35.14 | 4,792 | $ | 35.14 | |||||||
2004 Directors' Plan |
973 | 317.14 | 973 | 317.14 | |||||||||
2013 Plan |
189,581 | 1.48 | 312 | 35.88 | |||||||||
Replacement Stock Options |
98,645 | 9.13 | 98,645 | 9.13 | |||||||||
| | | | | | | | | | | | | |
|
293,991 | $ | 5.64 | 104,722 | $ | 13.26 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Restricted Stock Units
Time-based and performance-based RSUs are valued using the closing share price of the Company's common stock on the date of grant. The final number of shares issued under
F.1-14
WESTWATER RESOURCES, INC.
(formerly Uranium Resources, Inc.)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
10. STOCK-BASED COMPENSATION (Continued)
performance-based RSUs is generally based on the Company's prior year performance as determined by the Compensation Committee of the Board of Directors at each vesting date, and the valuation of such awards assumes full satisfaction of all performance criteria.
The following table summarizes RSU activity for the nine-month periods ended September 30, 2017 and 2016:
|
Sep 30, 2017 | Sep 30, 2016 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
RSUs |
Weighted-Average
Grant Date Fair Value |
Number of
RSUs |
Weighted-Average
Grant Date Fair Value |
|||||||||
Unvested RSUs at beginning of period |
8,649 | $ | 43.71 | 32,699 | $ | 34.25 | |||||||
Granted |
304,064 | 1.40 | | | |||||||||
Forfeited |
| | (3,334 | ) | 32.21 | ||||||||
Vested |
(39,340 | ) | 4.16 | (7,698 | ) | 29.45 | |||||||
| | | | | | | | | | | | | |
Unvested RSUs at end of period |
273,373 | $ | 1.95 | 21,667 | $ | 36.27 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
11. EARNINGS PER SHARE
Basic and diluted loss per share of common stock have been calculated based on the weighted-average shares outstanding during the period. Potentially dilutive shares of 750,698 were excluded from the calculation of earnings per share because the effect on the basic income per share would be anti-dilutive for the three and nine months ended September 30, 2017.
12. COMMITMENTS AND CONTINGENCIES
The Company's uranium recovery operations are subject to federal and state regulations for the protection of the environment, including water quality. Future closure and reclamation costs are provided for as each pound of uranium is produced on a unit-of-production basis. The Company reviews its uranium reclamation obligations each year and determines the appropriate unit charge. The Company also evaluates the status of current environmental laws and their potential impact on their accrual for costs. The Company believes its operations are materially compliant with current environmental regulations.
13. GEOGRAPHIC AND SEGMENT INFORMATION
The Company has one reportable operating segment, consisting of the exploration and development of lithium and uranium projects. These activities are focused principally in the United States and the Republic of Turkey. We reported no revenues during the three- and nine-month periods ended September 30, 2017 and 2016. Geographic location of property, plant and equipment, including mineral rights, and mineral property expenses, is provided in Notes 5 and 6, above.
F.1-15
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Uranium Resources, Inc.
We have audited the accompanying consolidated balance sheets of Uranium Resources, Inc. and subsidiaries (collectively, the "Company") as of December 31, 2016 and 2015, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Uranium Resources Inc. and subsidiaries as of December 31, 2016 and 2015, and the results of their operations and their cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
/s/Hein &
Associates LLP
Denver, Colorado
March 2, 2017
F.1-16
URANIUM RESOURCES, INC.
CONSOLIDATED BALANCE SHEETS
(expressed in thousands of dollars, except share amounts)
The accompanying notes are an integral part of these consolidated financial statements.
F.1-17
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(expressed in thousands of dollars, except share and per share amounts)
|
|
For the Year Ended
December 31, |
|||||||
---|---|---|---|---|---|---|---|---|---|
|
Notes | 2016 | 2015 | ||||||
Operating Expenses: |
|||||||||
Mineral property expenses |
4 | $ | (3,248 | ) | $ | (4,470 | ) | ||
General and administrative |
(7,650 | ) | (7,488 | ) | |||||
Acquisition related expenses |
3 | | (3,048 | ) | |||||
Accretion of asset retirement obligations |
7 | (480 | ) | (450 | ) | ||||
Depreciation and amortization |
(247 | ) | (336 | ) | |||||
Impairment of uranium properties |
4 | (1,673 | ) | (960 | ) | ||||
| | | | | | | | | |
Total operating expenses |
(13,298 | ) | (16,752 | ) | |||||
| | | | | | | | | |
Non-Operating Income/(Expenses): |
|||||||||
Loss on extinguishment of convertible debt |
6 | (3,322 | ) | | |||||
Interest expense |
6 | (2,800 | ) | (2,645 | ) | ||||
Commitment fees |
(333 | ) | | ||||||
Gain on disposal/exchange of uranium properties |
3 | | 4,268 | ||||||
Other income/(expense), net |
148 | (14 | ) | ||||||
| | | | | | | | | |
Total other income/(expense) |
(6,307 | ) | 1,609 | ||||||
| | | | | | | | | |
Net Loss |
$ | (19,605 | ) | $ | (15,143 | ) | |||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Other Comprehensive Loss |
|||||||||
Unrealized fair value decrease on available-for-sale securities |
$ | (49 | ) | $ | (67 | ) | |||
Transfer to realized loss upon sale of available-for-sale securities |
116 | | |||||||
| | | | | | | | | |
Comprehensive Loss |
$ | (19,538 | ) | $ | (15,210 | ) | |||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
BASIC AND DILUTED LOSS PER SHARE |
$ | (3.73 | ) | $ | (5.63 | ) | |||
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING |
5,251,954 | 2,690,559 |
The accompanying notes are an integral part of these consolidated financial statements.
F.1-18
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(expressed in thousands of dollars, except share amounts)
|
Common Stock |
|
Accumulated
Other Comprehensive Loss |
|
|
|
||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Paid-In
Capital |
Accumulated
Deficit |
Treasury
Stock |
|
||||||||||||||||||
|
Shares | Amount | Total | |||||||||||||||||||
Balances, January 1, 2015 |
2,099,375 | $ | 2 | $ | 233,547 | $ | | $ | (202,154 | ) | $ | (258 | ) | $ | 31,137 | |||||||
Net loss |
| | | | (15,143 | ) | | (15,143 | ) | |||||||||||||
Common stock issued, net of issuance costs |
559,428 | 1 | 6,391 | | | | 6,392 | |||||||||||||||
Common stock issued for acquisition of Anatolia Energy |
1,709,724 | 2 | 14,561 | | | | 14,563 | |||||||||||||||
Common stock issued for acquisition related fees |
79,841 | | 743 | | | | 743 | |||||||||||||||
Common stock issued for loan interest |
52,861 | | 722 | | | | 722 | |||||||||||||||
Options issued for business combinations |
| 1,308 | | | | 1,308 | ||||||||||||||||
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
20,957 | | 950 | | | | 950 | |||||||||||||||
Minimum withholding taxes on net share settlements of equity awards |
| | (126 | ) | | | | (126 | ) | |||||||||||||
Unrealized holding loss on available-for-sale securities |
| | | (67 | ) | | | (67 | ) | |||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2015 |
4,522,186 | $ | 5 | $ | 258,096 | $ | (67 | ) | $ | (217,297 | ) | $ | (258 | ) | $ | 40,479 | ||||||
Net loss |
(19,605 | ) | (19,605 | ) | ||||||||||||||||||
Common stock issued, net of issuance costs |
8,930,061 | 9 | 13,940 | | | | 13,949 | |||||||||||||||
Common stock issued for extinguishment of convertible debt |
2,487,562 | 3 | 5,820 | | | | 5,823 | |||||||||||||||
Common stock issued for settlement of accounts payable |
214,991 | | 850 | | | | 850 | |||||||||||||||
Common stock issued for purchase of lithium properties |
100,000 | | 132 | | | | 132 | |||||||||||||||
Common stock issued for loan interest |
83,000 | | 304 | | | | 304 | |||||||||||||||
Common stock issued for commitment fees |
315,000 | | 856 | | | | 856 | |||||||||||||||
Stock compensation expense and related share issuances, net of shares withheld for the payment of taxes |
14,594 | | 195 | | | | 195 | |||||||||||||||
Minimum withholding taxes on net share settlements of equity awards |
| | (2 | ) | | | | (2 | ) | |||||||||||||
Unrealized holding loss on available-for-sale securities |
67 | 67 | ||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | |
Balances, December 31, 2016 |
16,667,394 | $ | 17 | $ | 280,191 | $ | | $ | (236,902 | ) | $ | (258 | ) | $ | 43,048 | |||||||
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
F.1-19
URANIUM RESOURCES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS AND SUPPLEMENTAL
CASH FLOW INFORMATION
(expressed in thousands of dollars)
The accompanying notes are an integral part of these consolidated financial statements.
F.1-20
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America ("U.S.") and include the accounts of URI and its wholly-owned subsidiaries. All significant intercompany transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the U.S. ("US GAAP") requires management to make certain estimates and assumptions. Such estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The most significant estimates included in the preparation of the financial statements are related to asset retirement obligations; stock-based compensation; derivative liabilities and asset impairment, including estimates used to derive future cash flows or market value associated with those assets.
Cash and Cash Equivalents
We consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. We maintain cash deposits in excess of federally insured limits. We monitor the soundness of the financial institution and believe the risk is negligible.
Available-for-Sale Investments
We determine the appropriate classification of our investments at the time of purchase and re-evaluate such determinations each reporting date. Marketable equity securities are categorized as available-for-sale and carried at fair market value on the Balance Sheet.
Unrealized gains and losses are included as a component of accumulated other comprehensive loss, unless an other-than-temporary impairment in value has occurred in which case the unrealized loss would be charged to current period loss as an impairment charge. Unrealized gains and losses originally included in accumulated other comprehensive income are reclassified to current period net loss when the sale of securities occurs or when a security is impaired.
Property, Plant and Equipment
Expenditures for new facilities or equipment and expenditures that extend the useful lives of existing facilities or equipment are capitalized and recorded at cost. The facilities and equipment are amortized using the units of production method. During the periods that our facilities are not in production, depreciation of our facilities and equipment is suspended as the assets are not in service.
Mineral rights acquisition costs are capitalized when incurred, and exploration costs are expensed as incurred. When we determine that a mineral right can be economically developed in accordance with
F.1-21
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
U.S. GAAP, the costs then incurred to develop such property will be capitalized. During the periods that our facilities are not in production, depletion of our mineral interests, permits, licenses and development properties is suspended as the assets are not in service. If mineral properties are subsequently abandoned or impaired, any undepleted costs will be charged to loss in that period.
Other Property, Plant and Equipment
Other property, plant and equipment consists of corporate office equipment, furniture and fixtures and transportation equipment. Depreciation on other property is computed based upon the estimated useful lives of the assets. Repairs and maintenance costs are expensed as incurred. Gain or loss on disposal of such assets is recorded as other income or expense as such assets are disposed.
Asset Impairment
The Company reviews and evaluates its long-lived assets for impairment when events or changes in circumstances indicate that the related carrying amounts may not be recoverable. Impairment is considered to exist if the total estimated future cash flows on an undiscounted basis are less than the carrying amount of the assets. An impairment loss is measured and recorded based on discounted estimated future cash flows or upon an estimate of fair value that may be received in an exchange transaction. Future cash flows are estimated based on quantities of recoverable minerals, expected uranium prices, production levels and operating costs of production and capital, based upon the projected remaining future uranium production from each project. Existing proven and probable reserves and value beyond proven and probable reserves, including mineralization that is not part of the measured, indicated or inferred resource base, are included when determining the fair value of mine site reporting units at acquisition and, subsequently, in determining whether the assets are impaired. The term "recoverable minerals" refers to the estimated amount of uranium that will be obtained after taking into account losses during processing and treatment. In estimating future cash flows, assets are grouped at the lowest level for which there are identifiable cash flows that are largely independent of future cash flows from other asset groups. The Company's estimates of future cash flows are based on numerous assumptions and it is likely that actual future cash flows will be significantly different than the estimates, as actual future quantities of recoverable minerals, uranium prices, production levels and operating costs of production and availability and cost of capital are each subject to significant risks and uncertainties.
Assets held for sale
The Company considers assets to be held for sale when management approves and commits to a formal plan to actively market the assets for sale at a price reasonable in relation to fair value, the asset is available for immediate sale in its present condition, an active program to locate a buyer and other actions required to complete the sale have been initiated, the sale of the asset is expected to be completed within one year and it is unlikely that significant changes will be made to the plan. Upon designation as held for sale, the Company records the carrying value of the assets at the lower of its carrying value or its estimated fair value, less costs to sell.
F.1-22
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Restricted Cash
At December 31, 2016 and 2015, the Company had pledged certificates of deposit and money market accounts of $4.0 million and $4.0 million, respectively, in order to collateralize performance bonds required for future restoration and reclamation obligations related to our South Texas production properties. These funds are not readily available to the Company and are not included in cash equivalents.
Fair Value of Financial Instruments
Our financial instruments consist of cash equivalents and restricted cash. U.S. GAAP defines "fair value" as the price that would be received to sell an asset or be paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price) and establishes a fair-value hierarchy that prioritizes the inputs used to measure fair value using the following definitions (from highest to lowest priority):
The Company considers all highly liquid instruments purchased with an original maturity of three months or less to be cash equivalents. The Company continually monitors its positions with, and the credit quality of, the financial institutions with which it invests. Periodically throughout the year, the Company has maintained balances in various U.S. operating accounts in excess of U.S. federally insured limits.
The following table presents information about financial instruments recognized at fair value on a recurring basis as of December 31, 2016 and 2015, and indicates the fair value hierarchy:
|
December 31, 2016 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets |
|||||||||||||
Restricted cash |
$ | 3,964 | $ | | $ | | $ | 3,964 | |||||
| | | | | | | | | | | | | |
Total assets recorded at fair value |
$ | 3,964 | $ | | $ | | $ | 3,964 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F.1-23
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
December 31, 2015 | ||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Level 1 | Level 2 | Level 3 | Total | |||||||||
Assets |
|||||||||||||
Short-term available-for-sale investments |
$ | 226 | $ | | $ | | $ | 226 | |||||
Restricted cash |
4,026 | | | 4,026 | |||||||||
| | | | | | | | | | | | | |
Total assets recorded at fair value |
$ | 4,252 | $ | | $ | | $ | 4,252 | |||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Asset Retirement Obligations
Various federal and state mining laws and regulations require the Company to reclaim the surface areas and restore underground water quality for its ISR projects to the pre-existing or background average quality after the completion of mining. Asset retirement obligations, consisting primarily of estimated restoration and reclamation costs at the Company's South Texas ISR projects, are recognized in the period incurred and recorded as liabilities at fair value. Such obligations, which are initially estimated based on discounted cash flow estimates using level 3 inputs, are accreted to full value over time through charges to accretion expense. In addition, the asset retirement cost is capitalized as part of the asset's carrying value and amortized over the life of the related asset. If the Company does not have a recorded value for the related asset, then the asset retirement cost is expensed as incurred. Asset retirement obligations are periodically adjusted to reflect changes in the estimated present value resulting from revisions to the estimated timing or amount of restoration and reclamation costs. As the Company completes its restoration and reclamation work at its properties, the liability is reduced by the carrying value of the related asset retirement liability which is based upon the percentage of completion of each restoration and reclamation activity. Any gain or loss upon settlement is charged to income or expense and is included as part of the Company's mineral property expense for the period. The Company reviews and evaluates its asset retirement obligations annually or more frequently at interim periods if deemed necessary.
Loss Per Share
Basic loss per share is computed using the weighted-average number of shares outstanding during the period. Diluted loss per share is not presented as the effect on the basic loss per share would be anti-dilutive. At December 31, 2016 and 2015, we had 745,841 and 1,123,901 in potentially dilutive securities, respectively.
Foreign Currency
The functional currency for the companies recently acquired in the Anatolia Transaction was determined to be the U.S. dollar upon completion of the acquisition since our newly acquired foreign subsidiaries are direct and integral components of URI and are dependent upon the economic environment of URI's functional currency. Accordingly, we have translated our monetary assets and liabilities at the period-end exchange rate and the non-monetary assets and liabilities at historical rates, with income and expenses translated at the average exchange rate for the current period. All translation gains and losses have been included in the current period loss.
F.1-24
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Recently Adopted Accounting Pronouncements
In August 2014, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update No. 2014-15 (ASU 2014-15), Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which provides guidance on determining when and how to disclose going-concern uncertainties in the financial statements. The new standard requires management to perform interim and annual assessments of an entity's ability to continue as a going concern within one year of the date the financial statements are issued. An entity must provide certain disclosures if conditions or events raise substantial doubt about the entity's ability to continue as a going concern. The ASU applies to all entities and is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. Upon adopting ASU 2014-15, the Company prepared an annual assessment of its ability to continue as a going concern.
Recently Issued Accounting Pronouncements
In January 2017, the FASB issued Accounting Standards Update No. 2017-01 (ASU 2017-01), Business Combinations: Clarifying the Definition of a Business, which clarifies the definition of a business when determining whether a company has acquired or sold a business. The ASU applies to all entities and is effective for annual periods ending after December 15, 2017, and interim periods thereafter, with early adoption permitted under certain circumstances. The Company does not believe that the adoption of this guidance will have a material impact on our financial statements.
In November 2016, the FASB issued Accounting Standards Update No. 2016-18, Statement of Cash Flows: Restricted Cash, which will require that a statement of cash flows explain the change during period in the total of cash, cash equivalents and amounts generally described as restricted cash or restricted cash equivalents. As a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU applies to all entities and is effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years beginning after December 15, 2019, with early adoption permitted. As a result, upon adoption, the Company will include the restricted cash amount in its beginning-of-period and end-of-period reconciliations of cash on its statement of cash flows. For the year ended December 31, 2016, this would have resulted in the Company including an additional $4.0 million in its beginning-of-period cash balance and an additional $4.0 million in its end-of-period cash balance. The Company also would not have recorded a release of restricted cash of $0.1 million in the investing section of its statement of cash flows.
2. LIQUIDITY
At December 31, 2016, the Company had a working capital deficit of $4.3 million as compared with a working capital deficit of $8.9 million as of December 31, 2015. The decrease in the working capital deficit of $4.6 million was primarily due to an increase in cash and cash equivalents of $2.4 million and an aggregate decrease in accounts payable and accrued liabilities of $2.0 million. The increase in cash and cash equivalents and the decrease in accounts payable and accrued liabilities are due to the Company's fundraising efforts during 2016, which included the completion of registered direct offerings on April 4, 2016 and February 4, 2016 for net proceeds of $1.2 million and $0.8 million, respectively, $6.7 million in net proceeds from the sale of common stock to Aspire Capital under the terms of the CSPA and $5.8 million in net proceeds from the sale of common stock sold through the Company's at-the-market sales program.
F.1-25
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. LIQUIDITY (Continued)
Subsequent to December 31, 2016, the Company received $2.2 million upon the completion of the sale of its wholly-owned subsidiary Hydro Resources, Inc to Laramide on January 5, 2017 and received an aggregate $13.4 million upon completion of a public offering on January 19, 2017 and a registered direct offering on February 16, 2017. In addition, the Company repaid the remaining $5.5 million outstanding under the RCF Loan on February 9, 2017.
As a result of the above, the Company's cash balances were $10.4 million at February 28, 2017, which the Company expects will provide it the necessary liquidity through the first quarter of 2018. The Company also has $4.3 million available for future sales under the CPSA, but would need to obtain stockholder approval before issuing any additional shares to Aspire Capital. The Company continues to explore additional opportunities to raise capital, further monetize its non-core assets and identify ways to reduce its cash expenditures.
While the Company has been successful in the past raising funds through equity and debt financings as well as through the sale of non-core assets, no assurance can be given that additional financing will be available to it in amounts sufficient to meet the Company's needs or on terms acceptable to the Company. In the event that funds are not available, the Company may be required to materially change its business plans.
3. ACQUISITIONS AND DISPOSALS
Acquisition of Lithium Properties
During 2016, the Company staked approximately 11,220 acres of placer mining claims covering a prospective target for lithium-enriched brines in the Columbus Salt Marsh area of west-central Nevada. The target area, known as the Columbus Basin project, is situated within a region of known lithium mineralization and is located approximately 45 miles west of Tonopah, Nevada.
On September 21, 2016, the Company entered into the Mesa SPA with Mesa to acquire certain placer mining claims comprising the Sal Rica project. The target area is situated within a region of known brine-hosted lithium mineralization and is approximately 25 miles north of the town of Wendover, Utah. The Sal Rica project is comprised of approximately 9,900 acres of placer mining claims covering a prospective target for lithium-enriched brines. Additionally, subsequent to the purchase of these claims from Mesa, the Company staked an additional 3,360 acres of unpatented mining claims within the project area.
Under the terms of the Mesa SPA, the Company acquired a 100% interest in the Sal Rica project, subject to a 2% NSR Royalty, for the following consideration: (i) $50,000 cash paid to Mesa at closing; (ii) 100,000 unregistered shares of the Company's common stock at closing, with a registration statement filed with the SEC on November 16, 2016; and (iii) 100,000 unregistered shares of the Company's common stock on the first anniversary date of the closing, with a registration statement to be filed with the SEC within 28 days of issue. The closing of the transaction occurred on October 19, 2016 at which time the Company issued 100,000 unregistered shares of common stock and paid $50,000 to Mesa. As of December 31, 2016, the Company recorded exploration expense of $0.3 million related to the Mesa SPA, which includes the $50,000 paid to Mesa on October 19, 2016 and $278,000 of expense related to the fair value of the shares issued and to be issued to Mesa.
F.1-26
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ACQUISITIONS AND DISPOSALS (Continued)
Acquisition of Anatolia Energy
On November 9, 2015, the Company completed its acquisition of 100% of the outstanding securities of Anatolia Energy for total consideration of $17.4 million. The consideration was comprised of $1.5 million in cash used to fund Anatolia Energy's operating activities prior to completion of the Anatolia Transaction, $15.9 million in common stock of the Company and listed and unlisted options in the Company. Each ordinary share of Anatolia Energy was exchanged for 0.00548 common shares of URI and each outstanding Anatolia Energy performance share, listed option or unlisted option was converted into a performance share, listed option or unlisted option (as applicable) to acquire common shares of the Company, on the same terms and conditions as were applicable prior to the Anatolia Transaction, except that the number of shares to be received upon conversion and the exercise price were adjusted based on the fair value of the performance share, listed option or unlisted option prior to completion of the Anatolia Transaction, as to preserve the economic value of such performance share or option. As a result, the Company issued 1,709,724 new shares, 266,742 listed options, 310,921 options and 58,286 performance shares. The value of the Company's stock issued as consideration was based upon the opening share price on November 10, 2015 of $9.00 for those shares issued on the NASDAQ and A$11.88 ($8.38) for those shares issued on the ASX. The Company did not include the fair value of the performance shares in its determination of the purchase price as in accordance with accounting rules, expense should not be recognized until it is reasonably certain that the performance condition will be satisfied. As the Company does not believe the performance condition will be satisfied prior to the date the performance shares expire, it did not include the fair value of the performance shares in the determination of the purchase price. The results of Anatolia Energy are included in the Consolidated Statement of Operations commencing November 10, 2015.
Acquisition related costs were $3.0 million, of which $0.7 million was settled by the issuance of 79,841 shares of URI's common stock. Subsequent to December 31, 2015, URI issued an additional 117,097 shares of common stock as settlement of $0.7 million of required termination payments.
Anatolia Energy is an Australian entity that indirectly holds a 100% interest in the Temrezli project located in Central Turkey, which URI plans to advance to near-term production.
The acquisition of Anatolia Energy was accounted for as a business combination with URI deemed to be the acquirer, as, post-combination, URI continues to control the Board of Directors and senior management positions and has overall control over the day-to-day activities of the combined entity.
F.1-27
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ACQUISITIONS AND DISPOSALS (Continued)
The following summarizes the preliminary allocation of purchase price to the fair value of assets acquired and liabilities assumed as of the acquisition date (in thousands):
Consideration: |
||||
Cash |
$ | 1,497 | ||
Issuance of 1,709,724 common shares for replacement of Anatolia Energy shares |
14,563 | |||
Issuance of 266,742 listed options for replacement of Anatolia Energy listed options |
424 | |||
Issuance of 310,921 options for replacement of Anatolia Energy options |
884 | |||
Issuance of 58,286 performance shares to replace Anatolia Energy performance shares |
| |||
| | | | |
|
$ | 17,368 | ||
| | | | |
Fair value of net assets acquired: |
||||
Assets: |
||||
Cash and cash equivalents |
$ | 61 | ||
Short-term receivables |
64 | |||
Prepaid and other current assets |
217 | |||
Restricted cash |
85 | |||
Property, plant, equipment and uranium interests |
17,992 | |||
| | | | |
Total assets |
18,419 | |||
| | | | |
Liabilities: |
||||
Accounts payable and other accrued liabilities |
1,051 | |||
| | | | |
Total liabilities |
1,051 | |||
| | | | |
Net assets |
$ | 17,368 | ||
| | | | |
| | | | |
| | | | |
The carrying value of the current assets and liabilities assumed approximated the fair value due to the short-term nature of these items. The fair value of the uranium properties was estimated using a discounted cash flow approach. Key assumptions used in the discounted cash flow analysis include discount rates, mineral resources, future timing of production, recovery rates and future capital and operating costs.
Purchase and Exchange Agreement (PEA) with Energy Fuels
On June 26, 2015, the Company and certain of its subsidiaries entered into the PEA with Energy Fuels, pursuant to which at closing on July 31, 2015 subsidiaries of URI transferred ownership of URI's Roca Honda project, including mineral fee lands and unpatented lode mining claims in Sections 8 and 17 of Township 13 North, Range 8 West, covering approximately 1,240 acres and 3,382 acres of leased claims to Energy Fuels. In exchange, Energy Fuels delivered to URI (i) $2.5 million in cash, (ii) 76,455 shares of Energy Fuels common stock with a fair value upon closing of $0.3 million, which were subsequently sold on February 22, 2016 for $0.2 million, (iii) Energy Fuels\' 4% gross royalty covering 5,640 acres on seven mineral leases in the state of Wyoming at the Kendrick and Barber areas of the Lance uranium ISR project, which is currently under construction by Peninsula Energy Limited, and
F.1-28
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. ACQUISITIONS AND DISPOSALS (Continued)
(iv) unpatented lode mining claims covering 640 acres in Section 4 of Township 16 North, Range 18 West, located near Churchrock, New Mexico, which are contiguous with the Company's Churchrock project, as well as claims in Section 34 and leases from the state of New Mexico in Sections 32 and 36, all situated in Township 17 North, Range 16 West.
URI also retained a 4% royalty on Section 17 of the Roca Honda project. The royalty can be repurchased by Energy Fuels upon payment to URI of $5.0 million cash at any time at Energy Fuel's sole discretion prior to the date on which the first royalty payment becomes due.
The divestiture of the Roca Honda project was accounted for as an asset disposal and the non-cash considerations received from Energy Fuels was recorded at fair value. The fair value of the shares of Energy Fuels common stock received was determined using the closing share price of Energy Fuels stock on July 31, 2015. The fair value of the unpatented lode mining claims and mineral leases was determined based upon the per pound value of similar transactions involving unproved uranium assets within the last three years. The Company determined that the Lance Royalty had de minimus value and therefore determined the fair value to be nil. The following fair value amounts were recorded as the purchase consideration:
(thousands of dollars)
|
Fair Value | |||
---|---|---|---|---|
Cash |
$ | 2,500 | ||
Energy Fuels Inc. common stock |
293 | |||
Churchrock properties |
2,123 | |||
| | | | |
Total consideration received |
$ | 4,916 | ||
| | | | |
| | | | |
| | | | |
The fair value of the shares of Energy Fuel's common stock received were valued using Level 1 inputs of the fair-value hierarchy and the fair value of the unpatented lode mining claims and mineral leases were valued using Level 3 inputs of the fair-value hierarchy (as defined in Note 1 above).
The Company recorded the following gain on disposal of uranium properties within its Consolidated Statement of Operations:
(thousands of dollars)
|
|
|||
---|---|---|---|---|
Total consideration received |
$ | 4,916 | ||
Carrying value of Roca Honda project |
(648 | ) | ||
| | | | |
Gain on disposal of Roca Honda project |
$ | 4,268 | ||
| | | | |
| | | | |
| | | | |
4. PROPERTY, PLANT AND EQUIPMENT
|
Net Property, Plant and Equipment at December 31, 2016 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Turkey | Texas |
New
Mexico |
Corporate |
Net book
value |
|||||||||||
Uranium plant |
$ | | $ | 8,459 | $ | | $ | | $ | 8,459 | ||||||
Mineral rights and properties |
17,968 | | 19,102 | | 37,070 | |||||||||||
Other property, plant and equipment |
22 | 1,224 | | 141 | 1,387 | |||||||||||
| | | | | | | | | | | | | | | | |
Total net book value |
$ | 17,990 | $ | 9,683 | $ | 19,102 | $ | 141 | $ | 46,916 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
F.1-29
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
|
Net Property, Plant and Equipment at December 31, 2015 | |||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
(thousands of dollars)
|
Turkey | Texas |
New
Mexico |
Corporate |
Net book
value |
|||||||||||
Uranium plant |
$ | | $ | 8,653 | $ | | $ | | $ | 8,653 | ||||||
Mineral rights and properties |
17,968 | 1,513 | 19,102 | | 38,583 | |||||||||||
Other property, plant and equipment |
22 | 1,352 | | 202 | 1,576 | |||||||||||
| | | | | | | | | | | | | | | | |
Total net book value |
$ | 17,990 | $ | 11,518 | $ | 19,102 | $ | 202 | $ | 48,812 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Lithium Properties
As discussed in Note 3 above, the Company staked approximately 11,220 acres of unpatented placer mining claims in July and September 2016 in the Columbus Salt Marsh area of west-central Nevada. We hold these claims through the payment of annual claim maintenance fees to the U.S. Bureau of Land Management. There are no royalty obligations associated with this project.
As discussed in Note 3 above, the Company acquired approximately 9,900 acres of unpatented placer mining claims from Mesa. Additionally, subsequent to the purchase of these mining claims from Mesa, the Company staked an additional 3,360 acres of unpatented placer mining claims. We hold these claims through the payment of annual claim maintenance fees to the U.S. Bureau of Land Management. Additionally, the claims purchased from Mesa are subject to a 2% NSR royalty on future production. The remaining claims staked by the Company are not subject to any royalties or work commitments.
Uranium Properties
As discussed in Note 3 above, the Temrezli project was acquired as part of the Anatolia Transaction. The Company controls five licenses that make up the Temrezli project area that were granted to our Turkey-based subsidiary Adur Madencilik Ltd Sti. by the Turkish General Directorate of Mining Affairs. The granted licenses cover an area of about 13,490 acres. We hold these licenses through the payment of fees to the Turkish government and the fulfillment of certain physical work obligations on an annual basis. Uranium production from the licenses is subject to the payment of a sliding scale royalty, ranging from 2% to 16% depending upon the sales price of uranium, as defined by Turkish mining law. The sliding scale royalty payments are to be made to certain agencies of the local and Turkish governments. A further 1% royalty is payable to the General Directorate of Mining Affairs, who discovered the Temrezli uranium deposit.
F.1-30
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
The Kingsville Dome project consists of mineral leases from private landowners on about 2,434 gross and 2,227 net acres located in central Kleberg County, Texas. The leases are held through the payment of annual rents, and the lease provide for the payment of production royalties ranging from 6.25% to 9.375%, based upon uranium sales from the respective leases. The leases have expiration dates ranging from 2000 to 2007 however we continue to hold most of these leases through our ongoing restoration activities. With a few minor exceptions, the leases contain clauses that permit us to extend the leases not held by production by payment of an annual per acre royalty ranging from $10 to $30. We have paid such royalties on all material acreage.
The Rosita project consists of mineral leases from private landowners on about 2,759 gross and net acres located in north-central Duval County, Texas. The Rosita South property consists of mineral leases from private land owners on about 1,795 gross acres and 1,479 net acres located in Duval County near the Company's Rosita project. The leases provide for the payment to the landowners of sliding scale royalties based on a percentage of uranium sales. Royalty percentages on average increase from 6.25% up to 18.25% when uranium prices reach $80.00 per pound. Under the terms of the leases, the lands can be held after the expiration of the primary and secondary terms, as long as are carrying out restoration and reclamation activities. The leases have primary and secondary terms ranging from 2012 to 2015, and provisions to extend the leases beyond the initial terms. We are holding these leases by payment of rentals ranging from $10 to $30 per acre.
The Vasquez project is comprised of a mineral lease on 872 gross and net acres located in southwestern Duval County, in South Texas. The primary term expired in February 2008; however we hold the lease by carrying out restoration and reclamation activities. We pay an annual rental fee to the landowner and the lease provides for the payment to the landowner royalties based upon 6.25% of uranium sales below $25.00 per pound and royalty rate increases on a sliding scale up to 10.25% for uranium sales occurring at or above $40.00 per pound.
The Butler Ranch project was acquired as part of the Company's Asset Exchange Agreement with Rio Grande Resources Corporation in November 2014. The property is comprised of nine fee leases that cover an area of about 1,322 gross or 1,262 net acres of mineral rights. We can hold the leases by payment of annual rental fees, ranging from $10 to $25 per acre. Each of the leases makes provision for the payment of royalties of 10% of sales to the property owners. Leases have initial terms of 8 to 10 years and have provisions to "hold by drilling" and identifying uranium mineralization on the specific properties.
In connection with the merger of Neutron (and its wholly-owned subsidiary Cibola Resources LLC ("Cibola")) we acquired the Cebolleta Lease with La Merced del Pueblo de Cebolleta (the "Cebolleta Land Grant"), a privately held land grant, to lease the Cebolleta project, which is composed of
F.1-31
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
approximately 6,717 acres of fee (deeded) surface and mineral rights. The Cebolleta Lease provides for: (i) a term of ten years and so long thereafter as Cibola is conducting operations on the Cebolleta project; (ii) initial payments to the Cebolleta Land Grant of $5.0 million; (iii) a recoverable reserve payment equal to $1.00 multiplied by the number of pounds of recoverable uranium reserves upon completion of a feasibility study to be completed within six years, less (a) the $5.0 million referred to in (ii) above, and (b) not more than $1.5 million in annual advance royalties previously paid pursuant to (iv); (iv) annual advanced royalty payments of $0.5 million; (v) gross proceeds royalties from 4.50% to 8.00% based on the then current price of uranium; (vi) employment opportunities and job-skills training for the members of the Cebolleta Land Grant and (vii) funding of annual higher education scholarships for the members of the Cebolleta Land Grant. The Cebolleta Lease provides Cibola with the right to explore for, mine, and process uranium deposits present on the Cebolleta project. In February 2012, Cibola entered into an Amendment of its Mining Lease Agreement (the "Cebolleta Lease Amendment") amending the Cebolleta Lease, subject to approval of the Thirteenth Judicial District. Pursuant to the Cebolleta Lease Amendment, the date for the completion of the feasibility study was extended from April 2013 to April 2015. In addition, the date has been further extended subject to a reduction in the $6.5 million initial payment and annual advance royalty payments deduction to the recoverable reserve payment The Company intends to negotiate with the Cebolleta Land Grant on the terms for the continuation of the Cebolleta Lease.
In connection with the merger with Neutron we acquired the fee interest in 4,097 acres in northwestern New Mexico of fee (deeded) surface and mineral rights owned by the Juan Tafoya Land Corporation ("JTLC") and 24 leases with private owners of small tracts covering a combined area of 115 acres. The lease has a term of ten years, and it can be extended on a year-to-year basis thereafter, so long as we are conducting operations on the property. Additionally, the lease required: (i) an initial payment of $1.25 million; (ii) annual rental payments of $0.2 million for the first five years of the lease and $0.3 million for the second five years; (iii) after the second five years, annual base rent of $75 per acre; (iv) a gross proceeds royalty of 4.65% to 6.5% based on the then current price of uranium; (v) employment opportunities and job-skills training programs for shareholders of the JTLC or its heirs, (vi) periodic contributions to a community projects fund if mineral production commences from the Juan Tafoya property and (vii) funding of a scholarship program for the shareholders of the JTLC or its heirs. The Company is obligated to make the first ten years' annual rental payments notwithstanding the right to terminate the JTLC lease at any time, unless (a) the market value of uranium drops below $25 per pound, (b) a government authority bans uranium mining on the Juan Tafoya property, or (c) the deposit is deemed uneconomical by an independent engineering firm. The Company intends to negotiate with the JTLC on the terms for the continuation of the JTLC lease.
F.1-32
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
Impairment of Property, Plant and Equipment
The Company recorded the following impairment charges for 2016 and 2015 related to its uranium projects and processing facilities:
|
For the years ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of
dollars) |
||||||
Kingsville Dome project |
$ | 160 | $ | 160 | |||
Butler Ranch project |
579 | | |||||
Sejita Dome project |
534 | | |||||
Nell project |
209 | | |||||
Jack Pump project |
191 | | |||||
Alta Mesa Este project |
| 800 | |||||
| | | | | | | |
Total Impairment |
$ | 1,673 | $ | 960 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The Company's recorded impairment charge for 2016 and 2015 of $0.2 million on its Kingsville Dome project was due to the physical deterioration of its processing plant equipment resulting from the plant's idled status and its proximity to the Texas coastline. The net carrying value of the Kingsville Dome plant equipment after impairment is $0.2 million which is calculated as $2.2 million book value less a $2.0 million liability related to dismantling and decontaminating. The Company also used a third-party estimate of resale value to determine that no further impairment was needed as the Company's third-party estimate of resale value exceeded the $0.2 million net carrying value of the Kingsville Dome plant equipment.
The Company's recorded impairment charge for 2016 of $0.6 million on its Butler Ranch project was the result of declining uranium prices during 2016 as the carrying value exceeded the projects cash flows on an undiscounted and discounted basis. As a result, the entire carrying value of the Butler Ranch project was written to nil as it was determined that the entire investment was unrecoverable.
The Company's recorded impairment charges for 2016 of $0.5 million on its Sejita Dome project, $0.2 million on its Nell project and $0.2 million on its Jack Pump project were the result of URI's Board of Directors and management determining that exploration results indicated that these projects should be terminated. The Company's impairment charge for 2015 of $0.8 million on its Alta Mesa Este project was the result of URI's Board of Directors and management determining that recent exploration results indicated that the Alta Mesa Este project should be terminated. As a result, the carrying values of the projects were written down to nil.
Mineral Property Expenses
During the years ending December 31, 2016 and 2015, the Company's mineral property expenses were $3.2 million and $4.5 million, respectively. Included within mineral property costs are standby
F.1-33
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. PROPERTY, PLANT AND EQUIPMENT (Continued)
costs for our three idled South Texas ISR projects along with holding, exploration and evaluation costs for all properties. The Company spent the following amounts for each of its material properties:
|
For the year ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
Temrezli project, Turkey |
$ | 498 | $ | 407 | |||
| | | | | | | |
Total Turkey projects |
498 | 407 | |||||
Kingsville Dome project, Texas |
779 |
812 |
|||||
Rosita project, Texas |
402 | 711 | |||||
Vasquez project, Texas |
461 | 510 | |||||
Butler Ranch project, Texas |
12 | 443 | |||||
Other projects, Texas |
94 | 553 | |||||
| | | | | | | |
Total Texas projects |
1,748 | 3,029 | |||||
Crownpoint project, New Mexico |
5 |
5 |
|||||
Churchrock project, New Mexico |
20 | 21 | |||||
Cebolleta project, New Mexico |
138 | 537 | |||||
Juan Tafoya project, New Mexico |
47 | 384 | |||||
Other projects, New Mexico |
5 | 87 | |||||
| | | | | | | |
Total New Mexico projects |
215 | 1,034 | |||||
Columbus Basin project, Nevada |
232 |
|
|||||
Other projects, Nevada |
31 | | |||||
| | | | | | | |
Total Nevada projects |
263 | | |||||
Sal Rica project, Utah |
524 |
|
|||||
| | | | | | | |
Total Utah projects |
524 | | |||||
| | | | | | | |
Total expense for the period |
$ | 3,248 | $ | 4,470 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
5. ASSETS HELD FOR SALE
On April 7, 2016, the Company entered into the Laramide SPA with Laramide Resources for the sale of its wholly-owned subsidiary Hydro Resources, Inc., which holds the Company's Churchrock and Crownpoint projects. On December 5, 2016, the Company and Laramide agreed to amend the terms of the Laramide SPA. Under the terms of the amended Laramide SPA, the Company is set to transfer ownership of the Churchrock and Crownpoint projects in exchange for the following consideration from Laramide Resources at closing:
F.1-34
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. ASSETS HELD FOR SALE (Continued)
Laramide Resources decision regarding commercial production at the Churchrock project. Principal payments of approximately $1.5 million are due and payable on January 5 in each of 2018, 2019 and $2.0 million on January 5, 2020. Interest is payable on a quarterly basis, provided however that no interest will be payable prior to the first principal payment in 2018. Laramide has the right to satisfy up to half of each of these payments by delivering shares of its common stock to the Company, which shares will be valued by reference to the VWAP for Laramide's common stock for the 20 trading days before the respective anniversary of January 5, on which each payment is due;
The closing under the Laramide SPA occurred on January 5, 2017. As a result, the assets and liabilities associated with the Churchrock and Crownpoint projects have been classified as held-for-sale as of December 31, 2016 and December 31, 2015. Assets held-for-sale includes $2.1 million related to the portion of the Churchrock project acquired from Energy Fuels Inc. in 2015. Liabilities held for sale consisted of $105,000 related to a reclamation obligation at the Crownpoint project and $450,000 related to a royalty obligation payable upon commencement of production at the Crownpoint project.
6. CONVERTIBLE LOAN
On November 13, 2013, the Company entered into a loan agreement (the "RCF Loan") with RCF, whereby RCF agreed, subject to the terms and conditions set forth in the RCF Loan, to provide a secured convertible loan facility of up to $15.0 million to the Company, which was subsequently amended on April 29, 2014 to reduce the amount available thereunder from $15.0 million to $8.0 million, all of which has been drawn. No additional amounts may be drawn under the RCF Loan.
Amounts drawn under the RCF Loan originally matured on December 31, 2016 and bore interest at 10% per annum, payable quarterly in arrears in shares of the Company's common stock or, at RCF's election, in cash. The number of shares to be issued as payment for interest is determined based upon the VWAP of the Company's common stock for the 20 trading days preceding the last day of each quarter. Accordingly, the Company issued 38,086 shares of common stock on January 4, 2016 for settlement of interest expense of $0.2 million related to the three-month period ended December 31, 2015. RCF elected to receive cash in lieu of shares for the March 31, 2016, June 30, 2016 and September 30, 2016 interest payments. On June 10, 2016, the Company paid $0.3 million to RCF which included $0.2 million in interest owing from March 31, 2016 and a $0.1 million interest penalty on the late payment. On July 10, 2016, the Company paid $0.2 million to RCF in interest owing from June 30, 2016 and on October 11, 2016, the Company paid $0.2 million to RCF in interest owing from September 30, 2016.
As of December 31, 2016, interest expense of $0.1 million relating to the three-month period ended December 31, 2016 was included in accrued liabilities on the Company's Condensed Consolidated Balance Sheets. The Company and RCF agreed to defer the payment of interest and include the amount owing in the Tranche 2 commitment of the Esousa MEA (as defined and discussed below).
F.1-35
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. CONVERTIBLE LOAN (Continued)
On December 5, 2016, the Company entered into an agreement to retire the RCF Loan. In accordance with the terms of a Note Purchase Agreement between RCF and Esousa, Esousa agreed to purchase an initial $2.5 million amount of notes from RCF. In addition, and separately, the Company and Esousa entered into a Master Exchange Agreement ("Esousa MEA") to exchange the initial $2.5 million amount of notes for shares of the Company's common stock. Esousa also agreed to purchase the remaining $5.5 million amount of notes from RCF and exchange such notes for shares of the Company's common stock, subject to certain conditions, as described below.
Under the terms of the Note Purchase Agreement and the Esousa MEA, the retirement consists of two tranches:
In addition to the above, the Company and RCF amended the terms of the $5.5 million notes held by RCF as of December 5, 2016 in order to extend the maturity date from December 31, 2016 to March 31, 2017 to allow the Tranche 2 process to be completed in an orderly fashion. The amendment also required interest to accrue at a rate of 15% per annum beginning January 1, 2017, such rate being the default rate per the original note agreement. No other terms of the notes were changed.
The Tranche 2 exchange was subject to the Company's receipt of stockholder approval at a Special Meeting which was to be held on February 8, 2017. However, the Company did not reach a quorum at the Special Meeting and as a result, the Esousa MEA was terminated without executing Tranche 2. Following the Special Meeting, the Company's Board of Directors agreed to repay the remaining $5.5 million outstanding under the RCF Loan, which was completed on February 9, 2017. No further obligations remain under the RCF Loan, subsequent to the repayment on February 9, 2016.
Upon completion of Tranche 1, the Company recorded a loss on extinguishment of $3.3 million, which was the result of the transaction being accounted for as an inducement of convertible debt which required the Company to record a loss equal to the difference between the fair value of the shares issued under the Esousa MEA and the fair value of the shares pursuant to the original conversion terms.
F.1-36
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. CONVERTIBLE LOAN (Continued)
The following table represents the key components of the RCF Loan:
|
December 31,
2016 |
December 31,
2015 |
|||||
---|---|---|---|---|---|---|---|
|
(thousands of dollars)
|
||||||
Debt principal, beginning of period |
$ | 8,000 | $ | 8,000 | |||
Repayment of principal amount |
(2,500 | ) | | ||||
Unamortized discount |
(69 | ) | (1,846 | ) | |||
| | | | | | | |
Carrying value of convertible loan, end of period |
$ | 5,431 | $ | 6,154 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
For the periods ended December 31, 2016 and 2015, the Company recorded amortization of debt discount of $1.8 million and $1.8 million, which has been included in interest expense in the Company's Consolidated Statement of Operations. The remaining discount will be amortized over a period of 0.25 years.
7. ASSET RETIREMENT OBLIGATION
The Company's mining and exploration activities are subject to various state and federal law and regulations governing the protection of the environment. The Company conducts its operations to protect public health and the environment and believes its operations are in compliance with the applicable laws and regulations in all material respects. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures. Estimated future restoration and reclamation costs are based principally on legal and regulatory requirements.
Changes to the Company's asset retirement obligation are summarized below:
|
December 31,
2016 |
December 31,
2015 |
|||||
---|---|---|---|---|---|---|---|
|
(thousands of dollars)
|
||||||
Balance, beginning of period |
$ | 4,468 | $ | 4,196 | |||
Liabilities settled |
(54 | ) | (178 | ) | |||
Accretion expense |
480 | 450 | |||||
| | | | | | | |
Balance, end of period |
4,894 | 4,468 | |||||
Less: Included in liabilities held for sale |
(105 | ) | (105 | ) | |||
Less: Current portion |
(121 | ) | (121 | ) | |||
| | | | | | | |
Non-current portion |
$ | 4,668 | $ | 4,242 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
As of December 31, 2016, the Company's asset retirement obligation was fully secured by surety bonds totaling $9.2 million, which were partially collateralized with restricted cash totaling $4.0 million.
F.1-37
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS
Other long-term liabilities and deferred credits on the balance sheet consisted of:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of
dollars) |
||||||
Royalties payable(1) |
$ | 500 | $ | 500 | |||
UNC data purchase contract(2) |
| 300 | |||||
| | | | | | | |
|
$ | 500 | $ | 800 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
9. STOCKHOLDERS' EQUITY
Common Stock Issued, Net of Issuance Costs
Immediately following the close of trading on March 7, 2016, the Company effected a one-for-twelve reverse stock split of its common stock. With the reverse stock split, every twelve shares of the Company's issued and outstanding common stock were combined into one issued and outstanding share of common stock. The reverse stock split reduced the number of shares outstanding from approximately 61.8 million shares to approximately 5.2 million shares. In addition, effective upon the reverse stock split, the number of authorized shares of the Company's common stock was reduced from 200 million to 100 million. The reverse stock split did not have any effect on the par value of the Company's common stock. No fractional shares were issued as a result of the reverse stock split. Any fractional shares that would have resulted were settled in cash. All share data herein has been retroactively adjusted for the reverse stock split.
Registered Direct Offerings
On February 3, 2016, URI and Aspire Capital entered into a stock purchase agreement whereby URI sold 296,666 shares of its common stock in a registered direct offering for gross and net proceeds of $0.8 million. There were no underwriting discounts or placement agent fees.
On April 4, 2016, URI and Aspire Capital completed a registered direct offering whereby URI sold 375,000 shares of its common stock at a price of $2.17 per share and 200,000 pre-funded common stock purchase warrants at a price of $2.16 per warrant, which was paid at closing. Gross proceeds from the offering were $1.2 million, including $0.4 million from the sale of the pre-funded warrants. The warrants have an exercise price of $0.01 per share and a term of three years. On June 3, 2016, Aspire
F.1-38
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. STOCKHOLDERS' EQUITY (Continued)
Capital exercised all outstanding common stock purchase warrants and the Company issued 200,000 shares of common stock to Aspire Capital as a result.
Common Stock Purchase Agreement with Aspire Capital
On April 8, 2016, the Company entered into the CSPA with Aspire Capital to place up to $12.0 million in the aggregate of the Company's common stock on an ongoing basis when required by the Company over a term of 30 months. The Company will control the timing and amount of sales to Aspire Capital, and at a price based on market prices at that time. As consideration for Aspire Capital entering into the purchase agreement, the Company issued 240,000 shares of its common stock to Aspire Capital upon the Company's receipt of stockholder approval at its Annual General Meeting of Stockholders which was held on June 7, 2016. Following effectiveness of an S-1 registration statement relating to the resale of the shares subject to the CSPA on June 3, 2016 and receipt of stockholder approval for the issuance of up to 5.0 million shares of its common stock on June 7, 2016, the Company began selling shares of its common stock to Aspire Capital under the terms of the CSPA.
During the year ended December 31, 2016, the Company sold 4,760,000 shares of common stock for net proceeds of $6.7 million under the CSPA. As of March 2, 2017, approximately $4.3 million of the aggregate $12.0 million remained available for future sales under the CSPA. The Company would need to obtain stockholder approval before issuing additional shares to Aspire Capital.
On February 3, 2016, the Company issued 75,000 shares of common stock, with a fair value on the date of issuance of $0.3 million, to Aspire Capital as consideration for Aspire Capital entering into an option agreement (the "Option Agreement") by which Aspire Capital granted the Company the right at any time or times prior to April 30, 2017 to require Aspire Capital to enter into up to two common stock purchase agreements, each having a term of up to 24 months and collectively requiring Aspire Capital to purchase up to $10 million in the aggregate of our common stock at such times and in such amounts as elected by the Company under the terms of the option agreement. The parties terminated the Option Agreement upon entering into the CSPA.
On October 31, 2011, the Company entered into an At-The-Market Sales Agreement with BTIG LLC (the "ATM Sales Agreement"), a global securities trading firm that acts as our sales agent. Under the ATM Sales Agreement, the Company may from time to time sell shares of its common stock having an aggregate offering amount up to $15.0 million in "at-the-market" offerings, which shares are registered under the Company's currently effective registration statement on Form S-3. The Company filed a prospectus supplement dated November 17, 2015 with the Securities and Exchange Commission in connection with the offering, relating to shares of its common stock having an aggregate offering price of up to $6.0 million. The Company pays BTIG a commission equal to 3.0% of the gross proceeds from the sale of any shares pursuant to the ATM Sales Agreement.
During the year ended December 31, 2016 the Company sold 3,298,396 shares of common stock for net proceeds of $5.8 million under the ATM Sales Agreement. As of December 31, 2016, the Company had fully utilized its ATM Sales Agreement and, as a result, no capacity remained available for future sales.
F.1-39
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. STOCKHOLDERS' EQUITY (Continued)
Common Stock Issued for Extinguishment of Debt
As discussed in Note 6, above, on December 5, 2016 the Company issued 2,487,562 shares of its common stock to Esousa in exchange for the retirement of $2.5 million in principal of the Company's RCF Loan. The exchange was accounted for as an inducement and resulted in the Company recording a $5.8 million increase to additional paid in capital. This $5.8 million increase represents the $2.5 million principal amount that was extinguished and the $3.3 million loss recorded upon the extinguishment of the debt.
Common Stock Issued for RCF Loan Interest and Fees
As discussed in Note 6 above, unless RCF elects to receive cash, RCF receives common shares of the Company for the payment of interest owing on the RCF Loan. For the year ended December 31, 2016, the Company issued 38,086 shares of common stock for the payment of $0.2 million in accrued interest and fees for the three-month period ended December 31, 2015.
On December 5, 2016, the Company issued 44,914 shares to Esousa for the payment of interest owing on the $2.5 million in principal amount of the RCF Loan that Esousa purchased from RCF. The fair value of the shares issued was $61,981 which has been included in interest expense.
Common Stock Issued for Purchase of Lithium Properties
As discussed in Note 4, above, the Company entered into the Mesa SPA on September 21, 2016 to acquire certain placer mining claims comprising the Sal Rica project. Under the terms of the Mesa SPA, the Company issued 100,000 shares of common stock with a fair value of $0.1 million to Mesa upon closing which occurred on October 19, 2016.
Common Stock Issued for fees related to the Anatolia Transaction
On January 8, 2016, the Company issued 117,097 shares of common stock with a fair market value per share of $6.00 in satisfaction of $0.7 million in required termination payments related to the Anatolia Transaction.
On June 30, 2016, the Company issued 47,229 shares of common stock with a fair market value per share of $1.60 in satisfaction of $0.1 million in fees related to the Anatolia Transaction.
On August 1, 2016, the Company issued 50,665 shares of common stock with a fair market value per share of $1.42 in satisfaction of $0.1 million in required termination payments related to the Anatolia Transaction.
10. STOCK BASED COMPENSATION
Stock-based compensation awards consist of stock options, restricted stock units, restricted stock awards and bonus shares issued under the Company's equity incentive plans which include: the 2013 Omnibus Incentive Plan (the "2013 Plan"); the 2007 Restricted Stock Plan (the "2007 Plan"); the Amended and Restated 2004 Directors' Stock Option and Restricted Stock Plan (the "2004 Directors' Plan"); and the 2004 Stock Incentive Plan (the "2004 Plan"). Upon approval of the 2013 Plan by the Company's stockholders on June 4, 2013, the Company's authority to grant new awards under all plans other than the 2013 Plan was terminated. Under the 2013 Plan, the Company may grant awards of
F.1-40
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCK BASED COMPENSATION (Continued)
stock options, stock appreciation rights, restricted stock awards ("RSAs"), restricted stock units ("RSUs"), unrestricted stock, dividend equivalent rights, performance shares and other performance-based awards, other equity-based awards and cash bonus awards to eligible persons. The maximum number of the Company's common stock that may be reserved for issuance under the 2013 Plan is 1,000,000 shares of common stock, plus unissued shares under the prior plans. Equity awards under the 2013 Plan are granted from time to time at the discretion of the Compensation Committee of the Board (the "Committee"), with vesting periods and other terms as determined by the Committee with a maximum term of 10 years. The 2013 Plan is administered by the Committee, which can delegate the administration to the Board, other Committees or to such other officers and employees of the Company as designated by the Committee.
As of December 31, 2016, 54,460 shares of common stock were available for future issuances under the 2013 Plan. For the years ended December 31, 2016 and 2015, the Company recorded stock-based compensation cost of $0.2 million and $1.0 million, respectively, which has been included in general and administrative expense.
In addition, upon completion of the Anatolia Transaction, the Company issued 374,749 replacement options and performance shares to the option holders and performance share holders of Anatolia Energy. The number of replacement options and performance shares was based upon the Black-Scholes value with the exercise prices of the replacement options and performance shares determined using the exchange rate of 0.00548. The options and performance shares were issued with the same terms and conditions as were applicable prior to the Anatolia Transaction.
Bonus Shares
In March 2015, in accordance with the Company's 2013 Plan, the Company awarded its executives bonuses that were paid out in common stock of the Company. The bonus shares were valued using the closing share price of the Company's common stock on the date of grant. The bonus shares vested immediately and had a grant date fair value of $0.3 million.
Stock Options
Stock options are valued using the Black-Scholes option pricing model on the date of grant. The Company estimates forfeitures based on historical trends. There were no stock option grants during 2016 and 2015.
F.1-41
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCK BASED COMPENSATION (Continued)
The following table summarizes stock options outstanding and changes during the years ended December 31, 2016 and 2015:
|
December 31, 2016 | December 31, 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
Stock Options |
Weighted
Average Exercise Price |
Number of
Stock Options |
Weighted
Average Exercise Price |
|||||||||
Stock options outstanding at beginning of period |
326,424 | $ | 24.89 | 13,413 | $ | 302.16 | |||||||
Granted |
| | 314,086 | 14.21 | |||||||||
Expired |
(210,872 | ) | 19.13 | (1,075 | ) | 356.93 | |||||||
Canceled or forfeited |
(4,724 | ) | 438.89 | | | ||||||||
| | | | | | | | | | | | | |
Stock options outstanding at end of period |
110,828 | $ | 18.24 | 326,424 | $ | 24.89 | |||||||
| | | | | | | | | | | | | |
Stock options exercisable at end of period |
110,723 | $ | 18.22 | 316,005 | $ | 25.16 | |||||||
| | | | | | | | | | | | | |
The following table summarizes stock options outstanding and exercisable by stock option plan at December 31, 2016:
|
Outstanding Stock Options | Exercisable Stock Options | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Stock Option Plan
|
Number of
Stock Options Outstanding |
Weighted
Average Exercise Price |
Number of
Stock Options Exercisable |
Weighted
Average Exercise Price |
|||||||||
2004 Plan |
4,792 | $ | 35.14 | 4,792 | $ | 35.14 | |||||||
2004 Directors' Plan |
1,390 | 629.52 | 1,390 | 629.52 | |||||||||
2013 Plan |
417 | 35.88 | 312 | 35.88 | |||||||||
Replacement Stock Options |
104,229 | 9.33 | 104,229 | 9.33 | |||||||||
| | | | | | | | | | | | | |
|
110,828 | $ | 18.24 | 110,723 | $ | 18.22 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Restricted Stock Units
Time-based and performance-based RSUs are valued using the closing share price of the Company's common stock on the date of grant. The final number of shares issued under performance-based RSUs is generally based on the Company's prior year performance as determined by the Committee at each vesting date, and the valuation of such awards assumes full satisfaction of all performance criteria.
F.1-42
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. STOCK BASED COMPENSATION (Continued)
The following table summarizes RSU activity for the years ending December 31, 2016 and 2015:
|
December 31, 2016 | December 31, 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
RSUs |
Weighted-
Average Grant Date Fair Value |
Number of
RSUs |
Weighted-
Average Grant Date Fair Value |
|||||||||
Unvested RSUs at beginning of period |
32,699 | $ | 34.25 | 45,390 | $ | 34.12 | |||||||
Granted |
| | | ||||||||||
Forfeited |
(7,627 | ) | 34.61 | (1,667 | ) | 32.20 | |||||||
Vested |
(16,423 | ) | 29.09 | (11,024 | ) | 34.04 | |||||||
| | | | | | | | | | | | | |
Unvested RSUs at end of period |
8,649 | $ | 43.71 | 32,699 | $ | 34.25 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Restricted Stock Awards
Time-based and performance-based RSAs are valued using the closing share price of the Company's common stock on the date of grant. Vesting based on performance criteria is generally based on the Company's performance as determined by the Committee at each vesting date, and the valuation of such grants assumes full satisfaction of all performance criteria. Employee participants who receive restricted stock awards have all of the rights of a shareholder, including the right to vote shares of restricted stock that are the subject of the grant and the right to receive any regular cash dividends paid out of current earnings.
The following table summarizes RSA activity during the years ended December 31, 2016 and 2015:
|
December 31, 2016 | December 31, 2015 | |||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
RSAs |
Weighted-
Average Grant Date Fair Value |
Number of
RSAs |
Weighted-
Average Grant Date Fair Value |
|||||||||
Unvested RSAs at beginning of period |
1,366 | $ | 40.01 | 2,223 | $ | 62.65 | |||||||
Forfeited |
(410 | ) | 44.84 | (104 | ) | 80.40 | |||||||
Vested |
(956 | ) | 37.94 | (753 | ) | 101.26 | |||||||
| | | | | | | | | | | | | |
Unvested RSAs at end of period |
| $ | | 1,366 | $ | 40.01 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Performance Shares
The Company issued 58,286 replacement performance shares upon completion of the Anatolia Transaction. These performance shares entitle each holder to convert their performance share into a share of the Company's common stock upon the Company declaring a mineral resource estimate for the Temrezli project of at least 15.0 million lbs. As the Company did not anticipate this performance condition to be met prior to the February 10, 2016 expiry date, the Company did not recognize the fair value of these performance shares. All performance shares expired on February 10, 2016 without the performance conditions met.
F.1-43
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. FEDERAL INCOME TAXES
The Company recognizes future tax assets and liabilities for each tax jurisdiction based on the difference between the financial reporting and tax bases of assets and liabilities using the enacted tax rates expected to be in effect when the taxes are paid or recovered. A valuation allowance is provided against net future tax assets for which the Company does consider the realization of such assets to meet the required "more likely than not" standard.
The Company's future tax assets and liabilities at December 31, 2016 and 2015 include the following components:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
Deferred tax assets: |
|||||||
Non-Current: |
|||||||
Net operating loss carryforwards |
$ | 85,995 | $ | 80,491 | |||
Mineral properties |
11,608 | 13,970 | |||||
Capital loss carryforwards |
618 | 618 | |||||
Restoration reserves |
1,623 | 1,478 | |||||
Capitalized transaction costs |
1,140 | 1,145 | |||||
Other |
5,562 | 946 | |||||
| | | | | | | |
Deferred tax assets |
106,546 | 98,648 | |||||
Valuation allowance |
(101,523 | ) | (96,203 | ) | |||
| | | | | | | |
Net deferred tax assets |
5,023 | 2,445 | |||||
| | | | | | | |
Deferred tax liabilities: |
|||||||
Current: |
|||||||
Prepaids and other |
70 | 68 | |||||
| | | | | | | |
|
70 | 68 | |||||
| | | | | | | |
Non-Current: |
|||||||
Derivatives |
(956 | ) | (956 | ) | |||
Property, plant and equipment |
(4,137 | ) | (1,557 | ) | |||
| | | | | | | |
Deferred tax liabilities |
(5,093 | ) | (2,513 | ) | |||
| | | | | | | |
Net deferred tax asset (liability) |
$ | | $ | | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
The composition of our valuation allowance by tax jurisdiction is summarized as follows:
|
December 31, | ||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
United States |
$ | 92,448 | $ | 87,304 | |||
Australia |
11,113 | 11,066 | |||||
Turkey |
(2,038 | ) | (2,167 | ) | |||
| | | | | | | |
Total valuation allowance |
$ | 101,523 | $ | 96,203 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
F.1-44
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. FEDERAL INCOME TAXES (Continued)
The valuation allowance increased $5.3 million from the year ended December 31, 2015 to the year ended December 31, 2016. This was the result of an increase in the net deferred tax assets, primarily net operating loss carryforwards ("NOLs"), equity based compensation and exploration spending on mineral properties. Because we are unable to determine whether it is more likely than not that the net deferred tax assets will be realized, we continue to record a 100% valuation against the net deferred tax assets.
At December 31, 2016, we had U.S. net operating loss carryforwards of approximately $235.1 million, which expire from 2018 to 2036. This included approximately $32.8 million in net operating loss carryforwards associated with the Neutron merger. In addition, at December 31, 2016 we had Australian net operating loss carryforwards of $14.1 million, including approximately $13.3 million associated with the Anatolia Transaction, which are available indefinitely, subject to continuing to meet relevant statutory tests, and net operating loss carryforwards in Turkey of approximately $1.8 million, which expire from 2017 to 2020.
Section 382 of the Internal Revenue Code could apply and limit our ability to utilize a portion of the U.S. net operating loss carryforwards. Following the issuance of the Company's Common Stock in 2001, the Neutron merger in 2012 and the Anatolia Transaction in 2015, the ability to utilize the net operating loss carryforwards will be severely limited on an annual and aggregate basis. A formal Section 382 study has not been completed, therefore the actual usage of US net operating loss carryforwards has not been determined. Similar limitations apply to the state net operating loss carryforwards related to the Neutron acquisition.
For financial reporting purposes, loss from operations before income taxes consists of the following components:
|
For the calendar
year ended December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
United States |
$ | (18,798 | ) | $ | (14,858 | ) | |
Australia |
(158 | ) | (76 | ) | |||
Turkey |
(649 | ) | (209 | ) | |||
| | | | | | | |
|
$ | (19,605 | ) | $ | (15,143 | ) | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
F.1-45
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. FEDERAL INCOME TAXES (Continued)
A reconciliation of expected income tax on net income at statutory rates is as follows:
|
Year ended
December 31, |
||||||
---|---|---|---|---|---|---|---|
|
2016 | 2015 | |||||
|
(thousands of dollars)
|
||||||
Net loss |
$ | (19,605 | ) | $ | (15,143 | ) | |
Statutory tax rate |
34 | % | 34 | % | |||
| | | | | | | |
Tax recovery at statutory rate |
(6,666 | ) | (5,149 | ) | |||
Foreign tax rate |
97 | (33 | ) | ||||
Mineral property adjustments |
9 | (2,394 | ) | ||||
Foreign deferred costs and other adjustments |
| (800 | ) | ||||
Operating loss carryforward adjustment |
(10 | ) | (5,488 | ) | |||
Nondeductible write-offs |
1,250 | 96 | |||||
Change in valuation allowance |
5,320 | 13,768 | |||||
| | | | | | | |
Income tax expense (recovery) |
$ | | $ | | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
We do not have any uncertain tax positions. Should we incur interest and penalties relating to tax uncertainties, such amounts would be classified as a component of the interest expense and operating expense, respectively.
Uranium Resources, Inc., and its wholly owned subsidiaries, files in the U.S. federal jurisdiction and various state jurisdictions. Anatolia Energy Limited and Anatolia Uranium Pty Ltd file in the Australian jurisdiction and Adur Madencilik files in the Turkish jurisdiction.
The years still open for U.S. audit are generally the current year plus the previous three. However, because we have NOLs carrying forward, certain items attributable to closed tax years are still subject to adjustment by applicable taxing authorities through an adjustment to tax losses carried forward to open years.
12. COMMITMENTS AND CONTINGENCIES
Environmental Considerations
The Company's uranium recovery operations are subject to federal and state regulations for the protection of the environment, including water quality. Future closure and reclamation costs are provided for as each pound of uranium is produced on a unit-of-production basis. The Company reviews its reclamation obligations each year and determines the appropriate unit charge. The Company also evaluates the status of current environmental laws and their potential impact on their accrual for costs. The Company believes its operations are materially compliant with current environmental regulations.
Sales Contracts
In March 2006, the Company first amended its sales contracts with Itochu Corporation ("Itochu") and UG U.S.A.,Inc. ("UG") that superseded the previously existing contracts. Each contract provides for delivery of one- half of our actual production from our properties in Texas currently owned or
F.1-46
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. COMMITMENTS AND CONTINGENCIES (Continued)
hereafter acquired by the Company (excluding two specifically identified large ranch properties in South Texas). Uranium deliveries from the inception of the contracts through December 31, 2015 have totaled approximately 510,000 pounds to Itochu and 480,000 pounds to UG.
In July 2013, the Company amended its uranium supply contract with Itochu to include a new sales pricing structure, new delivery dates and quantity levels. Pursuant to the amended agreement, Itochu would purchase one-half of all production from the Company's Vasquez, Rosita or Kingsville properties up to three million pounds of U3O8. Any new production outside of Texas is not subject to the agreement. The purchase price will be based on published market prices at the time of delivery subject to a five percent discount when the market price is $56.50 per pound of U3O8 or less, or seven percent when greater than $56.50 per pound. Under the UG contract all production from our Texas properties will be sold at a price equal to the month-end long-term contract price for the second month prior to the month of delivery less $6 per pound until (i) 600,000 pounds have been sold in a particular delivery year and (ii) an aggregate of 3 million pounds of uranium has been sold. After the 600,000 pounds in any year and 3 million pounds total have been sold, UG will have a right of first refusal to purchase other Texas production at a price equal to the average spot price for a period prior to the date of delivery less 4%.
13. GEOGRAPHIC AND SEGMENT INFORMATION
The Company has one reportable operating segment, consisting of uranium and lithium exploration and development activities. These activities are focused principally in the United States and the Republic of Turkey. We reported no revenues during the years ended December 31, 2016 and 2015. Geographic location of property, plant and equipment, including mineral rights, and mineral property expenses, is provided in Note 4, above.
14. SUBSEQUENT EVENTS
Laramide Asset Sale
As discussed in Note 5 above, on January 5, 2017, the Company completed the sale of its wholly-owned subsidiary Hydro Resources, Inc., which holds the Churchrock and Crownpoint projects, to Laramide.
RCF Loan Retirement
As discussed in Note 6 above, on February 9, 2017 the Company and Esousa terminated the Esousa MEA after the Company failed to reach a quorum at a Special Meeting of Stockholders on February 8, 2017. Following termination of the Esousa MEA, the Company's Board of Directors agreed to repay the $5.5 million principal and accrued unpaid interest in cash on February 9, 2017. As a result, the Company no longer has any obligations outstanding under the RCF Loan
Equity Financings
On February 16, 2017, we completed a registered direct offering for gross proceeds of $4.5 million with Aspire Capital whereby Aspire Capital purchased 2,100,000 shares of common stock at a price of $1.58 and 748,101 pre-funded common stock purchase warrants at a price of $1.57. The warrants have
F.1-47
URANIUM RESOURCES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SUBSEQUENT EVENTS (Continued)
an exercise price of $0.01 per share and a term of three years. As of March 2, 2017 all of the pre-funded warrants have been exercised.
On January 19, 2017, the Company completed a registered public offering for gross proceeds of $9.7 million. The Company sold 1,399,140 shares of common stock at a price of $2.01 per share and 3,426,731 pre-funded warrants at a price of $2.00 per warrant. The warrants have an exercise price of $0.01. As of March 2, 2017, all of the pre-funded warrants have been exercised.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
F.1-48
To the Shareholders of Alabama Graphite Corp.
We have audited the accompanying consolidated financial statements of Alabama Graphite Corp. and its subsidiary, which comprise the consolidated statements of financial position as at August 31, 2017 and 2016, and the consolidated statements of loss and comprehensive loss, consolidated statements of changes in shareholders' equity and consolidated statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information.
Management's Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with International Financial Reporting Standards and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
F.2-1
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of Alabama Graphite Corp. and its subsidiary as at August 31, 2017 and 2016, and their financial performance and cash flows for the years then ended in accordance with International Financial Reporting Standards.
Emphasis of Matter
Without qualifying our opinion, we draw attention to Note 1 in the consolidated financial statements which indicates that Alabama Graphite Corp. had continuing losses during the year ended August 31, 2017 and a cumulative deficit and limited working capital as at August 31, 2017. These conditions along with other matters set forth in Note 1 indicate the existence of a material uncertainty that may cast significant doubt about Alabama Graphite Corp.'s ability to continue as a going concern.
UHY McGovern Hurley LLP | ||
|
|
/s/ UHY McGovern Hurley LLP Chartered Professional Accountants Licensed Public Accountants |
TORONTO, Canada December 28, 2017 |
|
|
F.2-2
ALABAMA GRAPHITE CORP.
Consolidated Statements of Financial Position
(Expressed in Canadian Dollars)
"Jean Depatie", Director
Jean Depatie |
"Daniel Goffaux", Director
Daniel Goffaux |
See accompanying notes to the consolidated financial statements
F.2-3
ALABAMA GRAPHITE CORP.
Consolidated Statements of Loss and Comprehensive Loss
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
|
Notes | 2017 | 2016 | ||||||
---|---|---|---|---|---|---|---|---|---|
Expenses |
|||||||||
Amortization |
$ | 1,380 | $ | 1,380 | |||||
Automobile |
12,249 | 22,686 | |||||||
Consulting |
9 | 1,412,287 | 757,642 | ||||||
Office and administration |
115,545 | 161,809 | |||||||
Professional fees |
9 | 224,884 | 211,168 | ||||||
Regulatory and filing |
36,270 | 47,759 | |||||||
Rent |
36,357 | 44,548 | |||||||
Share-based payments |
9 | 794,514 | 221,811 | ||||||
Travel and investor relations |
577,329 | 284,260 | |||||||
| | | | | | | | | |
Loss before other items |
3,210,815 | 1,753,063 | |||||||
Interest income |
| (369 | ) | ||||||
Gain from foreign exchange |
(4,084 | ) | (23,964 | ) | |||||
| | | | | | | | | |
Net loss and comprehensive loss for the year |
$ | 3,206,731 | $ | 1,728,730 | |||||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Basic and Diluted Loss Per Common Share |
$ | 0.02 | $ | 0.01 | |||||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
Weighted Average Number of Common Shares Outstanding |
136,862,319 | 116,628,197 | |||||||
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
See accompanying notes to the consolidated financial statements
F.2-4
ALABAMA GRAPHITE CORP.
Consolidated Statements of Changes in Shareholders' Equity
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
|
Share Capital |
|
|
|
||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
Shares |
Amount |
Contributed
Surplus |
Deficit |
Total
Shareholders' Equity |
|||||||||||
Balance as at August 31, 2015 |
114,023,613 | $ | 12,747,179 | $ | 3,227,934 | $ | (8,445,651 | ) | $ | 7,529,462 | ||||||
Net loss for the year |
| | | (1,728,730 | ) | (1,728,730 | ) | |||||||||
Shares issued for cash |
3,476,334 | 521,450 | | | 521,450 | |||||||||||
Share issuance costs paid in cash |
| (61,955 | ) | | | (61,955 | ) | |||||||||
Value of agent's warrants |
| (5,901 | ) | 5,901 | | | ||||||||||
Share-based payments |
| | 221,811 | | 221,811 | |||||||||||
Warrants exercised |
1,811,000 | 181,100 | | | 181,100 | |||||||||||
| | | | | | | | | | | | | | | | |
Balance as at August 31, 2016 |
119,310,947 | $ | 13,381,873 | $ | 3,455,646 | $ | (10,174,381 | ) | $ | 6,663,138 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Balance as at August 31, 2016 |
119,310,947 | $ | 13,381,873 | $ | 3,455,646 | $ | (10,174,381 | ) | $ | 6,663,138 | ||||||
Net loss for the year |
| | | (3,206,731 | ) | (3,206,731 | ) | |||||||||
Shares issued for cash |
20,881,083 | 3,132,163 | | | 3,132,163 | |||||||||||
Share issuance costs paid in cash |
| (192,297 | ) | | | (192,297 | ) | |||||||||
Value of agent's warrants |
| (9,409 | ) | 9,409 | | | ||||||||||
Share-based payments |
| | 794,514 | | 794,514 | |||||||||||
Options exercised |
380,000 | 100,203 | (44,303 | ) | | 55,900 | ||||||||||
Warrants exercised |
4,743,157 | 474,316 | | | 474,316 | |||||||||||
| | | | | | | | | | | | | | | | |
Balance as at August 31, 2017 |
145,315,187 | $ | 16,886,849 | $ | 4,215,266 | $ | (13,381,112 | ) | $ | 7,721,003 | ||||||
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
See accompanying notes to the consolidated financial statements
F.2-5
ALABAMA GRAPHITE CORP.
Consolidated Statements of Cash Flows
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
See accompanying notes to the consolidated financial statements
F.2-6
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
1. Nature and Continuance of Operations
Alabama Graphite Corp. (the "Company") was incorporated under the Business Corporation Act (British Columbia) on April 13, 2006. On August 28, 2012, the Company changed its name to Alabama Graphite Corp. The Company is currently trading on the TSX Venture Exchange (symbol "CSPG"), OTCB (symbol "CSPGF"), and the Frankfurt Stock Exchange (symbol "IAG"). The Company is a reporting issuer in British Columbia, Alberta and Ontario.
The Company's office and principal office is located at First Canadian Place, 100 King Street West, Suite 5700, Toronto, ON, M5X 1C7, Canada.
The Company is currently engaged in exploration and evaluation of its 100% owned Coosa graphite property located in Alabama, USA and associated secondary processing to produce value-added graphite products, namely Coated Spherical Purified Graphite ("CSPG") engineered for use in the manufacture of lithium-ion battery anodes. There has been no determination whether the Company's exploration and evaluation assets contain mineral reserves and resources that are economically viable. The Company has a disclosure of its Mineral Resource Estimate and Preliminary Economic Assessment for the Coosa Project in Coosa County, Alabama filed on SEDAR on November 18, 2015 and November 27, 2015 respectively.
Although the Company has taken steps to verify title to mineral properties in which it has an interest in accordance with industry standards for the current stage of exploration for such properties, these procedures do not guarantee the Company's title. Property title may be subject to unregistered prior agreements, unregistered claims and non-compliance with regulatory and environment requirements.
These consolidated financial statements have been prepared on the assumption that the Company will continue as a going concern, meaning it will continue in operation for the foreseeable future and will be able to realize assets and discharge liabilities in the ordinary course of operations. Different bases of measurement may be appropriate if the Company is not expected to continue operations for the foreseeable future. At August 31, 2017, the Company had an accumulated deficit of $13,381,112 (2016$10,174,381) and a working capital of $156,299 (2016a working capital deficiency of $206,557). The Company incurred losses of $3,206,731 during the year ended August 31, 2017 (2016$1,728,730). The Company's ability to continue as a going concern is dependent upon its ability to raise adequate financing (see Note 16) and generate profitable operations in the future. These conditions indicate the existence of material uncertainty that may cast significant doubt about the Company's ability to continue as a going concern.
2. Basis of Presentation
Statement of compliance
The consolidated financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB") and interpretations of the International Financial Reporting Interpretations Committee ("IFRIC").
F.2-7
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
2. Basis of Presentation (Continued)
Basis of preparation
These consolidated financial statements have been prepared on an accrual basis, except for cash flow information, and are based on historical costs, except for those financial instruments carried at fair value. They are presented in Canadian dollars, which is the Company's functional currency.
Significant accounting judgments, estimates and assumptions
The preparation of the Company's consolidated financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and contingent liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Estimates and assumptions are continuously evaluated and are based on management's experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. However, actual outcomes can differ from these estimates. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.
Critical judgments in applying accounting policies:
The following are critical judgments that management has made in the process of applying accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements:
F.2-8
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
2. Basis of Presentation (Continued)
and internal sources of information. Information the Company considers include changes in the market, economic and legal environment in which the Company operates that are not within its control and affect the recoverable amount of exploration and evaluation assets. Internal sources of information include the manner in which mineral property interests are being used are expected to be used and indications of expected economic performance of the assets. Estimates include but are not limited to estimates of the discounted future after-tax cash flows expected to be derived from the Company's mineral property interests, costs to sell the properties and the appropriate discount rate. Reductions in graphite price forecasts, increases in estimated future costs of production, increases in estimated future capital costs, reductions in the amount of recoverable graphite reserves or adverse current economics can result in a write-down of the carrying amounts of the Company's exploration and evaluation assets.
Foreign currency translation
These consolidated financial statements are presented in Canadian dollars which is the parent company's functional currency. The functional currency of the subsidiary that has operations in United States is the Canadian dollar.
Transactions and balances:
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the period-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.
Exchange differences arising on the translation of monetary items or on settlement of monetary items are recognized in profit or loss in the statement of loss and comprehensive loss in the period in which they arise.
Exchange differences arising on the translation of non-monetary items are recognized in other comprehensive income in the statement of loss and comprehensive loss to the extent that gains and losses arising on those non-monetary items are also recognized in other comprehensive income. Where
F.2-9
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
2. Basis of Presentation (Continued)
the non-monetary gain or loss is recognized in profit or loss, the exchange component is also recognized in profit or loss.
3. Significant Accounting Policies
Principles of consolidation
These consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Alabama Graphite Company, Inc. ("AGC"). All significant inter-company balances and transactions, including unrealized income and expenses arising from inter-company transactions, were eliminated on consolidation.
Subsidiaries consist of entities over which the Company is exposed to, or has rights to, variable returns as well as the ability to affect those returns through the power to direct the relevant activities of the entity. Subsidiaries are fully consolidated from the date control is transferred to the Company and are de-consolidated from the date control ceases. The financial statements include all the assets, liabilities, revenues, expenses and cash flows of the Company and its subsidiary after eliminating inter-entity balances and transactions.
Share-based payments
The Company has adopted an employee stock option plan. Share-based payments to employees are measured at the fair value of the instruments issued and amortized over the vesting periods. Share-based payments to non-employees are measured at the fair value of goods or services received or the fair value of the equity instruments issued, if it is determined the fair value of the goods or services cannot be reliably measured, and are recorded at the date the goods or services are received. The corresponding amount is recorded to contributed surplus. The fair value of options is determined using a Black-Scholes pricing model which incorporates all market vesting conditions. The number of shares and options expected to vest is reviewed and adjusted at the end of each reporting period such that the amount recognized for services received as consideration for the equity instruments granted shall be based on the number of equity instruments that eventually vest.
Financial instruments
The Company classifies its financial instruments in the following categories: at fair value through profit or loss, loans and receivables, held-to-maturity investments, available-for-sale and financial liabilities. The classification depends on the purpose for which the financial instruments were acquired. Management determines the classification of its financial instruments at initial recognition.
Financial assets are classified at fair value through profit or loss when they are either held for trading for the purpose of short-term profit taking, derivatives not held for hedging purposes, or when they are designated as such to avoid an accounting mismatch or to enable performance evaluation where a group of financial assets is managed by key management personnel on a fair value basis in accordance with a documented risk management or investment strategy. Such assets are subsequently measured at fair value with changes in carrying value being included in profit or loss.
F.2-10
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
3. Significant Accounting Policies (Continued)
Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and are subsequently measured at amortized cost. They are included in current assets, except for maturities greater than 12 months after the end of the reporting period. These are classified as non-current assets.
Held-to-maturity investments are non-derivative financial assets that have fixed maturities and fixed or determinable payments, and it is the Company's intention to hold these investments to maturity. They are subsequently measured at amortized cost. Held-to-maturity investments are included in non-current assets, except for those which are expected to mature within 12 months after the end of the reporting period.
Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not suitable to be classified as financial assets at fair value through profit or loss, loans and receivables or held-to-maturity investments and are subsequently measured at fair value. These are included in current assets. Unrealized gains and losses are recognized in other comprehensive income, except for impairment losses and foreign exchange gains and losses.
Non-derivative financial liabilities (excluding financial guarantees) are subsequently measured at amortized cost. Regular purchases and sales of financial assets are recognized on the trade-datethe date on which the group commits to purchase the asset.
Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership. At each reporting date, the Company assesses whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a significant and prolonged decline in the value of the instrument is considered to determine whether impairment has arisen. The Company does not have any derivative financial assets and liabilities.
Site rehabilitation obligations
Site rehabilitation obligations are recognized when a legal or constructive obligation arises. The liability is recognized at the present value of management's best estimate of the site rehabilitation obligation. The estimate is discounted to the present value using a discount rate specific to the obligation. When the liability is initially recorded the Company capitalizes the cost by increasing the carrying amount of the related long-lived assets. The liability is accreted to its present value at each reporting period, and the capitalized cost is amortized on the same basis as the related asset. Upon settlement of the liability, the Company may incur a gain or loss.
Exploration and evaluation assets
Costs incurred before the legal rights to undertake exploration and evaluation activities were acquired are expensed as incurred. The Company capitalizes all costs related to mineral exploration properties on a property-by-property basis. Such costs include mineral property acquisition costs, exploration, evaluation and development expenditures, net of any recoveries. Costs are deferred until
F.2-11
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
3. Significant Accounting Policies (Continued)
such time as the extent of mineralization has been determined and mineral property interests are either developed, the property is sold or the Company's mineral rights are allowed to lapse.
From time to time, the Company may acquire or dispose of a mineral property interest pursuant to the terms of an option agreement. As such options are exercisable entirely at the discretion of the optionee, the amounts payable or receivable are not recorded at the time of the agreement. Option payments are recorded as property costs or recoveries when the payments are made or received. At the development stage, as when the mineral reserves are proven or the permit to operate the mineral property is received and financing to complete the development has been obtained, the capitalized costs of mineral property interests will be amortized on the unit-of-production method based upon estimated proven and probable reserves.
Management of the Company reviews the recoverability of the capitalized mineral properties at each reporting date and will recognize impairment in value based upon current exploration results, the prospect of further work being carried out by the Company, the assessment of future probability of profitable revenues from the property or from the sale of the property.
The amount shown for exploration and evaluation assets represents costs incurred net of write-downs and recoveries, and is not intended to represent present or future values.
Impairment of assets
The carrying amounts of the Company's equipment and exploration and evaluation assets are reviewed at each reporting date to determine whether there is any indication of impairment. If such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. An impairment loss is recognized whenever the carrying amount of an asset or its cash generating unit exceeds its recoverable amount. Impairment losses are recognized in the statement of loss and comprehensive loss.
The recoverable amount of assets is the greater of an asset's fair value less cost to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
An impairment loss is only reversed if there is an indication that the impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount, however, not to an amount higher than the carrying amount that would have been determined had no impairment loss been recognized in previous years.
Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment.
F.2-12
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
3. Significant Accounting Policies (Continued)
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts.
Equipment
Equipment is recorded at cost less accumulated amortization. Amortization is calculated on the declining balance method at the following rate:
Automobile |
30% per annum |
Additions during the year are amortized at one-half the annual rate.
Basic and diluted loss per share
Loss per share is calculated using the weighted average number of common shares outstanding during the period. The dilutive effect on loss per share is calculated presuming the exercise of outstanding options, warrants and similar instruments. It assumes that the proceeds would be used to purchase common shares at the average market price during the period. However, the calculation of diluted loss per share excludes the effects of various conversions including the exercise of options and warrants that would be anti-dilutive.
The calculation also excludes common shares that are being held in escrow at period end where the terms of release are dependent on requirements other than the passage of time. Diluted loss per share for the periods presented exclude the effects of the outstanding stock options and warrants as they were determined to be anti-dilutive.
Income taxes
Current income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted, at the reporting date, in the countries where the Company operates and generates taxable income.
Current income tax relating to items recognized directly in other comprehensive income or equity is recognized in other comprehensive income or equity and not in profit or loss. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.
Deferred income tax is provided using the balance sheet method on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and recognized only to the extent that it is probable that sufficient taxable income will be available to allow all or part of the deferred income tax asset to be utilized.
F.2-13
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
3. Significant Accounting Policies (Continued)
Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.
4. Accounting Standards Issued But Not Yet Effective
Certain pronouncements were issued by the IASB or the IFRIC that are mandatory for accounting periods on or after January 1, 2017. Many are not applicable or do not have a significant impact to the Company and have been excluded. The following have not yet been adopted and are being evaluated to determine their impact on the Company.
IFRS 2Share-based payments ("IFRS 2") was amended by the IASB in June 2016 to clarify the accounting for cash-settled share-based payment transactions that include a performance condition., the classification of share-based payments transactions with net settlement features and the accounting for modifications of share-based payment transactions from cash-settled to equity-settled. The amendments are effective for annual periods beginning on or after January 1, 2018, with earlier application permitted.
IFRS 9Financial Instruments ("IFRS 9") was issued by the IASB as a complete standard in July 2014 and will replace IAS 39 Financial Instruments: Recognition and Measurement ("IAS 39"). IFRS 9 uses a single approach to determine whether a financial asset is measured at amortized cost or fair value, replacing the multiple rules in IAS 39. The approach in IFRS 9 is based on how an entity manages its financial instruments in the context of its business model and the contractual cash flow characteristics of the financial assets. Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9, except that an entity choosing to measure a financial liability at fair value will present the portion of any change in its fair value due to changes in the entity's own credit risk in other comprehensive income, rather than within profit or loss. The new standard requires a single impairment method to be used, replacing the multiple impairment methods in IAS 39.
IFRS 9 is effective for annual period beginning on or after January 1, 2018. Earlier adoption is permitted.
IFRS 16Leases ("IFRS 16") was issued in January 2016 and replaces IAS 17Leases as well as some lease related interpretations. With certain exceptions for leases under twelve months in length or for asses of low value, IFRS 16 states that upon lease commencement a lessee recognizes a right-of-use asset and a lease liability. The right-of-use asset is initially measured at the amount of the liability plus any initial direct costs. After lease commencement, the lessee shall measure the right-of-use asset at less accumulated depreciation and accumulated impairment. A lessee shall either apply IFRS 16 with full retrospective effect or alternatively not restate comparative information but recognize the cumulative effect of initially applying AFRS 16 as an adjustment to opening equity at the date of initial
F.2-14
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
4. Accounting Standards Issued But Not Yet Effective (Continued)
application. IFRS requires that lessors classify each lease as an operating lease or a finance lease. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of an underlying asset. Otherwise it is an operating lease. IFRS 16 is effective for annual periods beginning on or after January 1, 2019. Earlier adoption is permitted if IFRS 15Revenue from Contracts with Customers has also been applied.
IAS 7Statement of Cash Flows ("IAS 7") was amended in January 2016 to clarify that disclosures shall be provided that enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendments are effective for annual periods beginning of or after January 1, 2017.
5. Exploration and Evaluation Assets
Coosa Property, Alabama, USA
Pursuant to an agreement dated August 1, 2012 (the "Lease Agreement"), the Company has leased the mineral rights in respect of an area with a potential for graphite (the "Coosa Property") in Coosa County, Alabama, USA. In addition, the Company received an option of first refusal (the "Option") to lease the mineral rights in and to an adjacent area comprising approximately 27,515 acres.
Under the terms of the Lease Agreement, the Company leases the Coosa Property for successive renewable 5-year terms (not to exceed 70 years) in consideration for an initial cash payment of US$30,000 (paid) and annual advance royalty payments of US$10,000 commencing from July 1, 2015 (paid July to date). The Company paid US$1,000 in respect of the grant of the Option. The Company has also agreed to pay the lessor a net smelter return royalty ("NSR") of 2% from the commercial production and sale of graphite from the properties, as well as royalties for precious metals and rare earths commercially produced and sold from the properties.
In connection with the Lease Agreement, the Company is also committed to paying or issuing additional future consideration on the following basis:
For a period of five years after the date of the Lease Agreement and provided that the Company continues the exploration activities, the lessor will provide to the Company a right of first refusal to
F.2-15
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
5. Exploration and Evaluation Assets (Continued)
acquire any and all mineral interests that lessor owns, controls or represents in Coosa County, Alabama.
In November 2012, the Company paid US$48,537 to exercise its right of first refusal to lease an additional 27,515 acres, bringing the total mineral acres under lease to 41,535 acres. The terms of this agreement are identical to the mineral lease dated August 1, 2012 such that the Company has prepaid for three years of the lease which is structured in five-year renewable tranches for the period of 70 years. Subsequent annual payments of $16,119 have been paid to date. The Company also issued 25,000 common shares of the Company valued at $16,000 pursuant to the option lease agreement.
On October 12, 2014, the Company obtained a permit to conduct surface exploration in Coosa County, Alabama, which expired on September 30, 2015. In accordance with the permit, the Company paid US$50,000 to the owner of the surface rights. This is in addition to the US$20,000 performance bond paid previously.
Chilton County Properties, Alabama, USA
Chestnut Creek Property
On August 5, 2014, the Company entered into a mining lease agreement whereby the Company acquired a 100% right to explore, develop and mine the Chestnut Creek Property located in Chilton County, Alabama for a period of 10 years renewable every five years thereafter for a maximum of 70 years. The Chestnut Creek Property comprises of approximately 1,160 acres located about 4 miles west of Coosa County line. In consideration, the Company has agreed to pay a NSR on graphite and vanadium (2%), precious metals (8%) and other minerals (5%) mined from the property. In addition, the Company has also agreed to payments as follows:
The Company has the right to purchase back one half of the graphite NSR for a one-time payment of US$1,000,000. This right of re-purchase, if exercised, will not affect the other royalties.
Bama Property, Alabama
On July 1, 2014, the Company entered into a mining lease agreement whereby the Company acquired a 100% right to explore, develop and mine the Bama Property located in Chilton County, Alabama for a period of 10 years renewable every five years thereafter for a maximum of 70 years. The Bama Property comprises of approximately 200 acres located about 4 miles west of Coosa County. In consideration, the Company has agreed to pay a NSR on graphite and vanadium (2%), precious metals (8%) and other minerals (5%) mined from the property. In addition, the Company has also agreed to pay advance royalties, recoverable from payment of royalties, as follows:
F.2-16
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
5. Exploration and Evaluation Assets (Continued)
During the year ended August 31, 2017, the Company incurred expenditures for exploration and evaluation assets as follows:
F.2-17
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
5. Exploration and Evaluation Assets (Continued)
During the year ended August 31, 2016, the Company incurred expenditures for exploration and evaluation assets as follows:
6. Equipment
|
Automobile | |||
---|---|---|---|---|
Cost |
||||
Balance, August 31, 2015, 2016 and 2017 |
$ | 11,025 | ||
Accumulated amortization |
|
|||
Balance, August 31, 2015 |
$ | 6,710 | ||
Additions |
1,380 | |||
Balance, August 31, 2016 |
8,090 | |||
Additions |
1,380 | |||
Balance, August 31, 2017 |
$ | 9,470 | ||
| | | | |
Net book value, August 31, 2017 |
$ | 1,555 | ||
| | | | |
| | | | |
| | | | |
Net book value, August 31, 2016 |
$ | 2,935 | ||
| | | | |
| | | | |
| | | | |
F.2-18
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
7. Share Capital
Authorized
Unlimited number of common shares without par value.
Issued and fully paid
At August 31, 2017, there were 145,315,187 issued and fully paid common shares (2016119,310,947).
During the year ended August 31, 2017:
On September 6, 2016, the Company completed a private placement of 4,916,745 units at a price of $0.15 per unit for total proceeds of $737,512 (an officer of the Company subscribed for 33,334 units for gross proceeds of $5,000). Each unit comprised of one common share of the Company and one common share purchase warrant. Each one whole common share purchase warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $0.20 per share until September 6, 2018.
On September 21, 2016, the Company completed a private placement of 7,124,338 units at a price of $0.15 per unit for total proceeds of $1,068,651 (officers and directors of the Company subscribed for 2,363,338 units for gross proceeds of $354,500). Each unit comprised of one common share of the Company and one common share purchase warrant. Each one whole common share purchase warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $0.20 per share until September 21, 2018.
On September 30, 2016, 150,000 warrants were exercised to acquire 150,000 common shares at an exercise price of $0.10 per share and on October 4, 2016, 5,000 stock options were exercised to acquire 5,000 common shares at an exercise price of $0.105 per share.
On December 20, 2016, 128,571 warrants were exercised to acquire 128,571 common shares at an exercise price of $0.10 per share.
During the month of January 2017, 4,464,586 warrants were exercised to acquire 4,464,586 common shares at an exercise price of $0.10 per share, 275,000 stock options were exercised to acquire 275,000 common shares at an exercise price of $0.145 per share and 100,000 stock options were exercised to acquire 100,000 common shares at an exercise price of $0.155 per share.
On May 5, 2017, the Company completed the first tranche of a private placement of 5,660,000 units at a price of $0.15 per unit for total proceeds of $849,000 (an officer and director of the Company subscribed for 2,666,666 units for gross proceeds of $400,000). Each unit comprised of one common share of the Company and one common share purchase warrant. Each one whole common share purchase warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $0.20 per share until May 5, 2020. In connection with the private placement, the Company paid cash compensation in the amount of $17,062 and issued 113,750 agent's warrants. Each agent's warrant entitles the holder to purchase one unit at a price of $0.15 per unit on or before May 5, 2020. Each unit consists of one common share of the Company and one common share
F.2-19
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
7. Share Capital (Continued)
purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at a price of $0.20 for a period of 36 months from the date of issue.
On May 10, 2017, the Company completed the second tranche of a private placement of 3,180,000 units at a price of $0.15 per unit for total proceeds of $477,000 (an officer of the Company subscribed for 1,000,000 units for gross proceeds of $150,000). Each unit comprised of one common share of the Company and one common share purchase warrant. Each one whole common share purchase warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $0.20 per share until May 10, 2020. In connection with the private placement, the Company paid cash compensation in the amount of $4,444 and issued 29,400 agent's warrants. Each agent's warrant entitles the holder to purchase one unit at a price of $0.15 per unit on or before May 10, 2020. Each unit consists of one common share of the Company and one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at a price of $0.20 per share for 36 months from the date of issue.
During the year ended August 31, 2016:
On May 19, 2016, the Company completed a private placement of 3,476,334 units at a price of $0.15 per unit for total proceeds of $521,450 (a corporation controlled by a director and officer of the Company subscribed for 670,000 units for gross proceeds of $100,500). Each unit comprised of one common share of the Company and one common share purchase warrant. Each whole common share purchase warrant entitles the holder to purchase one additional common share of the Company at an exercise price of $0.20 per share until May 19, 2018. In connection with the private placement, the Company paid cash compensation in the amount of $17,675 and issued 117,833 agent's warrants. Each agent's warrant entitles the holder to purchase one unit at a price of $0.15 per unit on or before May 19, 2017. Each unit consists of one common share of the Company and one common share purchase warrant. Each whole warrant entitles the holder to purchase one common share of the Company at a price of $0.20 per share until May 19, 2018.
During the year ended August 31, 2016, 1,811,000 warrants were exercised at the price of $0.10 per share.
Stock options
On December 16, 2011, the Company adopted a new stock option plan pursuant to which it may grant incentive stock options to directors, officers, employees and consultants of the Company or any affiliate thereof. As a 10% rolling plan, the aggregate number of common shares issuable as options under the plan may be up to 10% of the Company's issued and outstanding common shares on the date on which the option is granted, less common shares reserved for issuance on exercise of options then outstanding under the plan. The term of any options will be fixed by the board of directors at the time such options are granted. The exercise price of any options will be determined by the board of directors, in its sole discretion, but shall not be less than the greater of closing market price of the Company's common shares on: (i) the day proceeding the day on which the directors grant such
F.2-20
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
7. Share Capital (Continued)
options; and (ii) the date of grant of the options. Vesting requirements may be imposed as determined by the directors. All options will be non-assignable and non-transferable.
Disinterested shareholder approval must be obtained for: (i) any grant of options to insiders exceeding 10% of the Company's issued common shares (calculated on a fully diluted basis); (ii) any grant of options to insiders within a one-year period exceeding 10% of the Company's issued common shares (calculated on a fully diluted basis); (iii) any grant of options to any one individual within a 12-month period exceeding 5% of the Company's issued common shares (calculated on a fully diluted basis); and (iv) any reduction in the exercise price of an option previously granted to an insider of the Company.
The changes in stock options during the years ended August 31, 2017 and 2016 are as follows:
|
Year Ended August 31,
2017 |
Year Ended August 31,
2016 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
Options |
Weighted
Average Exercise Price |
Number of
Options |
Weighted
Average Exercise Price |
|||||||||
Options outstanding, beginning of year |
7,071,000 | $ | 0.21 | 9,180,000 | $ | 0.22 | |||||||
Granted |
8,185,000 | 0.16 | 4,050,000 | 0.18 | |||||||||
Exercised |
(380,000 | ) | 0.15 | | | ||||||||
Expired or forfeited |
(1,585,000 | ) | 0.23 | (6,159,000 | ) | 0.23 | |||||||
| | | | | | | | | | | | | |
Options outstanding, end of year |
13,291,000 | $ | 0.18 | 7,071,000 | $ | 0.21 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
F.2-21
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
7. Share Capital (Continued)
Stock options outstanding and exercisable at August 31, 2017 are as follows:
Expiry Date
|
Number of Options
Outstanding |
Exercise Price | Exercisable | |||||
---|---|---|---|---|---|---|---|---|
May 18, 2018 |
2,350,000 | $ | 0.155 | 2,209,375 | ||||
August 8,2018 |
400,000 | $ | 0.15 | 400,000 | ||||
September 3, 2018 |
280,000 | $ | 0.35 | 280,000 | ||||
September 19, 2018 |
200,000 | $ | 0.16 | 200,000 | ||||
September 19, 2018 |
200,000 | $ | 0.19 | 200,000 | ||||
January 20, 2019 |
36,000 | $ | 0.105 | 36,000 | ||||
February 3, 2019 |
330,000 | $ | 0.145 | 330,000 | ||||
July 18, 2019 |
400,000 | $ | 0.18 | 400,000 | ||||
September 2, 2019 |
4,100,000 | $ | 0.16 | 3,987,500 | ||||
January 3, 2020 |
760,000 | $ | 0.155 | 760,000 | ||||
June 12, 2020 |
1,210,000 | $ | 0.27 | 1,210,000 | ||||
June 17, 2020 |
500,000 | $ | 0.27 | 366,667 | ||||
November 10, 2020 |
525,000 | $ | 0.16 | 525,000 | ||||
January 3, 2021 |
500,000 | $ | 0.155 | 500,000 | ||||
April 26, 2021 |
250,000 | $ | 0.17 | 250,000 | ||||
May 10, 2021 |
1,250,000 | $ | 0.15 | 1,250,000 | ||||
| | | | | | | | |
|
13,291,000 | $ | 0.18 | 12,904,542 | ||||
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
Weighted average remaining contractual life |
2.1 years |
On September 2, 2016, stock options were granted to officers, employees and consultants to acquire 4,500,000 common shares at an exercise price of $0.16 per share for a period of three years, 4,350,000 options vested immediately with the remaining 150,000 options vesting quarterly in equal amounts over a three-year period.
On September 19, 2016, the Company granted incentive stock options to purchase up to 400,000 common shares to a consultant. All options vested immediately. An aggregate of 200,000 of the options entitle the consultant to acquire one common share at a price of $0.16 per share for a period of 24 months and the remaining 200,000 of the options entitle the consultant to acquire one common share at a price of $0.19 per share for a period of 24 months.
On October 4, 2016, stock options to acquire 5,000 common shares at $$0.105 were exercised.
On January 3, 2017, the Company announced that stock options to acquire 300,000 common shares at $0.16 per share were cancelled and options were granted to consultants and advisors to acquire 760,000 common shares at an exercise price of $0.155 per share for a period of up three years. Also on January 3, 2017, stock options were granted to a consultant to acquire 500,000 common shares at an exercise price of $0.155 per share for a period of four years.
On January 23, 2017, stock options to acquire 275,000 common shares at $0.145 per share and 100,000 common shares at $0.155 per share were exercised.
F.2-22
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
7. Share Capital (Continued)
On April 26, 2017, stock options were granted to a consultant to acquire 250,000 common shares at an exercise price of $0.17 per common shares for a period of four years.
On May 10, 2017, stock options were granted to directors and consultants to acquire 1,250,000 common shares at an exercise price of $0.15 per common share for a period of four years. Also on May 10, 2017, stock options were granted to a consultant to acquire 525,000 common shares at an exercise price of $0.16 per share for a period of 42 months.
During the year ended August 31, 2016, stock options were granted to officers, employees and consultants to acquire 2,650,000 shares at $0.155 per share for a period of two years, 2,275,000 options vested immediately with the remaining 375,000 options vesting quarterly in equal amounts over a two year period. The Company also granted stock options to a director to acquire 400,000 shares at $0.15 per share for a period of two years, these options vested immediately. The fair value recorded for the stock options granted was $180,134. The Company extended the term of 290,000 stock options, exercisable at prices in the range from $0.105 to $0.35 per share that were to be cancelled on January 22, 2016 due to termination of services by an officer, to October 22, 2016. On November 6, 2016, the Company cancelled 500,000 stock options exercisable at prices in the range from $0.155 to $0.27 per share due to the termination of the services by an officer. The Company cancelled 3,154,000 stock options exercisable at prices in the range from $0.105 to $0.27 per share due to the termination of services by an officer and granted 1,000,000 stock options to the former officer and director exercisable at $0.25 per share for a period of two years. These options were cancelled on August 23, 2016.
The fair value of the options granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
Year Ended
August 31, 2017 |
Year Ended
August 31, 2016 |
|||||
---|---|---|---|---|---|---|---|
Risk-free interest rate |
0.81 | % | 0.85 | % | |||
Expected dividend yield |
0 | % | 0 | % | |||
Expected stock price volatility |
95 | % | 74 | % | |||
Expected life of options (years) |
3 | 2 | |||||
Weighted average fair value of options granted |
$ | 0.09 | $ | 0.07 | |||
Weighted average exercise price of options granted |
$ | 0.16 | $ | 0.15 |
Option pricing models require the input of highly subjective assumptions including the expected price volatility. Volatility is based on the historical trend of the share prices of the Company. Changes in the subjective assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company's stock options.
F.2-23
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
7. Share Capital (Continued)
Warrants
The changes in warrants during the years ended August 31, 2017 and 2016 are as follows:
|
Year Ended August 31,
2017 |
Year Ended August 31,
2016 |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Number of
Warrants |
Weighted
Average Exercise Price |
Number of
Warrants |
Weighted
Average Exercise Price |
|||||||||
Warrants outstanding, beginning of year |
17,700,199 | $ | 0.23 | 15,917,032 | $ | 0.16 | |||||||
Granted |
21,024,233 | 0.20 | 3,594,167 | 0.20 | |||||||||
Exercised |
(4,743,157 | ) | 0.10 | (1,811,000 | ) | 0.10 | |||||||
Expired or forfeited |
(2,293,208 | ) | 0.15 | | | ||||||||
| | | | | | | | | | | | | |
Warrants outstanding, end of year |
31,688,067 | $ | 0.23 | 17,700,199 | $ | 0.23 | |||||||
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
The following table summarizes the warrants outstanding at August 31, 2017:
The fair value for agent's warrants granted during the year ended August 31, 2017 was $9,409.
The fair value for agent's warrants granted during the year ended August 31, 2016 was $5,901.
F.2-24
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
7. Share Capital (Continued)
The fair value of the agent's warrants granted was estimated on the date of grant using the Black-Scholes option-pricing model with the following weighted average assumptions:
|
Year Ended
August 31, 2017 |
Year Ended
August 31, 2016 |
|||||
---|---|---|---|---|---|---|---|
Risk-free interest rate |
0.75 | % | 0.85 | % | |||
Expected dividend yield |
0 | % | 0 | % | |||
Expected stock price volatility |
73 | % | 74 | % | |||
Expected life of options (years) |
3 | 1 | |||||
Weighted average fair value of options granted |
$ | 0.07 | $ | 0.05 | |||
Weighted average exercise price of options granted |
$ | 0.20 | $ | 0.15 |
Warrant pricing models require the input of highly subjective assumptions including the expected price volatility. Volatility is based on the historical trend of the share prices of the Company. Changes in the subjective assumptions can materially affect the fair value estimate, and therefore the existing models do not necessarily provide a reliable single measure of the fair value of the Company's warrants.
8. Contributed Surplus
Contributed surplus includes the accumulated fair value of options and agent/broker warrants. Contributed surplus records items recognized as share-based compensation expense and the fair value of warrants until such time that the stock options and warrants are exercised, at which time the corresponding amount will be transferred to share capital. If the options or warrants expire unexercised, the amount recorded will stay in contributed surplus.
9. Related Party Transactions
Related party balances
The following amounts due to related parties are included in accounts payable and accrued liabilities:
|
August 31,
2017 |
August 31,
2016 |
|||||
---|---|---|---|---|---|---|---|
Directors and officers of the Company |
$ | 55,947 | $ | 137,541 |
These amounts are unsecured, non-interest bearing and have no fixed terms of repayment.
F.2-25
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
9. Related Party Transactions (Continued)
During the years ended August 31, 2017 and 2016, the Company incurred the following charges with related parties:
|
2017 | 2016 | |||||
---|---|---|---|---|---|---|---|
Accounting fees to a private company controlled by the former CFO of the Company |
$ | | $ | 5,250 | |||
Accounting and administration fees and rent to a private company controlled by the current CFO of the Company |
132,150 | 92,619 | |||||
Consulting fees paid to directors and officers of the Company |
1,010,129 | 758,008 | |||||
Share-based payments to officers and directors of the Company |
388,176 | 159,516 | |||||
| | | | | | | |
Total |
$ | 1,530,455 | $ | 1,015,393 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
See also Notes 7, 10, 15 and 16.
10. Loan Receivable
The loan receivable was due from a private company controlled by the VP, Investor Relations and was unsecured, non-interest bearing and payable on demand. The loan was repaid in full on October 4, 2016.
11. Financial Risk Management
The Company is exposed in varying degrees to a variety of financial instrument related risks. The Board of Directors approves and monitors the risk management processes, inclusive of documented investment policies, counterparty limits, and controlling and reporting structures. The type of risk exposure and the way in which such exposure is managed is provided as follows:
Credit risk
Credit risk is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. The Company's primary exposure to credit risk is on its cash and cash equivalents held in bank accounts. The majority of cash and cash equivalents are deposited in bank accounts held with a major bank in Canada. As most of the Company's cash is held by one bank there is a concentration of credit risk. This risk is managed by using major banks that are high credit quality financial institutions as determined by rating agencies.
As at August 31, 2017, the Company had receivables in the amount of $49,038 (2016$37,601) which is represented by a refund due from the Canada Revenue Agency for harmonized sales tax input credits. The Company also had a loan receivable balance outstanding of $Nil (2016$60,000), which was repaid in full on October 4, 2016. The Company considers credit risk with respect to these receivables as low.
F.2-26
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
11. Financial Risk Management (Continued)
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company has a planning and budgeting process in place to help determine the funds required to support the Company's normal operating requirements on an ongoing basis. The Company ensures that there are sufficient funds to meet its short-term business requirements, taking into account its anticipated cash flows from operations and its holdings of cash and cash equivalents.
Historically, the Company's sole source of funding has been the issuance of equity securities for cash, primarily through private placements. The Company's access to financing is always uncertain. There can be no assurance of continued access to significant equity funding. As at August 31, 2017, all of the Company's financial liabilities are due within one year.
Foreign exchange risk
Foreign currency risk is the risk that the fair values of future cash flows of a financial instrument will fluctuate because they are denominated in currencies that differ from the respective functional currency. The Company's United States subsidiary is exposed to currency risk as it incurs expenditures that are denominated in United States dollars while its functional currency is the Canadian dollar. As at August 31, 2017, the Company's subsidiary holds a bank balances in the amount of US$17,853 and is indebted to suppliers in the amount of US$197,460 and GBP10,000. The Company does not hedge its exposure to fluctuations in foreign exchange rates.
Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is exposed to interest rate risk on its cash equivalents as these instruments have original maturities of three months or less and are therefore exposed to interest rate fluctuations on renewal.
Capital management
The Company's policy is to maintain a strong capital base so as to maintain investor and creditor confidence and to sustain future development of the business. The capital structure of the Company consists of equity, comprising share capital, net of accumulated deficit.
The Company's capital management objectives, policies and processes have remained unchanged during the years ended August 31, 2017 and August 31, 2016.
The Company is not subject to any capital requirements imposed by a lending institution or regulatory body, other than of the TSX Venture Exchange ("TSXV") which requires adequate working capital or financial resources of the greater of (i) $50,000 and (ii) an amount required in order to maintain operations and cover general and administrative expenses for a period of six months.
As of August 31, 2017, the Company may not be compliant with the policies of the TSXV. The impact of this violation is not known and is ultimately dependent on the discretion of the TSXV.
F.2-27
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
11. Financial Risk Management (Continued)
Classification of financial instruments
The Company's financial instruments are classified into the following categories: loans and receivables, held to maturity and other financial liabilities.
Financial assets included in the statements of financial position are as follows:
|
August 31,
2017 |
August 31,
2016 |
|||||
---|---|---|---|---|---|---|---|
Loans and Receivables |
|||||||
Cash and cash equivalents |
$ | 508,993 | $ | 95,665 | |||
Loan receivable |
| 60,000 | |||||
| | | | | | | |
Total |
$ | 508,993 | $ | 155,665 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Financial liabilities included in the statements of financial position are as follows:
|
August 31,
2017 |
August 31,
2016 |
|||||
---|---|---|---|---|---|---|---|
Other Financial Liabilities |
|||||||
Accounts payable and accrued liabilities |
$ | 495,990 | $ | 521,343 | |||
| | | | | | | |
Total |
$ | 495,990 | $ | 521,343 | |||
| | | | | | | |
| | | | | | | |
| | | | | | | |
Fair value
The fair value of the Company's financial assets and liabilities approximates the carrying amount due to their short-term nature. Financial instruments measured at fair value are classified into one of three levels in the fair value hierarchy according to the relative reliability of the inputs used to estimate the fair values. The three levels of the fair value hierarchy are:
12. Income Taxes
F.2-28
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
12. Income Taxes (Continued)
Major items causing the Company's effective income tax rate to differ from the combined Canadian federal and provincial statutory rate of 26.5% (201626.5%) were as follows:
|
2017
$ |
2016
$ |
|||||
---|---|---|---|---|---|---|---|
(Loss) before income taxes |
(3,206,731 | ) | (1,728,730 | ) | |||
| | | | | | | |
Expected income tax recovery based on statutory rate |
(850,000 | ) | (458,000 | ) | |||
Adjustment to expected income tax benefit: |
|||||||
Share-based payments |
211,000 | 56,000 | |||||
Other |
91,000 | (191,000 | ) | ||||
Change in foreign exchange rates |
(20,000 | ) | (26,000 | ) | |||
Difference in tax rates |
74,000 | (64,000 | ) | ||||
Change in benefit of tax assets not recognized |
494,000 | 683,000 | |||||
| | | | | | | |
Deferred income provision (recovery) |
| | |||||
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
2017
$ |
2016
$ |
|||||
---|---|---|---|---|---|---|---|
Deferred income tax assets have not been recognized in respect of the following deductible temporary differences: |
|||||||
Non-capital loss carry-forwards, Canada |
7,217,000 | 4,188,000 | |||||
Non-capital loss carry-forwards, United States |
1,858,000 | 1,784,000 | |||||
Exploration and evaluation assets, Canada |
| 482,000 | |||||
Exploration and evaluation assets, United States |
709,000 | 1,091,000 | |||||
Share issue costs, Canada |
342,000 | 305,000 | |||||
| | | | | | | |
Total |
10,126,000 | 8,480,000 | |||||
| | | | | | | |
Deferred tax assets have not been recognized in respect of these items because it is not probable that future taxable profit will be available against which the Company can use the benefits.
Non-capital loss carry-forwards available in the United States of US$1,482,000 (2016US$1,360,000) expire from 2032 to 2037.
Non-capital loss carry-forwards available in the Canada expire from 2030 to 2037. The other temporary differences do not expire under current legislation.
13. Segmented Information
The Company's equipment and exploration and evaluation assets are located in Alabama, USA.
F.2-29
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
14. Environmental Contingencies
The Company's exploration and evaluation activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and generally becoming more restrictive. The Company has made, and expects to make in the future, expenditures to comply with such laws and regulations.
15. Commitments and Contingencies
The Company is required to make the following payments, in addition to the commitments outlined in Note 5 that are related to the mineral properties:
The Company is party to certain consulting contracts with two corporations controlled by officers of the Company that provide for aggregate contingent payments of up to approximately $241,200 upon the occurrence of a change of control. As a triggering event has not taken place, the contingent payments have not been reflected in these consolidated financial statements (see Note 16).
The Company is party to legal action as follows:
16. Subsequent Events
On December 13, 2017, the Company announced that it had entered into a definitive agreement (the "Arrangement Agreement") with Westwater Resources Inc. ("Westwater"), a corporation listed on Nasdaq, pursuant to which it is proposed that Westwater will acquire all the issued and outstanding securities of the Company (the "Acquisition").
The acquisition will be by way of a court-approved Plan of Arrangement pursuant to the Business Corporations Act (British Columbia) whereby each issued and outstanding share of the Company will be purchased by Westwater in exchange for 0.08 of one Westwater common share.
F.2-30
ALABAMA GRAPHITE CORP.
Notes to the Consolidated Financial Statements (Continued)
For the Years Ended August 31, 2017 and 2016
(Expressed in Canadian Dollars)
16. Subsequent Events (Continued)
Holders of common share purchase warrants and stock options of the Company will receive replacement warrants and options issued by Westwater. Management, staff and directors of the Company have agreed to surrender 8,741,000 stock options and 4,883,337 warrants so that Westwater is not required to issue replacement securities for these stock options and warrants.
Upon the closing of this transaction the current shareholders of the Company will hold approximately 30% of the issued and outstanding shares of Westwater.
The Arrangement Agreement also provides for, among other things, a non-solicitation covenant on the part of the Company, subject to customary "fiduciary out" provisions that entitle the Company to consider and accept a superior proposal, a right in favour of Westwater to match any superior proposal and an entitlement for expense reimbursement upon termination for Westwater of up to US$1.5 million (approximately Canadian $1.9 million), under certain circumstances.
In addition, on December 13, 2017 Westwater agreed to provide a secured loan to the Company for up to US$2 million to fund the Company's working capital, to pay outstanding liabilities and to provide sufficient operating funds to enable the Company to carry on its business until the closing of the Acquisition. The secured loan bears interest at the rate of 3% per annum, is secured by the assets of the Company and is convertible into common shares of the Company at Westwater's election using a conversion price equal to the volume weighted average price ("VWAP") for the shares for the five (5) Trading Days immediately following the day of the initial public announcement or press release relating to the Arrangement Agreement. The secured loan remains subject to the final approval of the TSX Venture Exchange.
Should the Arrangement Agreement be terminated, the secured loan will become payable on June 30, 2018; however, if the Company withdraws its support for the Acquisition and recommends a competing transaction, the secured loan becomes repayable immediately.
F.2-31
as the Parent
and
as the Purchaser
and
as the Company
ARRANGEMENT AGREEMENT
December 13, 2017
A-i
A-ii
THIS AGREEMENT is made as of December 13, 2017,
Westwater Resources, Inc., a corporation existing under the laws of the State of Delaware
(the " Parent ")
and
1143738 B.C. Ltd., a corporation existing under the laws of the Province of British Columbia and an indirect or direct subsidiary of the Parent
(the " Purchaser ")
and
Alabama Graphite Corp., a corporation existing under the laws of the Province of British Columbia
(the " Company ").
NOW THEREFORE, in consideration of the covenants and agreements herein contained, the Parties agree as follows:
As used in this Agreement, the following terms have the following meanings:
" Acquisition Proposal " means, other than the transactions contemplated by this Agreement, any offer, proposal or inquiry (written or oral) from any Person or group of Persons other than the Parent or the Purchaser after the date of this Agreement relating to: (i) any direct or indirect sale, disposition, alliance or joint venture (or any lease, long-term supply agreement or other arrangement having the same economic effect as a sale), direct or indirect, in a single transaction or a series of related transactions, of assets representing 20% or more of the consolidated assets or contributing 20% or more of the consolidated revenue of the Company and its Subsidiaries or of 20% or more of the voting, equity or other securities of the Company or any of its Subsidiaries (or rights or interests therein or thereto); (ii) any direct or indirect take-over bid, tender offer, exchange offer, treasury issuance or other transaction that, if consummated, would result in a Person or group of Persons beneficially owning 20% or more of any class of voting, equity or other securities or any other equity interests (including securities convertible into or exercisable or exchangeable for securities or equity interests) of the Company or any of its Subsidiaries; (iii) any plan of arrangement, merger, amalgamation, consolidation, share exchange, business combination, reorganization, recapitalization, liquidation, dissolution, winding up or exclusive license involving the Company or any of its Subsidiaries; (iv) any other similar transaction or series of transactions involving the Company or any of its Subsidiaries; or (v) any other transaction, the consummation of which could reasonably be expected to impede, prevent or delay the transactions contemplated by this Agreement, including the Arrangement.
" Affiliate " has the meaning specified in National Instrument 45-106 Prospectus and Registration Exemptions .
"Agreement" means this arrangement agreement.
A-1
" Arrangement " means an arrangement under Section 288 of the BCBCA on the terms and subject to the conditions set out in the Plan of Arrangement, subject to any amendments or variations to the Plan of Arrangement made in accordance with the terms of this Agreement or made at the direction of the Court in the Final Order with the prior written consent of the Company and the Purchaser, each acting reasonably.
" Arrangement Filings " means the records and information provided to the Registrar under section 292(a) of the BCBCA, together with a copy of the entered Final Order.
" Arrangement Resolution " means the special resolution of the Company Securityholders approving the Plan of Arrangement to be considered at the Company Meeting, substantially in the form set out in Schedule B.
" Authorization " means, with respect to any Person, any order, permit, approval, consent, waiver, licence or similar authorization of any Governmental Entity having jurisdiction over the Person.
" BCBCA " means the Business Corporations Act (British Columbia).
"Breaching Party" has the meaning specified in Section 4.6(3).
" Budget " means the detailed budget for the exploration, development, management and operation of the Company using proceeds of a loan provided by the Parent to the Company and other available funds, as well as to all other general, administrative and others costs and expenses of the Company, as such budget is updated, revised and amended from time to time and approved by the Parent in its sole discretion;
"Business Day" means any day of the year, other than a Saturday, Sunday or any day on which major banks are closed for business in Vancouver, British Columbia, Toronto, Ontario or Denver, Colorado.
" Collective Agreements " means collective agreements and related documents including benefit agreements, letters of understanding, letters of intent and other written communications (including arbitration awards).
" Common Shares " means the common shares in the capital of the Company.
" Company " has the meaning specified in the Preamble.
" Company Board " means the board of directors of the Company as constituted from time to time.
" Company Board Recommendation " has the meaning specified in Section 2.4(2).
" Company Change in Recommendation " has the meaning specified in Section 7.2(1)(d)(ii).
" Company Circular " means the notice of the Company Meeting and accompanying management information circular, including all schedules, appendices and exhibits to, and information incorporated by reference in, such management information circular, to be sent to the Company Securityholders in connection with the Company Meeting, as amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement.
"Company Data Room" means the material contained as of 11:59 p.m. on December 12, 2017 in the virtual data room established by the Company, the index of documents of which is appended to the Company Disclosure Letter.
" Company Disclosure Letter " means the disclosure letter dated the date of this Agreement and delivered by the Company to the Parent and the Purchaser with this Agreement.
" Company Employees " means the officers and employees of the Company and its Subsidiaries.
" Company Expense Reimbursement " has the meaning specified in Section 8.2(1)(a).
A-2
" Company Expense Reimbursement Event " has the meaning specified in Section 8.2(1)(b).
" Company Fairness Opinion " means an opinion of Echelon Wealth Partners Inc. to the effect that, as of the date of such opinion, and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be received by the Company Shareholders is fair, from a financial point of view, to such holders.
" Company Filings " means all documents publicly filed under the profile of the Company on the System for Electronic Document Analysis Retrieval (SEDAR) since December 31, 2015.
" Company Matching Period" has the meaning specified in Section 5.4(1)(e).
" Company Meeting " means the special meeting of Company Securityholders, including any adjournment or postponement of such special meeting in accordance with the terms of this Agreement, to be called and held in accordance with the Interim Order to consider the Arrangement Resolution and for any other purpose as may be set out in the Company Circular and agreed to in writing by the Parent and the Purchaser.
" Company Mineral Rights " has the meaning set forth in Paragraph (32)(a) of Schedule C.
"Company Optionholders" means the holders of Company Options.
" Company Options " means the outstanding options to purchase Common Shares issued pursuant to the Company Stock Option Plan.
" Company Representatives " has the meaning specified in Section 5.1(1).
" Company Securityholders " means, collectively, the Company Shareholders, the Company Optionholders and the Company Warrantholders.
"Company Shareholders" means the registered or beneficial holders of the Common Shares, as the context requires.
" Company Stock Option Plan " means the stock option plan of the Company dated December 16, 2011.
"Company Superior Proposal Notice" has the meaning specified in Section 5.4(1)(c).
" Company Warrant Agreements " means, collectively, the warrant agreements to purchase Company Warrants dated as of June 30, 2015, May 19, 2016, September 6, 2016, September 21, 2016, May 5, 2017 and May 10, 2017, respectively.
" Company Warrants " means the outstanding common share purchase warrants of the Company to purchase Common Shares pursuant to the Company Warrant Agreements.
" Company Warrantholders " means the holders of Company Warrants.
" Confidentiality Agreement " means the confidentiality agreement dated May 9, 2017 between the Parent and the Company.
" Consideration " means 0.08 of a Parent Share for each Common Share.
" Consideration Shares " means the Parent Shares to be issued in exchange for Common Shares pursuant to the Arrangement.
" Constating Documents " means articles of incorporation, amalgamation, or continuation, as applicable, by-laws and all amendments to such articles or by-laws.
"Contract" means, with respect to any Person, any agreement, commitment, engagement, contract, franchise, licence, lease, obligation, undertaking or joint venture (written or oral) to which such Person
A-3
is a party or by which it or any of its Subsidiaries is bound or affected or to which any of its respective properties or assets is subject.
" Court " means the Supreme Court of British Columbia.
" Depositary " means Computershare Investor Services Inc.
" Dissent Rights " means the rights of dissent in respect of the Arrangement described in the Plan of Arrangement.
" EDGAR " means the Electronic Data Gathering, Analysis, and Retrieval system of the United States Securities and Exchange Commission.
" Effective Date " means the date upon which the Arrangement becomes effective, as set out in the Plan of Arrangement.
" Effective Time " means the time on the Effective Date that the Arrangement becomes effective, as set out in the Plan of Arrangement.
" Employee Plans " has the meaning set forth in Paragraph (40) of Schedule C.
" Environmental Laws " means all Laws and agreements with Governmental Entities and all other statutory requirements relating to public health and safety, noise control, pollution or the protection of the environment or to the generation, production, installation, use, storage, treatment, transportation, Release or threatened Release of Hazardous Substances, including civil responsibility for acts or omissions with respect to the environment, mine reclamation, restoration or rehabilitation and all Authorizations issued pursuant to such Laws, agreements or other statutory requirements.
" Final Order " means the final order of the Court pursuant to Section 291 of the BCBCA in a form acceptable to the Company and the Purchaser, each acting reasonably, approving the Arrangement, as such order may be amended by the Court (with the consent of the Company, the Parent and the Purchaser, each acting reasonably) at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to the Company, the Parent and the Purchaser, each acting reasonably) on appeal.
" GAAP " means generally accepted accounting principles in the United States.
" Governmental Entity " means (i) any international, multinational, national, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, board, bureau, commissioner, minister, cabinet, governor in council, ministry, agency or instrumentality, domestic or foreign, (ii) any subdivision or authority of any of the above, (iii) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing or (iv) any stock exchange.
" Hazardous Substances " means any element, waste or other substance, whether natural or artificial and whether consisting of gas, liquid, solid or vapour that is prohibited, listed, defined, judicially interpreted, designated or classified as dangerous, hazardous, radioactive, explosive or toxic or a pollutant or a contaminant under or pursuant to any applicable Environmental Laws, and specifically including petroleum and all derivatives thereof or synthetic substitutes therefor and asbestos or asbestos-containing materials or any substance which is deemed under Environmental Laws to be deleterious to natural resources or worker or public health and safety.
" IFRS " means generally accepted accounting principles as set out in the CPA Canada HandbookAccounting for an entity that prepares its financial statements in accordance with International Financial Reporting Standards, at the relevant time, applied on a consistent basis.
A-4
" Intellectual Property " means domestic and foreign: (i) patents, applications for patents and reissues, divisions, continuations, renewals, extensions and continuations-in-part of patents or patent applications; (ii) proprietary and non-public business information, including inventions (whether patentable or not), invention disclosures, improvements, discoveries, trade secrets, confidential information, know-how, methods, processes, designs, technology, technical data, schematics, formulae and customer lists, and documentation relating to any of the foregoing; (iii) copyrights, copyright registrations and applications for copyright registration; (iv) mask works, mask work registrations and applications for mask work registrations; (v) designs, design registrations, design registration applications and integrated circuit topographies; (vi) trade names, business names, corporate names, domain names, website names and world wide web addresses, common law trade-marks, trade-mark registrations, trade mark applications, trade dress and logos, and the goodwill associated with any of the foregoing; (vii) software; and (viii) any other intellectual property and industrial property.
" Intellectual Property Rights " has the meaning specified in Paragraph (34) of Schedule C.
" Interim Order " means the interim order of the Court in a form acceptable to the Company, the Parent and the Purchaser, each acting reasonably, providing for, among other things, the calling and holding of the Company Meeting, as such order may be amended by the Court with the consent of the Company, the Parent and the Purchaser, each acting reasonably.
" Law " means, with respect to any Person, any and all applicable law (statutory, civil, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement, whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or applicable to such Person or its business, undertaking, property or securities, and to the extent that they have (or are applied as if they have) the force of law, policies, guidelines, notices and protocols of any Governmental Entity, as amended.
" Lien" means any mortgage, charge, pledge, hypothec, security interest, prior claim, encroachment, option, right of first refusal or first offer, occupancy right, covenant, assignment, lien (statutory or otherwise), defect of title, or restriction or adverse right or claim, or other third party interest or encumbrance of any kind, in each case, whether contingent or absolute.
" Locked-up Securityholders " means all of the directors and senior officers of the Company.
" Material Adverse Effect " when used in connection with a Party means any change, event, occurrence, effect, state of facts or circumstance that, either individually or in the aggregate, is or could reasonably be expected to be material and adverse to the business, operations, results of operations, assets, properties, condition (financial or otherwise) or liabilities (contingent or otherwise) or prospects of that Party and its Subsidiaries, taken as a whole, and would, or would be reasonably expected to, prevent or materially delay either Party from consummating the transactions contemplated by this Agreement by the Outside Date, except any such change, event, occurrence, effect, state of facts or circumstance resulting from:
A-5
provided, however, that with respect to clauses (a) through to and including (d), such matters do not have a materially disproportionate effect on such Party and its Subsidiaries, taken as a whole, relative to companies of similar size operating in the industries or markets in which such Party operates (in which case the incremental disproportionate effect may be taken into account in determining whether there has been, or is reasonably expected to be, a Material Adverse Effect), and provided further, however, that unless expressly provided in any particular section of the Agreement, references in certain sections of this Agreement to dollar amounts are not intended to be, and shall be deemed not to be, illustrative or interpretive for the purpose of determining whether a " Material Adverse Effect " has occurred.
" Material Contract " means any Contract that:
A-6
" MI 61-101 " means Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions .
"Misrepresentation" has the meaning specified under Securities Laws.
" NASDAQ " means the Nasdaq Stock Market.
" NI 43-101 " means National Instrument 43-101 Standards of Disclosure for Mineral Projects of the Canadian Securities Administrators;
" Officer " has the meaning specified in the Securities Act (British Columbia).
"Ordinary Course" means, with respect to an action taken by a Party, that such action is consistent with the past practices of such Party, is taken in the ordinary course of the normal day-to-day operations of the business of such Party and is not materially adverse to such Party.
" Outside Date " means June 30, 2018 or such later date as may be agreed to in writing by the Parties.
" Parent " has the meaning specified in the Preamble.
" Parent Board " means the board of directors of the Parent as constituted from time to time.
" Parent Board Recommendation " has the meaning specified in Section 2.6(1)(c).
" Parent Change in Recommendation " has the meaning specified in Section 7.2(1)(c)(ii).
" Parent Circular " means the notice of the Parent Meeting as part of a proxy statement pursuant to Section 14(a) of the U.S. Exchange Act, including all schedules, appendices and exhibits to, and information incorporated by reference in, such proxy statement, to be sent to the Parent Shareholders in connection with the Parent Meeting, if necessary, as amended, supplemented or otherwise modified from time to time in accordance with the terms of this Agreement.
"Parent Data Room" means the material contained as of 11:59 p.m. on December 12, 2017 in the virtual data room established by the Parent, the index of documents of which is appended to the Parent Disclosure Letter.
" Parent Disclosure Letter " means the disclosure letter dated the date of this Agreement and delivered by the Parent and the Purchaser to the Company with this Agreement.
" Parent Fairness Opinion " means an opinion of Roth Capital Partners, LLC to the effect that, as of the date of such opinion, and subject to the assumptions, limitations and qualifications set forth therein, the Consideration to be paid by the Parent pursuant to the Arrangement Agreement is fair, from a financial point of view, to the Parent.
" Parent Filings " means all documents publicly filed under the profile of the Parent on EDGAR since December 31, 2015.
" Parent Meeting " means the special meeting of Parent Shareholders, including any adjournment or postponement thereof, to be called for the purpose of obtaining approval of the Parent Shareholder Approval Resolution.
" Parent Mineral Rights " has the meaning set forth in Paragraph (16)(a) of Schedule D.
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" Parent Omnibus Incentive Plan " means the Parent's 2013 Omnibus Incentive Plan, as amended from time to time.
" Parent Options " means the outstanding options to purchase Parent Shares issued pursuant to the Parent Stock Option Plan.
" Parent Shareholder Approval " means the approval by the Parent Shareholders of the Parent Shareholder Approval Resolution.
" Parent Shareholder Approval Resolution " means the special resolution of the Parent Shareholders approving the issuance of the Consideration Shares, substantially in the form of Schedule B-1.
" Parent Shareholders " means the registered or beneficial holders of the Parent Shares, as the context requires.
" Parent Shares " means the common shares in the capital of the Parent.
"Parties" means the Company, the Parent and the Purchaser and " Party " means any one of them.
"Permitted Liens" means, in respect of a Party or any of its Subsidiaries, any one or more of the following:
"Person" includes any individual, partnership, limited partnership, limited liability partnership, joint venture, association, body corporate, corporation, company, unincorporated association, limited liability company, unlimited liability company, organization, trust, estate, trustee, executor, administrator, legal representative, government (including Governmental Entity), syndicate or other entity, whether or not having legal status.
" Plan of Arrangement " means the plan of arrangement, substantially in the form set out in Schedule A, subject to any amendments or variations to such plan made in accordance with Section 8.1 or made at the direction of the Court in the Final Order with the prior written consent of the Company, the Parent and the Purchaser, each acting reasonably.
A-8
" Pre-Acquisition Reorganization " has the meaning specified in Section 4.5.
"Purchaser" has the meaning specified in the Preamble.
" Registrar " means the Registrar of Companies appointed pursuant to section 400 of the BCBCA.
"Regulatory Approval" means any consent, waiver, permit, exemption, review, order, decision or approval of, or any registration and filing with, any Governmental Entity, or the expiry, waiver or termination of any waiting period imposed by Law or a Governmental Entity, in each case that is required in connection with the Arrangement.
" Release " has the meaning prescribed in any Environmental Law and includes any sudden, intermittent or gradual release, spill, leak, pumping, addition, pouring, emission, emptying, discharge, migration, injection, escape, leaching, disposal, dumping, deposit, spraying, burial, abandonment, incineration, seepage, placement or introduction of a Hazardous Substance, whether accidental or intentional, into the environment.
" Replacement Options " has the meaning specified in Section 4.9(1).
" Required Approval " has the meaning specified in Section 2.2(3).
" Securities Authority " means the British Columbia Securities Commission and any other applicable securities commissions or securities regulatory authority of a province or territory of Canada or the United States, including the United States Securities and Exchange Commission.
" Securities Laws " means the Securities Act (British Columbia) and any other applicable provincial securities Laws and the U.S. Exchange Act and the U.S Securities Act.
" Special Committee " means the committee of independent directors of the Company Board consisting of Dr. Gareth P. Hatch.
" Subsidiary " means, with respect to a Person, any entity, whether incorporated or unincorporated: (i) of which such Person or any other Subsidiary of such Person is a general partner; or (ii) at least a majority of the securities or other interests of which having by their terms ordinary voting power to elect a majority of the board of directors or other Persons performing similar functions with respect to such corporation or other organization is directly or indirectly owned or controlled by such Person and/or by any one or more of its Subsidiaries; and shall include any body corporate, partnership, joint venture or other entity over which it exercises direction or control. For purposes of this definition, "control" when used with respect to any Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise.
" Superior Proposal " means, any unsolicited bona fide written Acquisition Proposal from a Person who is an arm's length third party to the Company to purchase or otherwise acquire, directly or indirectly, by means of a merger, take-over bid, amalgamation, plan of arrangement, business combination, consolidation, recapitalization, liquidation, winding up or other transaction, not less than all of the outstanding Common Shares, not owned by the Person making such Acquisition Proposal or its Affiliates, or all or substantially all of the assets of the Company, on a consolidated basis that: (a) complies with Securities Laws and did not result from or involve a breach of Article 5 of this Agreement or any agreement between the Person making such Acquisition Proposal and the Company; (b) is reasonably capable of being completed without undue delay, taking into account, all financial, legal, regulatory and other aspects of such proposal and the Person making such Acquisition Proposal; (c) is not subject to any financing contingency and in respect of which adequate arrangements have been made to ensure that the required funds or other consideration will be available to effect payment in full for all of the Common Shares or assets, as the case may be; (d) is not subject to any due diligence and/or access condition; (e) that the board of directors of the Company and any relevant
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committee thereof determines, in its good faith judgment, after receiving the advice of its outside legal counsel and financial advisors and after taking into account all the terms and conditions of the Acquisition Proposal, including all legal, financial, regulatory and other aspects of such Acquisition Proposal and the Person making such Acquisition Proposal, would, if consummated in accordance with its terms, but without assuming away the risk of non-completion, result in a transaction which is more favorable, from a financial point of view, to the Company Shareholders than the Arrangement (including any amendments to the terms and conditions of the Arrangement that may be proposed by the Parent and the Purchaser pursuant to Section 5.4(2)); and (f) in the event that the Company does not have the financial resources to pay the Company Expense Reimbursement, the terms of such Acquisition Proposal provide that the person making such Superior Proposal shall advance or otherwise provide the Company the cash required for the Company to pay the Company Expense Reimbursement and such amount shall be advanced or provided on or before the date such Company Expense Reimbursement becomes payable.
" Tax Act " means the Income Tax Act (Canada).
"Tax Returns" means any and all returns, reports, declarations, elections, notices, forms, designations, filings, and statements (including estimated tax returns and reports, withholding tax returns and reports, and information returns and reports) filed or required to be filed in respect of Taxes.
"Taxes" means (i) any and all taxes, duties, fees, excises, premiums, assessments, imposts, levies and other charges or assessments of any kind whatsoever imposed by any Governmental Entity, whether computed on a separate, consolidated, unitary, combined or other basis, including those levied on, or measured by, or described with respect to, income, gross receipts, profits, gains, windfalls, capital, capital stock, production, recapture, transfer, land transfer, license, gift, occupation, wealth, environment, net worth, indebtedness, surplus, sales, goods and services, harmonized sales, use, value-added, excise, special assessment, stamp, withholding, business, franchising, real or personal property, health, employee health, payroll, workers' compensation, employment or unemployment, severance, social services, social security, education, utility, surtaxes, customs, import or export, and including all license and registration fees and all employment insurance, health insurance and government pension plan premiums or contributions; (ii) all interest, penalties, fines, additions to tax or other additional amounts imposed by any Governmental Entity on or in respect of amounts of the type described in clause (i) above or this clause (ii); (iii) any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of being a member of an affiliated, consolidated, combined or unitary group for any period; and (iv) any liability for the payment of any amounts of the type described in clauses (i) or (ii) as a result of any express or implied obligation to indemnify any other Person or as a result of being a transferee or successor in interest to any party.
" Technology " has the meaning specified in Paragraph (34) of Schedule C
" Terminating Party " has the meaning specified in Section 4.6(3).
" Termination Notice " has the meaning specified in Section 4.6(3).
" TSX-V " means the TSX Venture Exchange.
" Underlying Shares " means the Parent Shares to be received by a Company Optionholder and/or Company Warrantholder upon exercise of Replacement Options and/or Company Warrants.
" U.S. Exchange Act " means the United States Securities Exchange Act of 1934, as amended and the rules and regulations promulgated thereunder.
" U.S. Securities Act " means the United States Securities Act of 1933, as amended and the rules and regulations promulgated thereunder.
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"Voting Agreements" means the voting agreements (including all amendments thereto) between the Parent, the Purchaser and the Locked-up Securityholders setting forth the terms and conditions upon which they have agreed, among other things, to vote their Common Shares, Company Options and Company Warrants, as applicable, in favour of the Arrangement Resolution.
" wilful breach " means a material breach that is a consequence of an act undertaken by the breaching party with the actual knowledge that the taking of such act would, or would be reasonably expected to, cause a breach of this Agreement.
Section 1.2 Certain Rules of Interpretation.
In this Agreement, unless otherwise specified:
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The Company, the Parent and the Purchaser agree that the Arrangement will be implemented in accordance with and subject to the terms and conditions of this Agreement and the Plan of Arrangement.
As soon as reasonably practicable after the date of this Agreement, but in any event on or before January 22, 2018, the Company shall apply in a manner reasonably acceptable to the Parent and the Purchaser, pursuant to the BCBCA and, in cooperation with the Parent and the Purchaser, prepare, file and diligently pursue an application for the Interim Order, which shall provide, among other things:
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Section 2.3 The Company Meeting
The Company shall:
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Section 2.4 The Company Circular
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documents required by Law in connection with the Company Meeting and the Arrangement, and the Company shall, promptly after obtaining the Interim Order, cause the Company Circular and such other documents to be filed and sent to each Company Securityholder and other Person as required by the Interim Order and Law, in each case so as to permit the Company Meeting to be held by the date specified in Section 2.3(1).
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The Parent shall:
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responsible for any information relating to the Company and the Common Shares), and, without limiting the generality of the foregoing, the Parent Circular must include: (i) a statement that the Parent Board has, after receiving legal and financial advice, unanimously determined that entering into this Agreement and completing the transactions contemplated by this Agreement are in the best interests of the Parent and the Purchaser and the Parent Board is recommending that the Parent Shareholders vote in favour of the Parent Shareholder Approval Resolution (the " Parent Board Recommendation "), (ii) a copy of the Parent Fairness Opinion and (iii) a statement that the Parent Board has received the Parent Fairness Opinion;
If the Interim Order is obtained, the Arrangement Resolution is passed at the Company Meeting and the Parent Shareholder Approval is obtained as provided for in the Interim Order, the Company shall take all steps necessary or desirable to submit the Arrangement to the Court and diligently pursue an application for the Final Order pursuant to Section 291 of the BCBCA, as soon as reasonably practicable, but in any event not later than three (3) Business Days after the later of the approval of the Arrangement Resolution at the Company Meeting as provided for in the Interim Order and the receipt of the Parent Shareholder Approval, or within such other time period as may be agreed upon by the Parties, each acting reasonably.
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In connection with all Court proceedings relating to obtaining the Interim Order and the Final Order, the Company shall:
Section 2.9 Payment of Consideration
The Parent will, immediately prior to the Effective Time, ensure that the Depositary has been provided with sufficient Consideration Shares in escrow to pay the aggregate consideration to be paid pursuant to the Arrangement to the Company Securityholders, as applicable.
Section 2.10 No Fractional Shares
In no event shall any Company Securityholder be entitled to a fractional Parent Share. Where the aggregate number of Parent Shares to be issued to a person as consideration under or as a result of the Arrangement would result in a fraction of a Parent Share being issuable, the number of Parent Shares to be received by such securityholder shall be rounded down to the nearest whole Parent Share and no person will be entitled to any compensation in respect of a fractional Parent Share.
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Section 2.11 Arrangement Filings and Effective Date
Section 2.12 Withholding Taxes
Section 2.13 U.S. Securities Law Matters
The Parties agree that the Arrangement will be carried out with the intention that all Consideration Shares and Replacement Options issued on completion of the Arrangement to Company Securityholders will be issued by the Parent in reliance on the exemption from the registration requirements of the U.S. Securities Act provided by Section 3(a)(10) thereunder. In order to ensure the availability of the exemption under Section 3(a)(10) of the U.S. Securities Act, the Parties agree that the Arrangement will be carried out on the following basis:
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"This Order will serve as a basis of a claim to an exemption, pursuant to section 3(a)(10) of the United States Securities Act of 1933 , as amended, from the registration requirements otherwise imposed by that act, regarding the distribution of securities of the Parent, pursuant to the Plan of Arrangement.".
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
Section 3.1 Representations and Warranties of the Company
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Section 3.2 Representations and Warranties of the Parent and the Purchaser
Section 4.1 Conduct of Business of the Company.
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capital stock, of the Company or any of its Subsidiaries, except for the issuance of Common Shares (i) issuable upon the exercise of the currently outstanding Company Options or (ii) pursuant to outstanding Company Warrants;
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officer of the Company or change the benefits payable under any existing severance or termination pay policies with any Company Employee, director or executive officer of the Company;
Section 4.2 Company Covenants Regarding the Arrangement.
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such other commercially reasonable acts and things as may be necessary or desirable in order to consummate and make effective, as soon as reasonably practicable, the transactions contemplated by this Agreement and, without limiting the generality of the foregoing, the Company shall and, where appropriate, shall cause each of its Subsidiaries to:
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Section 4.3 Parent and Purchaser Covenants Regarding Conduct of Business and regarding the Arrangement.
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Section 4.4 Access to Information; Confidentiality
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in nature shall be subject to the terms of the Confidentiality Agreement; provided that to the extent any provision of the Confidentiality Agreement conflicts with the terms of this Agreement, the terms of this Agreement shall prevail. If this Agreement is terminated in accordance with its terms, the obligations under the Confidentiality Agreement shall survive the termination of this Agreement.
Section 4.5 Pre-Acquisition Reorganization
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Section 4.6 Notice and Cure Provisions
Section 4.7 Public Communications
The Parties shall cooperate in the preparation of presentations, if any, to the Company Securityholders and the Parent Shareholders regarding the Arrangement. A Party must not issue any press release or make any other public statement or disclosure with respect to this Agreement or the Arrangement without the consent of the other Parties (which consent shall not be unreasonably withheld or delayed), and neither Party may make any filing with any Governmental Entity with respect to this Agreement or the Arrangement without the consent of the other Party (which consent shall not be unreasonably withheld or delayed); provided that any Party that, in the opinion of its outside legal counsel, is required to make disclosure by Law may make such disclosure provided it shall use its best efforts to give the other Parties prior oral or written notice and a reasonable opportunity to review or comment on the disclosure or filing (other than with respect to confidential information contained in such disclosure or filing). The Party making such disclosure shall give reasonable consideration to any comments made by the other Parties or their counsel, and if such prior notice is not possible, shall give such notice immediately following the making of such disclosure or filing.
Prior to the Effective Date, the Company shall purchase customary "tail" policies of directors' and officers' liability insurance providing protection no less favorable in the aggregate than the protection
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provided by the policies maintained by the Company which are in effect immediately prior to the Effective Date and providing protection in respect of claims arising from facts or events which occurred on or prior to the Effective Date and the Parent and the Purchaser will, or will cause the Company to maintain such tail policies in effect without any reduction in scope or coverage for six (6) years from the Effective Date; provided that neither the Parent nor the Purchaser will be required to pay any amounts in respect of such coverage prior to the Effective Time and provided further that the cost of such policies shall not exceed 200% of the Company's current annual aggregate premium for policies currently maintained by the Company.
Section 4.9 Company Options and Company Warrants
ARTICLE 5
ADDITIONAL COVENANTS REGARDING NON-SOLICITATION
Section 5.1 Company Non-Solicitation
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Acquisition Proposal for the Company for a period of no more than five Business Days following such public announcement or public disclosure will not be considered to be in violation of this Section 5.1(1) provided the Company Board has rejected such Acquisition Proposal and reaffirmed the Company Board Recommendation before the end of such five Business Day period (or in the event that the Company Meeting is scheduled to occur within such five Business Day period, prior to the third Business Day prior to the date of the Company Meeting)); or
Section 5.2 Notification of Acquisition Proposals
If the Company or any of its Subsidiaries or any of the Company Representatives, receives or otherwise becomes aware of any inquiry, proposal or offer that constitutes or may reasonably be expected to constitute or lead to an Acquisition Proposal for the Company, or any request for copies of, access to, or disclosure of, confidential information relating to the Company or any Subsidiary in
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connection with an Acquisition Proposal for the Company, including but not limited to information, access, or disclosure relating to the properties, facilities, books or records of the Company or any Subsidiary, the Company shall promptly notify the Parent and the Purchaser, at first orally, and then as soon as practicable and in any event within 24 hours in writing, of such Acquisition Proposal for the Company, inquiry, proposal, offer or request, including a description of its material terms and conditions, the identity of all Persons making the Acquisition Proposal for the Company, inquiry, proposal, offer or request, and shall provide the Parent and the Purchaser with copies of all written documents, material or substantive correspondence or other material received in respect of, from or on behalf of any such Persons. The Company shall keep the Parent and the Purchaser fully informed on a current basis of the status of developments and (to the extent permitted by Section 5.3) negotiations with respect to such Acquisition Proposal for the Company, inquiry, proposal, offer or request, including any changes, modifications or other amendments to any such Acquisition Proposal for the Company, inquiry, proposal, offer or request and shall provide to the Purchaser copies of all material or substantive correspondence if in writing or electronic form, and if not in writing or electronic form, a description of the material terms of such correspondence communicated to the Company by or on behalf of any Person making any such Acquisition Proposal for the Company, inquiry, proposal, offer or request.
Section 5.3 Responding to an Acquisition Proposal for the Company
Notwithstanding Section 5.1, if at any time prior to obtaining the Required Approval of the Arrangement Resolution, the Company receives a written Acquisition Proposal for the Company, the Company may (i) contact the Person making such Acquisition Proposal for the Company and its representatives solely for the purpose of clarifying the terms and conditions of such Acquisition Proposal for the Company, and (ii) engage in or participate in discussions or negotiations with such Person regarding such Acquisition Proposal for the Company, and may, for a maximum of 10 calendar days after the day on which access or disclosure is first afforded to the Person making the Acquisition Proposal for the Company, provide copies of, access to or disclosure of information, properties, facilities, books or records of the Company or its Subsidiaries, if and only if, in the case of this clause (ii):
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Section 5.4 Purchaser Right to Match
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Section 5.5 Breach by Representatives
Without limiting the generality of the foregoing, the Company shall advise the Company Representatives of the prohibitions set out in this Article 5 and any violation of the restrictions set forth in this Article 5 by the Company or the Company Representatives is deemed to be a breach of this Article 5 by the Company.
Section 6.1 Mutual Conditions Precedent
The Parties are not required to complete the Arrangement unless each of the following conditions is satisfied on or prior to the Effective Time, which conditions may only be waived, in whole or in part, by the mutual consent of each of the Parties:
Section 6.2 Additional Conditions Precedent to the Obligations of the Parent and the Purchaser
The Purchaser is not required to complete the Arrangement unless each of the following conditions is satisfied on or before the Effective Time, which conditions are for the exclusive benefit of the Purchaser and may only be waived, in whole or in part, by the Purchaser in its sole discretion:
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Section 6.3 Additional Conditions Precedent to the Obligations of the Company
The Company is not required to complete the Arrangement unless each of the following conditions is satisfied on or before the Effective Time, which conditions are for the exclusive benefit of the Company and may only be waived, in whole or in part, by the Company in its sole discretion:
Section 6.4 Satisfaction of Conditions
The conditions precedent set out in Section 6.1, Section 6.2 and Section 6.3 will be conclusively deemed to have been satisfied, waived or released at the Effective Time.
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ARTICLE 7
TERM AND TERMINATION
This Agreement shall be effective from the date hereof until the earlier of the Effective Time and the termination of this Agreement in accordance with its terms.
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Recommendation, or publicly proposes or states its intention to do so (a " Parent Change in Recommendation ");
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Section 7.3 Effect of Termination/Survival
If this Agreement is terminated pursuant to Section 7.1 or Section 7.2, this Agreement shall become void and of no further force or effect without liability of any Party (or any shareholder, director, officer, employee, agent, consultant or representative of such Party) to any other Party to this Agreement, except that: (a) in the event of termination under Section 7.1 as a result of the Effective Time occurring, Section 4.8 shall survive for a period of six (6) years following such termination; and (b) in the event of termination under Section 7.2, this Section 7.3, Section 8.2 through to and including Section 8.16, all related definitions set forth in Section 1.1 and the provisions of the Confidentiality Agreement, shall survive any such termination of this Agreement, and provided further that no Party shall be relieved of any liability for any wilful breach by it of this Agreement.
This Agreement and the Plan of Arrangement may, at any time and from time to time before or after the holding of the Company Meeting but not later than the Effective Time, be amended by mutual written agreement of the Parties, without further notice to or authorization on the part of the Company Securityholders, and any such amendment may, subject to the Interim Order and Final Order and Laws, without limitation:
Section 8.2 Expense Reimbursement
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Parent and the Purchaser or any of its Affiliates) shall have publicly announced an intention to make an Acquisition Proposal for the Company; and
For purposes of the foregoing, the term "Acquisition Proposal" shall have the meaning specified in Section 1.1, except that references to "20% or more" in the definition of "Acquisition Proposal" in Section 1.1 shall be deemed to be references to "50% or more".
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Except as expressly otherwise provided in this Agreement, all out-of-pocket third party transaction expenses incurred in connection with this Agreement and the Plan of Arrangement, including all costs, expenses and fees incurred prior to or after the Effective Date in connection with, or incidental to, the Plan of Arrangement, shall be paid by the Party incurring such expenses, whether or not the Arrangement is consummated.
Any notice, or other communication given regarding the matters contemplated by this Agreement must be in writing, sent by personal delivery, courier or facsimile (but not by electronic mail) and addressed:
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Westwater Resources, Inc. 300-6950 South Potomac Street Centennial, Colorado, USA 80112 |
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Attention: |
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Christopher M. Jones |
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with copies to: |
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Stikeman Elliott LLP 5300 Commerce Court West 199 Bay Street Toronto, ON M5L 1B9 |
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Attention: |
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Amanda Linett |
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Hogan Lovells US LLP 1601 Wewatta, Suite 900 Denver, CO 80202 |
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Attention: |
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Paul Hilton |
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to the Company at: |
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Alabama Graphite Corp. First Canadian Place Toronto, Ontario, Canada M5X 1C7 |
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Attention: |
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Tyler W.P. Dinwoodie |
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with a copy to: |
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Miller Thomson LLP 40 King Street West Toronto, Ontario, Canada M5H 3S1 |
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Attention: |
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Geoff Clarke |
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Any notice or other communication is deemed to be given and received (i) if sent by personal delivery or same day courier, on the date of delivery if it is a Business Day and the delivery was made prior to 4:00 p.m. (local time in place of receipt) and otherwise on the next Business Day, (ii) if sent by overnight courier, on the next Business Day, or (iii) if sent by facsimile, on the Business Day following the date of confirmation of transmission by the originating facsimile. A Party may change its address for service from time to time by providing a notice in accordance with the foregoing. Any subsequent notice or other communication must be sent to the Party at its changed address. Any element of a Party's address that is not specifically changed in a notice will be assumed not to be changed. Sending a copy of a notice or other communication to a Party's legal counsel as contemplated above is for information purposes only and does not constitute delivery of the notice or other communication to that Party. The failure to send a copy of a notice or other communication to legal counsel does not invalidate delivery of that notice or other communication to a Party.
Section 8.5 Time of the Essence.
Time is of the essence in this Agreement.
Section 8.6 Injunctive Relief.
The Parties agree that irreparable harm would occur for which money damages would not be an adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the Parties shall be entitled to injunctive and other equitable relief to prevent breaches or threatened breaches of this Agreement, and to enforce compliance with the terms of this Agreement without any requirement for the securing or posting of any bond in connection with the obtaining of any such injunctive or other equitable relief, this being in addition to any other remedy to which the Parties may be entitled at law or in equity.
Section 8.7 No Third Party Beneficiaries.
The Parties intend that this Agreement will not benefit or create any right or cause of action in favour of, any Person, other than the Parties. No Person, other than the Parties to this Agreement, is entitled to rely on the provisions of this Agreement in any action, suit, proceeding, hearing or other forum.
No waiver of any of the provisions of this Agreement will constitute a waiver of any other provision (whether or not similar). No waiver will be binding unless executed in writing by the Party to be bound by the waiver. A Party's failure or delay in exercising any right under this Agreement will not operate as a waiver of that right. A single or partial exercise of any right will not preclude a Party from any other or further exercise of that right or the exercise of any other right.
This Agreement, together with the Confidentiality Agreement, constitutes the entire agreement between the Parties with respect to the transactions contemplated by this Agreement and supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the Parties; provided that to the extent any provisions of the Confidentiality Agreement conflict with the terms of this Agreement, the terms of this Agreement shall prevail. There are no representations, warranties, covenants, conditions or other agreements, express or implied, collateral, statutory or otherwise, between the Parties in connection with the subject matter of this Agreement, except as specifically set forth in this Agreement. The Parties have not relied and are not relying on any other information, discussion or understanding in entering into and completing the transactions contemplated by this Agreement.
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Section 8.10 Successors and Assigns.
If any provision of this Agreement is determined to be illegal, invalid or unenforceable by any court of competent jurisdiction, that provision will be severed from this Agreement and the remaining provisions shall remain in full force and effect. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the fullest extent possible.
Section 8.13 Rules of Construction.
The Parties to this Agreement waive the application of any Law or rule of construction providing that ambiguities in any agreement or other document shall be construed against the party drafting such agreement or other document.
No director or officer of the Parent or the Purchaser shall have any personal liability whatsoever to the Company under this Agreement or any other document delivered in connection with the transactions contemplated hereby on behalf of the Parent or the Purchaser. No director or officer of the Company or any of its Subsidiaries shall have any personal liability whatsoever to the Parent or the Purchaser under this Agreement or any other document delivered in connection with the transactions contemplated hereby on behalf of the Company or any of its Subsidiaries.
The Parties expressly acknowledge that they have requested that this Agreement and all ancillary and related documents thereto be drafted in the English language only. Les parties aux présentes reconnaissent avoir exigé que la présente entente et tous les documents qui y sont accessoires soient rédigés en anglais seulement.
This Agreement may be executed in any number of counterparts (including counterparts by facsimile) and all such counterparts taken together shall be deemed to constitute one and the same instrument. The Parties shall be entitled to rely upon delivery of an executed facsimile or similar executed electronic copy of this Agreement, and such facsimile or similar executed electronic copy shall be legally effective to create a valid and binding agreement between the Parties.
[ Remainder of page intentionally left blank. Signature page follows. ]
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IN WITNESS WHEREOF the Parties have executed this Arrangement Agreement.
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WESTWATER RESOURCES, INC. | |||
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By: |
/s/ CHRISTOPHER M. JONES
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1143738 B.C. LTD. |
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By: |
/s/ CHRISTOPHER M. JONES
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ALABAMA GRAPHITE CORP. |
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By: |
/s/ GARETH P. HATCH
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[ Signature Page to Arrangement Agreement ]
SCHEDULE A
PLAN OF ARRANGEMENT
UNDER SECTION 288
OF
THE BUSINESS CORPORATIONS ACT
(BRITISH COLUMBIA)
1.1 Definitions.
Unless indicated otherwise, where used in this Plan of Arrangement, capitalized terms used but not defined shall have the meanings ascribed thereto in the Arrangement Agreement and the following terms shall have the following meanings (and grammatical variations of such terms shall have corresponding meanings):
" Affiliate " has the meaning specified in National Instrument 45-106 Prospectus and Registration Exemptions .
" Arrangement " means the arrangement under Section 288 of the BCBCA on the terms and subject to the conditions set out in this Plan of Arrangement, subject to any amendments or variations made in accordance with the terms of the Arrangement Agreement or Section 5.1 of this Plan of Arrangement or made at the direction of the Court in the Final Order with the prior written consent of the Company, Parent and Purchaser, each acting reasonably.
" Arrangement Agreement " means the arrangement agreement dated as of December 13, 2017 between Parent, Purchaser and the Company, including all schedules annexed thereto, as it may be amended, modified or supplemented from time to time in accordance with its terms.
" Arrangement Resolution " means the special resolution of the Company Securityholders approving this Plan of Arrangement, which is to be considered at the Company Meeting.
" BCBCA " means the Business Corporations Act (British Columbia).
" Business Day " means any day of the year, other than a Saturday, Sunday or any day on which major banks are closed for business in Vancouver, British Columbia.
" Common Shares " means the common shares in the capital of the Company.
" Company " means Alabama Graphite Corp.
" Company Circular " means the notice of the Company Meeting and accompanying management information circular, including all schedules, appendices and exhibits to, and information incorporated by reference in, such management information circular, to be sent to the Company Securityholders in connection with the Company Meeting, as amended, supplemented or otherwise modified from time to time in accordance with the terms of the Arrangement Agreement.
" Company Meeting " means the special meeting of Company Securityholders, including any adjournment or postponement of such special meeting in accordance with the terms of the Arrangement Agreement, to be called and held in accordance with the Interim Order to consider the Arrangement Resolution.
" Company Options " means the outstanding options to purchase Common Shares issued pursuant to the Company Stock Option Plan.
" Company Optionholders " means the holders of Company Options.
" Company Securityholders " means, collectively, the Company Shareholders, the Company Optionholders and the Company Warrantholders.
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" Company Shareholders " means the registered or beneficial holders of the Common Shares, as the context requires, and " Company Shareholder " means any one of them.
" Company Stock Option Plan " means the stock option plan of the Company dated December 16, 2011, as amended.
" Company Warrant Agreements " means, collectively, the warrant agreements to purchase Company Warrants dated as of June 30, 2015, May 19, 2016, September 6, 2016, September 21, 2016, May 5, 2017 and May 10, 2017, respectively.
" Company Warrants " means the outstanding common share purchase warrants of the Company to purchase Common Shares pursuant to the Company Warrant Agreements.
" Company Warrantholders " means the holders of Company Warrants.
" Consideration " means 0.08 of a Parent Share for each Common Share.
" Court " means the Supreme Court of British Columbia.
" Depositary " means Computershare Investor Services Inc.
" Dissent Rights " has the meaning ascribed thereto in Section 3.1.
" Dissenting Holder " means a registered Company Shareholder who has validly exercised its Dissent Rights and has not withdrawn or been deemed to have withdrawn such exercise of Dissent Rights, but only in respect of the Common Shares in respect of which Dissent Rights are validly exercised by such registered Company Shareholder.
" Dissenting Shares " has the meaning ascribed thereto in Section 3.1.
" Effective Date " means the date upon which the Plan of Arrangement becomes effective in accordance with the BCBCA.
" Effective Time " means 12:01 a.m. (Vancouver time) on the Effective Date, or such other time as the Parties agree to in writing before the Effective Date.
" Final Order " means the final order of the Court pursuant to Section 291 of the BCBCA in a form acceptable to the Company, Parent and Purchaser, each acting reasonably, approving the Arrangement, as such order may be amended by the Court (with the consent of the Company, Parent and Purchaser, each acting reasonably) at any time prior to the Effective Date or, if appealed, then, unless such appeal is withdrawn or denied, as affirmed or as amended (provided that any such amendment is acceptable to the Company, Parent and Purchaser, each acting reasonably) on appeal.
" Governmental Entity " means (i) any international, multinational, national, federal, provincial, state, regional, municipal, local or other government, governmental or public department, central bank, court, tribunal, arbitral body, commission, board, bureau, commissioner, minister, cabinet, governor in council, ministry, agency or instrumentality, domestic or foreign, (ii) any subdivision or authority of any of the above, (iii) any quasi-governmental or private body exercising any regulatory, expropriation or taxing authority under or for the account of any of the foregoing or (iv) any stock exchange.
" Interim Order " means the interim order of the Court in a form acceptable to the Company, Parent and Purchaser, each acting reasonably, providing for, among other things, the calling and holding of the Company Meeting, as such order may be amended by the Court with the consent of the Company, Parent and Purchaser, each acting reasonably.
" In-The-Money Amount " in respect of a Company Option or Replacement Option, as applicable, means the amount, if any, by which the total fair market value of the Company Shares or Parent Shares, as applicable, that a holder is entitled to acquire on exercise of the Company Option or
SCH-A-2
Replacement Option, as applicable, immediately before the Effective Time exceeds the aggregate exercise price to acquire such Company Shares or Parent Shares, as applicable, at that time.
" Law " means, with respect to any Person, any and all applicable law (statutory, civil, common or otherwise), constitution, treaty, convention, ordinance, code, rule, regulation, order, injunction, judgment, decree, ruling or other similar requirement, whether domestic or foreign, enacted, adopted, promulgated or applied by a Governmental Entity that is binding upon or applicable to such Person or its business, undertaking, property or securities, and to the extent that they have (or are applied as if they have) the force of law, policies, guidelines, notices and protocols of any Governmental Entity, as amended.
" Lien" means any mortgage, charge, pledge, hypothec, security interest, prior claim, encroachment, option, right of first refusal or first offer, occupancy right, covenant, assignment, lien (statutory or otherwise), defect of title, or restriction or adverse right or claim, or other third party interest or encumbrance of any kind, in each case, whether contingent or absolute.
" Letter of Transmittal " means the letter of transmittal sent to holders of Common Shares for use in connection with the Arrangement.
" Parent " means Westwater Resources, Inc.
" Parent Shares " means the common shares in the capital of Parent.
"Parties" means the Company, Parent and Purchaser and " Party " means any one of them.
" Person " includes any individual, partnership, association, body corporate, organization, trust, estate, trustee, executor, administrator, legal representative, government (including Governmental Entity), syndicate or other entity, whether or not having legal status.
" Plan of Arrangement " means this plan of arrangement proposed under Section 288 of the BCBCA, and any amendments or variations made in accordance with the Arrangement Agreement or Section 5.1 of this Plan of Arrangement or made at the direction of the Court in the Final Order with the consent of the Company, Parent and Purchaser, each acting reasonably.
" Purchaser " means 1143738 B.C. Ltd., an indirect or direct subsidiary of the Purchaser.
" Replacement Option " has the meaning set out in Section 2.3(c) of this Plan of Arrangement.
" Tax Act " means the Income Tax Act (Canada).
1.2 Certain Rules of Interpretation.
In this Plan of Arrangement, unless otherwise specified:
SCH-A-3
followed by a number or letter mean and refer to the specified Article or Section of or Schedule to this Plan of Arrangement.
2.1 Arrangement Agreement.
This Plan of Arrangement is made pursuant to the Arrangement Agreement.
2.2 Binding Effect.
This Plan of Arrangement and the Arrangement, upon the filing of the Articles of Arrangement and the issuance of the Certificate of Arrangement, will become effective, and be binding on Parent, Purchaser, the Company, all holders and beneficial owners of Common Shares (including Dissenting Holders), Company Optionholders, Company Warrantholders, the registrar and transfer agent of the Company, the Depositary and all other Persons, at and after the Effective Time without any further act or formality required on the part of any Person.
2.3 Arrangement.
At the Effective Time each of the following events shall occur and shall be deemed to occur sequentially as set out below without any further authorization, act or formality, in each case, unless stated otherwise, effective as at five minute intervals starting at the Effective Time:
SCH-A-4
SCH-A-5
2.4 No Fractional Shares
In no event shall any holder of Common Shares be entitled to a fractional Parent Share. Where the aggregate number of Parent Shares to be issued to a person as consideration under or as a result of this Arrangement would result in a fraction of a Parent Share being issuable, the number of Parent Shares to be received by such Company Securityholder shall be rounded down to the nearest whole Parent Share and no person will be entitled to any compensation in respect of a fractional Parent Share.
3.1 Rights of Dissent.
Pursuant to the Interim Order, registered holders of Common Shares may exercise dissent rights (" Dissent Rights ") under Division 2 of Part 8 of the BCBCA, as modified by this Article 3, the Interim Order and the Final Order, with respect to their Common Shares in connection with the Arrangement, provided however that written objection to the Arrangement Resolution contemplated by subsection 242(1)(a) of the BCBCA must be received by the Company not later than 5:00 p.m. (Vancouver time) on the Business Day that is two Business Days immediately preceding the date of the Company Meeting (as it may be adjourned or postponed from time to time). Registered holders of Common Shares who duly exercise their Dissent Rights with respect to their Common Shares (" Dissenting Shares ") shall be deemed to have transferred the Common Shares held by them and in respect of which Dissent Rights have been validly exercised to Purchaser free and clear of all Liens, as provided in Section 2.3(a), and if they:
but in no case will the Company be required to recognize such persons as holding Common Shares on or after the Effective Date.
3.2 Recognition of Dissenting Holders.
SCH-A-6
4.1 Depositary and Procedures.
SCH-A-7
the instructions of the Company Shareholder in the Letter of Transmittal, as soon as reasonably practicable after receipt by the Depositary of the required certificates and documents.
4.2 Lost Certificates.
In the event any certificate, which immediately before the Effective Time represented one or more outstanding Common Shares that was exchanged pursuant to Section 2.3, is lost, stolen or destroyed, upon the making of an affidavit of that fact by the Person claiming such certificate to be lost, stolen or destroyed, the Depositary will issue and/or pay in exchange for such lost, stolen or destroyed certificate, the consideration to which such Person is entitled in respect of the Common Shares represented by such lost, stolen, or destroyed certificate pursuant to Section 2.3 deliverable in accordance with such Person's Letter of Transmittal. When authorizing such issuances in exchange for any lost, stolen or destroyed certificate, the Person to whom consideration is to be issued will, as a condition precedent to the issuance thereof, give a bond satisfactory to Parent, Purchaser and the Depositary (acting reasonably) in such sum as Parent may direct or otherwise indemnify Parent, Purchaser and the Company in a manner satisfactory to Parent, Purchaser and the Company, acting reasonably, against any claim that may be made against Parent, Purchaser and/or the Company with respect to the certificate alleged to have been lost, stolen or destroyed.
4.3 No Liens.
Any exchange or transfer of securities pursuant to this Plan of Arrangement shall be free and clear of any Liens or other claims of third parties of any kind.
4.4 Withholding Rights.
Parent, Purchaser, the Company and the Depositary, as applicable, shall be entitled to deduct and withhold from any consideration otherwise payable or otherwise deliverable to any Company Securityholders under the Plan of Arrangement (including, without limitation, any amounts payable pursuant to Article 3) such amounts as Purchaser, Parent, the Company or the Depositary, as applicable, determines, acting reasonably, are required or permitted to be deducted and withheld from such consideration under the Tax Act, the United States Internal Revenue Code of 1986 or any provision of any other Law. To the extent that consideration is so withheld, such consideration shall be treated for all purposes hereof as having been paid to the Company Securityholders in respect of which such deduction, withholding and/or remittance was made; provided that such consideration is actually remitted to the appropriate Governmental Entity.
4.5 Paramountcy.
From and after the Effective Time: (a) this Plan of Arrangement shall take precedence and priority over any and all Common Shares, Company Options and Company Warrants issued or
SCH-A-8
outstanding prior to the Effective Time, (b) the rights and obligations of the Company Securityholders, the Company, Parent, Purchaser, the Depositary and any transfer agent or other depositary therefor in relation thereto, shall be solely as provided for in this Plan of Arrangement, and (c) all actions, causes of action, claims or proceedings (actual or contingent and whether or not previously asserted) based on or in any way relating to any Common Shares, Company Options or Company Warrants shall be deemed to have been settled, compromised, released and determined without liability except as set forth in this Plan of Arrangement.
5.1 Amendments to Plan of Arrangement.
6.1 Further Assurances.
Notwithstanding that the transactions and events set out in this Plan of Arrangement shall occur and shall be deemed to occur in the order set out in this Plan of Arrangement without any further act or formality, each of the parties to the Arrangement Agreement shall make, do and execute, or cause to be made, done and executed, all such further acts, deeds, agreements, transfers, assurances, instruments or documents as may reasonably be required by either of them in order to further document or evidence any of the transactions or events set out in this Plan of Arrangement.
SCH-A-9
SCHEDULE B
ARRANGEMENT RESOLUTION
BE IT RESOLVED THAT:
SCH-B-1
SCHEDULE B-1
PARENT SHAREHOLDER APPROVAL RESOLUTION
BE IT RESOLVED THAT:
SCH-B-1-1
SCHEDULE C
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SCH-C-1
in control provision or other restriction or limitation) under any Contract, lease or other instrument, indenture, deed of trust, mortgage, bond or any Authorization to which the Company or any of its Subsidiaries is a party or by which the Company or any of its Subsidiaries is bound; or
with such exceptions, in the case of clauses (b) through (d), as would not be reasonably expected to have, individually or in the aggregate, a Material Adverse Effect with respect to the Company.
SCH-C-2
indirectly, issue or sell any securities of the Company or of any of its Subsidiaries, or give any Person a right to subscribe for or acquire, any securities of the Company or of any of its Subsidiaries.
SCH-C-3
the rules and regulations of the TSX-V. The Company has not taken any action to cease to be a reporting issuer in the provinces of British Columbia, Alberta or Ontario, nor has the Company received notification from any Securities Authority seeking to revoke the reporting issuer status of the Company. No delisting, suspension of trading or cease trade or other order or restriction with respect to any securities of the Company is pending, in effect, has been threatened, or is expected to be implemented or undertaken, and the Company is not subject to any formal or informal review, enquiry, investigation or other proceeding relating to any such order or restriction. The Company has timely filed or furnished with any Governmental Entity all material forms, reports, schedules, statements and other documents required to be filed or furnished by the Company with the appropriate Governmental Entity since August 31, 2015. The documents comprising the Company Filings complied as filed in all material respects with Law and did not, as of the date filed (or, if amended or superseded by a subsequent filing prior to the date of this Agreement, on the date of such filing), contain any Misrepresentation. The Company has not filed any confidential material change report (which at the date of this Agreement remains confidential) or any other confidential filings (including redacted filings) filed to or furnished with, as applicable, any Securities Authority. There are no outstanding or unresolved comments in comment letters from any Securities Authority with respect to any of the Company Filings and neither the Company nor any of the Company Filings is subject of an ongoing audit, review, comment or investigation by any Securities Authority or the TSX-V.
SCH-C-4
other relationship of the Company or of any of its Subsidiaries with unconsolidated entities or other Persons.
SCH-C-5
whatsoever, whether accrued, contingent, absolute, determined, determinable or otherwise, other than liabilities or obligations: (i) disclosed in the Company's financial statements or in the notes thereto; (ii) incurred directly pursuant to this Agreement, or (iii) as disclosed in Section 3.1(14) of the Company Disclosure Letter. An itemized list setting forth the principal amount of all indebtedness for borrowed money of the Company and its Subsidiaries (and all accrued interest thereon) as of the date hereof, including capital leases, is disclosed in Section 3.1(14) of the Company Disclosure Letter.
SCH-C-6
foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions or currency options or any other similar transactions (including any option with respect to any of such transactions) or any combination of such transactions.
SCH-C-7
other payments that may be incurred pursuant to such engagement or that may otherwise be payable to Echelon Wealth Partners Inc..
SCH-C-8
SCH-C-9
Section 29 of the Company Disclosure Letter. All real and tangible personal property of the Company and its Subsidiaries is in generally good repair and is operational and usable in the manner in which it is currently being utilized, subject to normal wear and tear and technical obsolescence, repair or replacement. The Company has provided the Purchaser with a true and complete list of the royalty and similar type interests which are owned or held, directly or indirectly, by the Company or its Subsidiaries and the Company has, applying customary standards in the mining industry, sufficient title to all of such royalty or other interests, free and clear of any title defects or encumbrances. All required permits or registrations necessary to perfect title in and to such assets have been carried out in compliance with Law and are in full force and effect.
SCH-C-10
production or profits therefrom or any royalty in respect thereof or any right to acquire any such interest.
SCH-C-11
the " Technology ") are sufficient, in all material respects, for conducting the business, as presently conducted, of the Company and its Subsidiaries; and (vi) the Company and its Subsidiaries own or have validly licensed or leased (and are not in material breach of such licenses or leases) such Technology.
SCH-C-12
(iii) the operations of the Company and each of its Subsidiaries are, and since September 1, 2014 have been, in compliance in all respects with Environmental Laws.
SCH-C-13
deferred compensation, share purchase, share compensation, phantom stock, severance, termination, retirement, savings, pension, and similar plans, policies, trusts, funds, policies, arrangements, Contracts or other agreements for the benefit of directors or former directors of the Company, Company Employees or former Company Employees, which are maintained, sponsored or funded by the Company, whether written or oral, funded or unfunded, insured or self-insured, registered or unregistered in respect of which the Company may have any liability contingent or otherwise, other than benefit plans established pursuant to statute (collectively, the " Employee Plans "). The Company has furnished to the Purchaser true, correct and complete copies of all the Employee Plans as amended as of the date hereof, together with all related documentation. No changes have occurred or are expected to occur which would materially affect the information required to be provided to the Purchaser pursuant to this provision.
SCH-C-14
SCH-C-15
SCH-C-16
SCHEDULE D
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE PURCHASER
SCH-D-1
SCH-D-2
SCH-D-3
Paragraph (10). There are no, nor are there any commitments to become a party to, any off-balance sheet transaction, arrangement, obligation (including contingent obligations) or other relationship of the Parent or of any of its Subsidiaries with unconsolidated entities or other Persons.
SCH-D-4
borrowed money of the Parent and its Subsidiaries as of the date hereof, including capital leases, is disclosed in Section 3.2(12) of the Parent Disclosure Letter.
SCH-D-5
SCH-D-6
SCH-D-7
SCHEDULE E
TERMINATED OPTIONS AND WARRANTS
Person Surrendering
|
Grant Date |
Number of
Options |
Exercise
Price |
Expiry Date | ||||||
---|---|---|---|---|---|---|---|---|---|---|
Jean Depatie |
3-Sep-13 | 25,000 | $ | 0.35 | 3-Sep-18 | |||||
Jean Depatie |
3-Feb-14 | 100,000 | $ | 0.145 | 3-Feb-19 | |||||
Jean Depatie |
12-Jun-15 | 590,000 | $ | 0.27 | 12-Jun-20 | |||||
Jean Depatie |
19-May-16 | 100,000 | $ | 0.155 | 19-May-18 | |||||
Jean Depatie |
2-Sep-16 | 300,000 | $ | 0.16 | 2-Sep-19 | |||||
Jean Depatie |
10-May-17 | 250,000 | $ | 0.15 | 10-May-21 | |||||
Gareth P. Hatch |
8-Aug-16 | 400,000 | $ | 0.15 | 8-Aug-18 | |||||
Gareth P. Hatch |
2-Sep-16 | 300,000 | $ | 0.16 | 2-Sep-19 | |||||
Gareth P. Hatch |
10-May-17 | 250,000 | $ | 0.15 | 10-May-21 | |||||
Daniel P. Goffaux |
18-Jul-14 | 400,000 | $ | 0.18 | 18-Jul-19 | |||||
Daniel P. Goffaux |
12-Jun-15 | 50,000 | $ | 0.27 | 12-Jun-20 | |||||
Daniel P. Goffaux |
19-May-16 | 100,000 | $ | 0.155 | 19-May-18 | |||||
Daniel P. Goffaux |
2-Sep-16 | 300,000 | $ | 0.16 | 2-Sep-19 | |||||
Daniel P. Goffaux |
10-May-17 | 250,000 | $ | 0.15 | 10-May-21 | |||||
1163863 Ontario Ltd. (Donald K. D. Baxter) |
17-Jun-15 | 500,000 | $ | 0.27 | 17-Jun-20 | |||||
1163863 Ontario Ltd. (Donald K. D. Baxter) |
19-May-16 | 500,000 | $ | 0.155 | 19-May-18 | |||||
1163863 Ontario Ltd. (Donald K. D. Baxter) |
2-Sep-16 | 750,000 | $ | 0.16 | 2-Sep-19 | |||||
Dinwoodie Consulting Ltd. (Tyler W. P. Dinwoodie) |
19-May-16 | 500,000 | $ | 0.155 | 19-May-18 | |||||
Dinwoodie Consulting Ltd. (Tyler W. P. Dinwoodie) |
2-Sep-16 | 500,000 | $ | 0.16 | 2-Sep-19 | |||||
Jesse R. Edmondson |
3-Sep-13 | 75,000 | $ | 0.35 | 3-Sep-18 | |||||
Jesse R. Edmondson |
20-Jan-14 | 21,000 | $ | .105 | 30-Jan-19 | |||||
Jesse R. Edmondson |
3-Feb-14 | 105,000 | $ | 0.145 | 3-Feb-19 | |||||
Jesse R. Edmondson |
12-Jun-15 | 275,000 | $ | 0.27 | 12-Jun-20 | |||||
Jesse R. Edmondson |
19-May-16 | 100,000 | $ | 0.155 | 19-May-18 | |||||
Jesse R. Edmondson |
2-Sep-16 | 350,000 | $ | 0.16 | 2-Sep-19 | |||||
Douglas C. Bolton |
19-May-16 | 200,000 | $ | 0.155 | 19-May-18 | |||||
Douglas C. Bolton |
2-Sep-16 | 250,000 | $ | 0.16 | 2-Sep-19 | |||||
G&W Consulting Inc. (Ann-Marie M. Pamplin) |
19-May-16 | 500,000 | $ | 0.155 | 19-May-18 | |||||
G&W Consulting Inc. (Ann-Marie M. Pamplin) |
2-Sep-16 | 200,000 | $ | 0.16 | 2-Sep-19 | |||||
Venture Liquidity Providers Inc. |
02-Sep-16 | 500,000 | $ | 0.16 | 02-Sep-19 |
SCH-E-1
Person Surrendering
|
Warrant
Certificate No. |
Date of Issuance | No. of Warrants |
Exercise
Price |
Expiry Date | |||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
1163863 Ontario Ltd. (Donald K. D. Baxter) |
E070 | June 30, 2015 | 50,000 | $ | 0.20 | June 30, 2018 | ||||||
1163863 Ontario Ltd. (Donald K. D. Baxter) |
2016-05-05 | May 19, 2016 | 670,000 | $ | 0.20 | May 19, 2018 | ||||||
1163863 Ontario Ltd. (Donald K. D. Baxter) |
2016-09-08 | Sept. 21, 2016 | 2,030,000 | $ | 0.20 | Sept. 21, 2018 | ||||||
1163863 Ontario Ltd. (Donald K. D. Baxter) |
2017-05-01 | May 5, 2017 | 1,333,333 | $ | 0.20 | May 5, 2020 | ||||||
Dinwoodie Consulting Ltd. (Tyler W. P. Dinwoodie) |
2016-09-35 | Sept. 21, 2016 | 100,000 | $ | 0.20 | Sept. 21, 2018 | ||||||
Dinwoodie Consulting Ltd. (Tyler W. P. Dinwoodie) |
2017-10-2 | May 10, 2017 | 500,000 | $ | 0.20 | May 10, 2017 | ||||||
G&W Consulting Inc. (Ann-Marie M. Pamplin) |
2016-19-06 | Sept. 6, 2016 | 33,334 | $ | 0.20 | Sept. 6, 2018 | ||||||
Daniel P. Goffaux |
2016-09-26 | Sept. 21, 2016 | 66,670 | $ | 0.20 | Sept. 21, 2018 | ||||||
Douglas C. Bolton |
2016-09-09 | Sept. 21, 2016 | 100,000 | $ | 0.20 | Sept. 21, 2018 |
SCH-E-2
LOAN AGREEMENT
Among
ALABAMA GRAPHITE CORP.
and
ALABAMA GRAPHITE COMPANY, INC.
collectively, as
the Borrower
and
WESTWATER RESOURCES, INC.
as the Lender
Dated as of December 13, 2017
B-i
B-ii
|
|
|
---|---|---|
Schedule 1.1(a) | Borrower's Account | |
Schedule 1.1(b) | Lender's Account | |
Schedule 1.1(d) | Material Agreements | |
Schedule 1.1(e) | Properties | |
Schedule 1.1(f) | Budget | |
Schedule 2.1(a) | Initial Advance Amount | |
Schedule 5.1(a)(vii) | Jurisdictions for Good Standing | |
Schedule 6.1(b) | Subsidiaries | |
Schedule 6.1(c) | Authorizations and Consents | |
Schedule 6.1(d) | Governmental and Other Consents | |
Schedule 6.1(f) | Litigation | |
Schedule 6.1(g) | Financial Statements | |
Schedule 6.1(j) | Permitted Liens | |
Schedule 6.1(k) | Capital Structure | |
Schedule 6.1(n) | Environmental Disclosures | |
Schedule 6.1(o) | Indebtedness | |
Schedule 6.1(p) | Legal Compliance | |
Schedule 6.1(s) | Project Permits | |
Schedule 7.1 | Compliance with Laws | |
Schedule 7.16 | Post-Closing Completion of Actions | |
Schedule 9 | Conversion Provisions |
Exhibit A | Form of Omnibus Certificate | ||
Exhibit B | Form of Draw Request | ||
Exhibit C | Form of Security Agreement | ||
Exhibit D | Form of Equity Interest Pledge Agreement | ||
Exhibit E | Form of Project Mortgage | ||
Exhibit F | Form of Promissory Note |
B-iii
This LOAN AGREEMENT dated as of December 13, 2017 (the "Closing Date") is by and among ALABAMA GRAPHITE CORP., a corporation organized and existing under the laws of British Columbia ("AGC") and ALABAMA GRAPHITE COMPANY, INC., an Alabama corporation ("AGCI" and AGCI, together with AGC, collectively the "Borrower"), as the borrowers, and WESTWATER RESOURCES, INC., a corporation organized and existing under the laws of the State of Delaware, as the lender (together with its successors and assigns, the "Lender").
A. The Borrower desires to borrow, and the Lender is prepared to lend to the Borrower, Two Million United States Dollars (US$2,000,000) as a non-revolving line of credit, subject to the terms and conditions set forth herein. The Borrower shall use the proceeds of each advance of the Loan in accordance with the use of proceeds described herein.
B. This Agreement and all amounts due hereunder will be secured by all assets and property of the Borrower as further described herein and in the Security Documents.
C. The Loan shall be a convertible loan that may, at the option of the Lender, be converted into Tradable Shares, all on the terms and conditions set forth herein.
D. The Borrower and the Lender desire hereby to provide for the Loan and the collateral security therefor on the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the following mutual covenants and agreements, the parties hereby agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS AND ACCOUNTING PRINCIPLES
1.1 Certain Defined Terms. As used in this Agreement and unless otherwise expressly indicated, the following terms shall have the following meanings:
"Advance" or "Advances" shall mean any disbursement of the proceeds of the Loan to the Borrower by Lender pursuant to the terms of this Agreement.
"Affiliate" means, with respect to a Person, (i) any partner, director, ten percent (10%) or more shareholder, manager, member, managing agent, director, officer or employee of that Person or that Person's Affiliates; and (ii) any other Person (A) that directly or indirectly through one or more intermediaries, controls or is controlled by, or is under common control with, that Person; (B) that directly or indirectly owns or holds (legally or beneficially) ten percent (10%) or more of any class of voting stock or partnership, membership or other voting interest of that Person; or (C) ten percent (10%) or more of the voting stock or partnership, membership or other voting interest of which is directly or indirectly owned or held (legally or beneficially) by that Person.
"Agreed Priority" means, with respect to a Security Document, a first ranking, perfected Lien made in favor of the Lender, meaning that such Security Document and Lien are prior in right to any other Lien in, on or to the Collateral which is purported to be covered thereby, subject only, in each case, to Permitted Liens. For the avoidance of doubt, the Obligations shall be secured by a first ranking perfected encumbrance over all real property and personal property of the Borrower, including all property, rights, and interests at, on or associated with the Projects, subject, in each case, to Permitted Liens.
B-1
"Agreement" means this Loan Agreement, as it may be amended, restated, supplemented, extended or otherwise modified in accordance with its terms and in effect from time to time, together with all Schedules and Exhibits hereto, each of which is incorporated herein by reference.
"Agreement Currency" has the meaning specified in Section 1.4 .
"Applicable Interest Rate" means the Standard Interest Rate or the Default Rate, as applicable.
"Arrangement Agreement" means the arrangement agreement between AGC and the Lender dated the date hereof.
"Arrangement Resolution" means the special resolution of the Borrower shareholders approving the Plan of Arrangement, which is to be considered at the Shareholder Meeting.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the United States Code, as amended, modified, succeeded or replaced from time to time.
"Bankruptcy Law" shall mean the Bankruptcy Code, the Bankruptcy and Insolvency Act (Canada), the Companies' Creditors Arrangement Act (Canada), the Winding-UP and Restructuring Act (Canada) and all other Governmental Requirements pertaining or applicable to bankruptcy, insolvency, debtor relief, debtor protection, liquidation, reorganization, winding up, arrangement, receivership, administration, moratorium, assignment for the benefit of creditors or other similar laws applicable in the United States or other applicable jurisdictions as in effect from time to time, including any proceeding under applicable corporate law seeking a compromise or arrangement of, or stay of proceedings to enforce, some or all of the debts of a Person.
"Board of Directors" means, with respect to any Person, (a) in the case of any corporation, the board of directors of such Person, (b) in the case of any limited liability company, the board of managers, sole member, managing member, or other governing body of such Person, (c) in the case of any partnership, the Board of Directors of the general partner of such Person, and (d) in any other case, the functional equivalent of the foregoing.
"Borrower" has the meaning specified in the Preamble to this Agreement.
"Borrower Representative" means an officer of AGC authorized to act on behalf of AGC with respect to the Loan and the Loan Documents.
"Borrower's Account" means the account of the Borrower described in Schedule 1.1(a) .
"Budget" means the detailed budget for the exploration, development, management and operation of the Borrower using the proceeds of the Loan and other available funds, as well as to all other general, administrative and others costs and expenses of the Borrower, as such budget is updated, revised and amended from time to time in accordance with the terms hereof and as approved by the Lender in its sole discretion; the current Budget in effect as of the date hereof, which has been approved by the Lender, is attached hereto as Schedule 1.1(f) .
"Business Day" means a day, other than a Saturday or Sunday or statutory holiday, on which banks in Denver, Colorado or Toronto, Ontario are open for business.
"Change in Law" means the occurrence, after the date of this Agreement, of any of the following: (a) the adoption or taking effect of any law, rule, regulation or treaty or (b) any change in any law, rule, regulation or treaty or in the administration, interpretation or application thereof by any Governmental Authority.
"Change of Control" means the occurrence of any of the following events, without the prior written consent of the Lender: (a) any person or persons "acting jointly or in concert" as defined under applicable Securities Laws, other than the Lender and/or its Affiliates, becomes the registered or beneficial owner of more than ten percent (10%) of the then outstanding voting Equity Interests of the
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Borrower, measured by voting power rather than the number of shares; or (b) Continuing Directors shall cease for any reason to constitute a majority of the members of the Board of Directors of AGC then in office; (c) AGC shall cease to directly or indirectly own and control one hundred percent (100%) of the Equity Interests of AGCI; or (d) any Borrower shall cease to directly or indirectly own and control any other Equity Interests that any of them has pledged to the Lender pursuant to a Security Document (except as provided in any such Security Document).
"Closing Date" has the meaning set forth in the Preamble to this Agreement.
"Code" means the Internal Revenue Code of 1986, as amended.
"Collateral" means all real and personal property, assets, rights, titles and interests of the Borrower, all of which is subject to the Security Documents, whether tangible or intangible, presently held or hereafter acquired, and all products and proceeds of the foregoing, including insurance proceeds related to the foregoing.
"Confidential Information" has the meaning specified in Section 7.14 .
"Contingent Liability" means, for any Person, without duplication, all contingent liabilities of such Person determined in accordance with IFRS.
"Continuing Directors" means during any period commencing after the Closing Date, individuals who as of the Closing Date were directors of such Person (together with any new director whose election or appointment by such Person's Board of Directors was approved by the Lender in its sole discretion).
"Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, the ability to appoint or remove directors, senior officers, managers or other equivalent persons of such a Person, by contract or otherwise.
"Conversion Amount" has the meaning specified in Section 9.2(a) .
"Conversion Notice" has the meaning specified in Section 9.2(a) .
"Conversion Period" means the period of time beginning on the Closing Date and ending on the Scheduled Maturity Date.
"Conversion Price" means an amount equal to the VWAP for the Shares for the five (5) Trading Days immediately following the day of the initial public announcement or press release relating to this Agreement or the Arrangement Agreement.
"Conversion Provisions" means the terms and conditions pursuant to which the Lender may elect to exercise its Conversion Rights as provided in Article 9 9 hereof, including the provisions set forth in Schedule 9 hereto, and to receive payment in Shares.
"Conversion Rights" has the meaning specified in Section 9.2(a) .
"Conversion Shares" has the meaning specified in Section 9.1 .
"Date of Default" has the meaning specified in Section 10.2.(a) .
"Debt Financing" means borrowing money, whether by selling bonds, bills, debentures, preferred Equity Interests or other similar Instruments, issuing promissory notes, indentures or other similar Instruments, entering into a loan or credit agreement or other similar Instrument or otherwise incurring or agreeing to enter into any Instrument or arrangement relating to or consisting of borrowed money Indebtedness.
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"Default" means any Event of Default or any condition or event which, after notice or lapse of time or both, would constitute an Event of Default.
"Default Rate" means a rate per annum of twelve percent (12%).
"Directed Advance" has the meaning specified in Section 3.5 .
"Draw Request" shall mean a written request for any disbursement of Loan proceeds in the form attached hereto as Exhibit B or in such other format as is acceptable to Lender.
"Environmental Laws" means Governmental Requirements relating to pollution or protection of the environment, including Governmental Requirements relating to emissions, discharges, releases or threatened releases of pollutants, contaminants, chemicals, or industrial, toxic or hazardous substances or wastes into the environment (including, without limitation, ambient air, surface water, ground water, land surface or subsurface strata) or otherwise relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of pollutants, contaminants, chemicals or industrial, toxic or hazardous substances or wastes which are applicable to the Borrower or any Subsidiary thereof, any Project or the other activities of and properties or assets owned, controlled or managed by the Borrower or any Subsidiary thereof.
"Equity Financing" means the sale or placement by the Borrower of Shares or other Equity Interests of the Borrower.
"Equity Interest Pledge Agreement" means a pledge, security and subordination agreement substantially in the form of Exhibit D , given by the Borrower for the benefit of the Lender, together with any other Instruments given or to be given by the Borrower for the benefit of the Lender that creates a Lien on and with respect to the Equity Interests of the Borrower or other Person in order to secure the Obligations, together, in each case, with all amendments, modifications, supplements and revisions thereof in accordance with its terms, together with all other Instruments now or hereafter filed, recorded or delivered to formalize, authorize and perfect the security interests granted therein.
"Equity Interests" means, with respect to any Person, all of the shares of capital stock of (or other ownership or profit interests in) such Person, all of the warrants, options, rights, interests or other securities for the purchase or acquisition from such Person of shares of capital stock of (or other ownership or profit interests in) such Person; all of the warrants, options, Indebtedness, rights, interests or other securities exercisable for or convertible into or exchangeable for shares of capital stock of (or other ownership or profit interests in) such Person or warrants, rights or options for the purchase or acquisition from such Person of such shares of capital stock (or such other interests); and all of the other ownership or profit interests in such Person (including, without limitation, partnership, member, limited liability company or trust interests therein), whether voting or nonvoting, whether or not such shares, warrants, options, rights or other interests are outstanding on any date of determination, and whether or not such shares, warrants, options, rights or other interests are certificated or uncertificated.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended, and its related rules, regulations, and published interpretations.
"ERISA Affiliate" means any trade or business (whether or not incorporated) that, together with any Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code.
"ERISA Event" means (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan (other than an event for which the 30 day notice period is waived); (b) the failure to satisfy the "minimum funding standard" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(c) of the Code or Section 302(c) of ERISA of an application for a waiver of the minimum funding
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standard with respect to any Plan; (d) the incurrence by any Borrower or any ERISA Affiliate of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by any Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by any Borrower or any ERISA Affiliate of any liability with respect to the withdrawal or partial withdrawal of any Borrower or any ERISA Affiliate from any Plan or Multiemployer Plan; or (g) the receipt by any Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from any Borrower or any ERISA Affiliate of any notice, concerning the imposition upon a Borrower or any ERISA Affiliate of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA.
"Event of Default" has the meaning set forth in Section 10.1 .
"Exchange Rate" means the United States Dollar to applicable currency exchange rate determined by the Lender by reference to the rates quoted in Federal Reserve Statistical Release H.10Foreign Exchange Rates (Daily) for the Business Day of the calculation (which rates are quoted on the following Business Day). If such rate is not so quoted, the Exchange Rate shall be the one established from time to time by Lender in its good faith and sole discretion.
"Excluded Taxes" means, with respect to the Lender or any other recipient of any payment to be made by or on account of any obligation of the Borrower hereunder, income or franchise Taxes imposed on (or measured by) the taxable income of the Lender or such recipient, as the case may be, or capital Taxes imposed on (or measured by) the taxable capital of the Lender or such recipient, in each case by the jurisdiction under the applicable law of which such recipient is organized or in which its principal office is located or which exercises valid taxation jurisdiction over such recipient, but for greater certainty, Excluded Taxes do not include withholding taxes imposed on the Lender or any such recipient in respect of payments or deliveries hereunder.
"Expropriation Event" means the appropriation, confiscation, expropriation, cancellation, seizure or nationalization (by Governmental Requirement, intervention, court order, condemnation, exercise of eminent domain or other action or form of taking) of ownership or control of the Borrower or any of its Subsidiaries or of any Project or Properties or any substantial portion thereof, or any substantial portion of the rights related thereto, or any substantial portion of the economic value thereof, or which prevents or materially interferes with the ability of a Person to own or operate the property or business subject to such action, including by the imposition of any Tax, fee, charge or royalty.
"Governmental Authority" means the government of any nation and any state, provincial, territorial, divisional, county, regional, city and other political subdivision thereof, any tribal, aboriginal or native government or corporation, and any union or commonwealth of multiple countries, such as the European Union, in each case in which any property of the Borrower is located or which exercises valid jurisdiction over any such property or the Borrower, or in which the Borrower conducts business or is otherwise present, and any entity, court, arbitrator or board of arbitrators, agency, department, commission, board, bureau, regulatory authority or instrumentality of any of them exercising executive, legislative, judicial, regulatory or administrative functions that exercises jurisdiction over the Borrower or its properties or assets, including any Project, and any securities exchange or securities regulatory authority to which the Borrower is subject.
"Governmental Requirement" means any law, statute, code, ordinance, treaty, order, rule, regulation, judgment, ruling, decree, injunction, franchise, permit, certificate, license, authorization, approval or other direction or requirement (including Environmental Laws, the Project Permits, energy regulations, occupational, safety and health standards or controls, taxation laws and Securities Laws) of any Governmental Authority.
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"Hedge Contract" means (a) any and all rate swap transactions, basis swaps, credit derivative transactions, forward rate transactions, commodity swaps, commodity options, forward commodity contracts, equity or equity index swaps or options, bond or bond price or bond index swaps or options or forward bond or forward bond price or forward bond index transactions, interest rate options, forward foreign exchange transactions, cap transactions, floor transactions, collar transactions, currency swap transactions, cross-currency rate swap transactions, currency options, spot contracts, or any other similar transactions or any combination of any of the foregoing (including any options to enter into any of the foregoing), whether or not any such transaction is governed by or subject to any Master Agreement, and (b) any and all transactions of any kind, and the related confirmations, which are subject to the terms and conditions of, or governed by, any Master Agreement, including any such obligations or liabilities under any Master Agreement.
"IFRS" means international accounting standards as promulgated by the International Financial Reporting Standards Board.
"Indebtedness" means, for any Person, without duplication, all indebtedness and liabilities of such Person determined in accordance with IFRS.
"Indemnified Party" has the meaning specified in Section 11.5 .
"Initial Advance" means Lender's initial Advance under this Agreement in the amount set forth on Schedule 2.1(a) , to be made subsequent to or concurrently with execution of the Arrangement Agreement pursuant to the terms of Section 2.1(a) .
"Instrument" means any contract, agreement, undertaking, indenture, mortgage, certificate, document or writing (whether formal agreement, letter or otherwise) under which any obligation, duty, covenant, agreement, affirmation, undertaking or liability is evidenced, assumed or undertaken, or any right or Lien (or right or interest therein) is granted, authenticated, notarized, authorized or perfected, and any notice, registration, recordation, or filing associated with or required by any of the foregoing.
"Interest Shares" has the meaning specified in Section 3.1(b) .
"IRS" means the United States Internal Revenue Service.
"Judgment Currency" has the meaning specified in Section 1.4 .
"Lender" has the meaning set forth in the Preamble to this Agreement.
"Lender's Account" means the account or accounts designated from time to time by the Lender for receipt of funds paid by the Borrower, with the Lender's Account as of the Closing Date set forth on Schedule 1.1(b) .
"Lien" means any mortgage, deed of trust, debenture, lien, pledge, charge, security interest, hypothecation, indenture, preferential right, assignment, option, production payment or other lien, encumbrance or collateral security Instrument in, on or to, any property or asset; or, the title of any vendor, lessor, lender or other secured party to, or interest or title of any Person under, any conditional sale or other title retention agreement, capital lease or other agreement with respect to any property or asset; or, any adverse right or interest, defect in title, right of first option, right of first refusal, or similar restriction, including any restriction on use, voting, transfer, receipt of income, or exercise of any other attribute of ownership; or, the signing of any mortgage, deed of trust, pledge, charge, security agreement, hypothecation, indenture, assignment or similar instrument, or the signing or filing of a financing statement, personal property security act filing or other similar Instrument, which names such Person as debtor, or the signing of any security agreement or other similar Instrument authorizing any other party as the secured party thereunder to file any financing statement, personal property security act filing or other similar Instrument. A Person shall be deemed to be the owner of any assets that it has placed in trust for the benefit of the holders of its indebtedness, which indebtedness is deemed to
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be extinguished under IFRS but for which such Person remains legally liable, and such trust shall be deemed to be a Lien.
"Loan" means, individually or collectively, all loans made to the Borrower pursuant to this Agreement up to the full outstanding principal amount owing to the Lender pursuant to this Agreement, in the maximum cumulative amount of Two Million United States Dollars (US$2,000,000).
"Loan Documents" means this Agreement, the Promissory Note, the Security Documents, each Draw Request, each Omnibus Certificate, and each other Instrument executed by the Borrower or a Subsidiary of the Borrower, and delivered to the Lender in connection with this Agreement or any of the foregoing Instruments, whether or not specifically identified in this clause, as any of the foregoing may be amended, modified, supplemented, extended, revised or restated from time to time in accordance with their respective terms.
"Losses" has the meaning specified in Section 11.5 .
"Market Price" "has the meaning set forth in the TSX Venture Exchange Corporate Finance Manual Policy 1.1, and refers to the last closing price of the Shares before either (i) the issuance of a news release relating to the delivery of Interest Shares or the Directed Advances or (ii) the filing of the Price Reservation Form required to fix the price at which the Shares are to be issued or deemed to be issued.
"Master Agreement" means any form of master agreement published by the International Swaps and Derivatives Association, Inc., any International Foreign Exchange Master Agreement, or any other master agreement, together with any related schedules.
"Material Adverse Effect" means, with respect to any Person, an effect, resulting from any event or occurrence of whatever nature (including any adverse determination in any litigation, arbitration, or governmental investigation or proceeding), which:
(a) is materially adverse to the consolidated business, assets, revenues, financial condition, operations or prospects of such Person;
(b) is materially adverse to the ability of such Person to make any payment or perform any other material obligation required under any Material Agreement, this Agreement, or any other Loan Document;
(c) is materially adverse to any Project;
(d) results in a liability or obligation (other than Permitted Liens or performing or entering into contractual commitments in the ordinary course of business which are not in default) of Five Hundred Thousand United States Dollars ($500,000) or more;
(e) impairs the ability of the Lender to enforce any Borrower's obligations, or the Lender's rights, under any Loan Document; or
(f) has an adverse effect upon the legality, validity, binding effect or enforceability against the Borrower of any Loan Document to which it is a party.
"Material Agreements" means the contracts, agreements, leases, Instruments and other binding commitments and undertakings of the Borrower or any Subsidiary thereof which are identified in Schedule 1.1(d) , and all other contracts, agreements, leases, Instruments and other binding commitments and undertakings of the Borrower or any Subsidiary thereof the performance or breach of which could reasonably be expected to have a Material Adverse Effect on the Borrower, including all agreements and Instruments for the sale, transfer or other disposition of minerals produced from any Project.
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"Maturity Date" means the first to occur of (a) the Scheduled Maturity Date, (b) the date on which the Lender elects to accelerate the due date of the Loan based upon the occurrence of a Repayment Event, as provided in Section 3.2(c) , or (c) any date on which the Loan is accelerated by reason of an Event of Default pursuant to Section 10.2 .
"Month" means a calendar month.
"Multiemployer Plan" means a multiemployer plan as defined in Section 4001(a)(3) of ERISA.
"Obligations" means all duties, covenants, agreements, liabilities, indebtedness, indemnifications and obligations of the Borrower with respect to the repayment, payment or performance of all Indebtedness, liabilities and obligations (monetary or otherwise) of the Borrower, whenever arising, whether primary, secondary, direct, contingent, fixed or otherwise, and whether joint, several, or joint and several, established by or arising under or in connection with this Agreement or any other Loan Document, including, in each case, the payment of principal, interest, fees, expenses, reimbursements and indemnification obligations.
"Other Taxes" has the meaning specified in Section 3.7(b) .
"Party" or "party" means each party to this Agreement.
"PBGC" means the United States Pension Benefit Guaranty Corporation or any successor thereto.
"Permitted Liens" means those Liens identified in Schedule 6.1(j) , together with the Liens permitted by Section 8.2 .
"Permitted Third Party" has the meaning specified in Section 7.13 .
"Person" means an individual, partnership, corporation (including a business trust), joint venture, limited liability company or other entity, or a Governmental Authority.
"Plan" means any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA.
"Plan of Arrangement" means the plan of arrangement, substantially in form set out in Schedule A of the Arrangement Agreement.
"Prepayment Date" has the meaning specified in Section 3.2(d) .
"Projects" means, collectively, each of the following Projects: the Coosa Graphite Project and the Bama Mine Project.
"Project Mortgage" means (i) each mortgage, deed of trust or assignment of leases and agreements given by the Borrower for the benefit of the Lender, substantially in the form of Exhibit E hereto, and (ii) any other mortgage, deed of trust or other Instrument by which the Lender obtains a Lien in or on any ownership or leasehold interest in any real property, mineral rights or other property or assets of the Borrower to secure the Obligations, together with all amendments, modifications, supplements, extensions, revisions and restatements thereof in accordance with its terms.
"Project Permits" has the meaning specified in Section 6.1(s) .
"Promissory Note" means the senior, secured promissory note made by the Borrower payable to the order of the Lender in the principal amount of Two Million United States Dollars (US$2,000,000), substantially in the form of Exhibit F hereto, as such promissory note may be amended, modified, supplemented, extended, renewed, restated or replaced from time to time.
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"Properties" means all real property rights, titles and interests, whether surface, subsurface, mineral, water or otherwise, and all fee interests, patented mining claims, unpatented mining claims, state leases, provincial leases, federal leases, private leases, other mineral or surface leases, rights of use, access rights, concessions, licenses, claims, rights, titles or interests, and all related, associated or appurtenant rights, in each case howsoever characterized or designated, that are owned, leased, held, or controlled, directly or indirectly by the Borrower or by a Subsidiary of the Borrower, with such rights, titles and interests described with respect to each Project in Schedule 1.1(e), together with all right, title and interest hereafter acquired by the Borrower or any of its Subsidiaries in or adjacent to the interests described in Schedule 1.1(e) and the lands subject to any Instrument identified in Schedule 1.1(e) .
"Repayment Event" means the occurrence of any one of the following at any time prior to the Maturity Date, which has not been approved in advance by the Lender: (a) the sale, assignment, transfer or other disposition by the Borrower, directly or indirectly, in one or more transactions, of any interest in any Project, which is greater than twenty-five percent (25%) of the Borrower's aggregate right, title or interest therein as of the Closing Date; (b) the entry by the Borrower into a partnership, limited liability company, joint venture or other cooperative arrangement with one or more third Persons, which has the effect or is intended to have the effect of granting to any such Person or Persons, directly or indirectly, the right to own, or right to acquire, more than twenty-five percent (25%) of the Borrower's right to manage and operate any Project or of the Borrower's aggregate right, title or interest in any Project; (c) the sale, assignment, transfer or other disposition by the Borrower, directly or indirectly, of the right to manage and operate any Project; (d) the entry into or grant of any Royalty, offtake agreement, supply agreement, sales agreement or other Instrument relating to the sale, conveyance, transfer or grant of an interest in graphite produced at or from any Project; (e) the agreement by the Borrower to enter into or undertake any of the foregoing items in parts (a) through (d) of this definition or to enter into an agreement with respect to the foregoing items in parts (a) through (d) of this definition; or (f) AGC shall fail obtain Shareholder Approval at the Shareholder Meeting.
"Representative" means any director, officer, partner, manager, employee, agent, consultant, advisor, accountant, financial advisor, legal counsel or other representative of a Person.
"Royalty" means any share of graphite or other mineral production, including production payment, net profit interest, net smelter royalty, gross proceeds royalty and all other royalties of every type and characterization related to graphite or any other minerals.
"Scheduled Maturity Date" means June 30, 2018.
"Securities Laws" means all Governmental Requirements applicable to Equity Interests and the issuance of Equity Interests and the respective rules and regulations applicable thereto together with all binding policy statements, national instruments, orders, blanket rulings, mandatory guidelines and other applicable regulatory acts and instruments, together with all regulations, policies, rules or requirements imposed by any applicable securities exchange, trading platform or other Person.
"Security Agreement" means (i) a security agreement given by the Borrower for the benefit of the Lender, substantially in the form of Exhibit C hereto, (ii) each other Instrument whereby the Borrower subordinates its rights to receive payment of any amounts from any of its Subsidiaries to the complete payment in full of the Obligations, and (iii) any other security agreement or other Instrument by which the Lender obtains a Lien in or on any personal property or assets of the Borrower to secure the Obligations, together with all amendments, modifications, supplements, extensions, revisions and restatements thereof in accordance with its terms.
"Security Documents" means each Project Mortgage, each Security Agreement, each Equity Interest Pledge Agreement and each other Instrument granting a Lien to secure the payment and performance of the Obligations, together, in each case, with all amendments, modifications,
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supplements, extensions, revisions and restatements thereto or thereof in accordance with their respective terms, all schedules and exhibits attached thereto and all financing statements, personal property security act filings and other Instruments required to be filed or recorded or notices required to be given in order to authenticate and perfect the Liens created by the foregoing and all other Instruments now or hereafter delivered by the Borrower to the Lender in connection with this Agreement or any transaction contemplated hereby to secure the payment or performance of the Obligations.
"Shareholder Approval" means the requisite approval of the Arrangement Resolution by the shareholders of AGC at the Shareholder Meeting.
"Shareholder Meeting" means the special meeting of AGC shareholders, including any adjournment or postponement of such special meeting in accordance with the terms of the Arrangement Agreement, to be called and held to consider the Arrangement Resolution.
"Shares" means the common shares of AGC.
"Standard Interest Rate" means three percent (3.0%) per annum.
"Subsidiary" means, in respect of any Person at any date, (i) any corporation, company, limited liability company, association, joint venture or other business entity of which securities, membership interests or other ownership interests representing fifty percent (50%) or more of the voting power of all equity interests are owned or held, directly or indirectly, by such Person, (ii) any partnership, limited liability company or joint venture wherein the general partner, managing partner or operator is, directly or indirectly, such Person, or (iii) any other Person that is otherwise directly or indirectly Controlled by such Person.
"Taxes" has the meaning specified in Section 3.7(a) .
"Tradable Shares" means Shares that are fully paid, duly issued and non-assessable; shall be evidenced by original certificates issued by AGC reflecting the Lender as the owner thereof; shall be free of Liens or other claims of rights or interests by third Persons therein; shall be free of contractual restrictions or obligations; and such Shares shall be freely transferrable in accordance with Securities Laws on a public stock exchange of recognized standing, including the TSX Venture Exchange, subject to any restrictions prescribed by National Instrument 45-102.
"Trading Day" means a day on which the TSX Venture Exchange or such other public stock exchange on which the Shares are principally traded is open and on which Shares are traded.
"Unfunded Pension Liability" means the excess of a Plan's benefit liabilities under Section 4001(a)(l6) of ERISA, over the current value of that Plan's assets, determined in accordance with the assumptions used for funding the Plan pursuant to Section 412 of the Code for the applicable plan year.
"United States Dollars" and the symbol "US$" or the symbol "$" each mean dollars in lawful currency of the United States of America.
"VWAP" means Volume-Weighted Average Price, being the price per Share calculated by dividing (x) an amount equal to the total value of Shares traded during a particular time period, by (y) an amount equal to the total volume of Shares traded over that particular time period, which shall be based on the price and volume quotes provided by TSX Venture Exchange or such other applicable public stock exchange and published by Bloomberg, which amount shall be calculated by the Lender and deemed to be accurate absent manifest error.
"Withdrawal Liability" means liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
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"Year" means a calendar year.
1.2 Accounting Principles. All accounting terms not otherwise defined herein shall be construed, all financial computations required under this Agreement shall be made, and all financial information required under this Agreement shall be prepared, in accordance with IFRS applied on a basis consistent with the financial statements referred to in Section 6.1(g) except as specifically provided herein.
1.3 Other Definitional Provisions; Date and Time References.
(a) Unless otherwise specified therein, all terms defined in this Agreement shall have the defined meanings when used in the Schedules, the other Loan Documents and any certificate or other document made or delivered pursuant hereto.
(b) The words "hereof", "herein" and "hereunder" and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement, and Section, subsection, Schedule and Exhibit references are to this Agreement unless otherwise specified.
(c) The meanings given to terms defined herein shall be equally applicable to both the singular and plural forms of such terms.
(d) The word "including" means "including without limitation" or "including, but not limited to," and does not create or denote a limitation.
(e) Unless otherwise expressly indicated, each reference to a time or date in any Loan Document shall be to the date and time in Denver, Colorado, United States of America.
(f) Any calculation to be made under this Agreement shall be, in all instances, calculated by the Lender, acting in good faith, by reference to the terms, conditions and formulas described in this Agreement, and each such calculation shall be deemed controlling and final, absent manifest error.
1.4 Currency Conversions. For purposes of application of the provisions of this Agreement and the other Loan Documents, United States Dollars, Canadian Dollars and any other relevant currency amounts will be calculated and converted by the Lender, acting in good faith, by reference to the Exchange Rate. If, for purposes of obtaining judgment in any court, it is necessary to convert a sum from the currency provided under a Loan Document ("Agreement Currency") into another currency, the Exchange Rate shall be used as the rate of exchange. Notwithstanding any judgment in a currency ("Judgment Currency") other than the Agreement Currency, the Borrower shall discharge its obligation in respect of any sum due under a Loan Document only if, on the Business Day following receipt by Lender of payment in the Judgment Currency, Lender can use the amount paid to purchase the sum originally due in the Agreement Currency. If the purchased amount is less than the sum originally due, the Borrower agrees, as a separate obligation and notwithstanding any such judgment, to indemnify Lender against such loss. If the purchased amount is greater than the sum originally due, Lender shall return the excess amount to the Borrower (or to the Person legally entitled thereto).
ARTICLE 2
LOAN; USE OF PROCEEDS; FEES; FUTURE EQUITY FINANCINGS
2.1 Loan. Subject to all of the terms and conditions of this Agreement and subject to the satisfaction of the applicable conditions precedent set forth herein, the Lender agrees to advance the Loan to the Borrowers subject to the terms set forth herein.
2.2 Procedure for Advances. Advances may be requested and made from time to time in accordance with the provisions set forth herein. To request an Advance, the Borrower shall submit a completed Draw Request to Lender accompanied by copies of the invoice(s) (or similar document
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(such as a lease, contract or other obligation document)) to be paid through the Advance. The Draw Request shall specify the amount of the Advance requested and shall reference the specific invoice(s) (or similar document (such as a lease, contract or other obligation document)) to which the Advance will be applied. In no event shall the Draw Request exceed the remaining available principal balance of the Loan. Together with such additional information as Lender may reasonably require, the Draw Request shall include a certification that, as of the date of the request, all representations and warranties contained in Article 6 of this Agreement continue to be true and correct, no Default or Event of Default has occurred or is continuing hereunder, and the Borrower continues to be in compliance in all respects with all other terms, covenants and conditions contained in the Loan Documents. The Draw Request shall be signed by the Borrower Representative. With the exception of the Draw request for the Initial Advance, each Draw Request shall be submitted to Lender not less than ten (10) Business Days prior to the earliest due date provided in the invoice(s) to which the Advance will be applied. Upon Lender's review and approval of the Draw Request, Lender (at Lender's sole discretion) shall make the Advance thereunder either directly to the Borrower by the deposit of funds directly to the Borrower's Account or by way of direct payment(s) on the Borrower's behalf to the payee(s) identified in the subject invoice(s). Any charges or fees for late payment of any invoice(s) shall be charged to the account of the Borrower if and to the extent the late payment resulted from the Borrower's failure to follow the requirements of this Section 2.2. Each Draw Request shall be irrevocable once given and binding on the Borrower.
2.3 Repayment. The principal amount of the Loan, together with interest thereon and all fees, costs and other amounts then owing, shall be due and payable in full on the Maturity Date. The Borrower covenants and agrees to repay the Loan, together with interest thereon, in accordance with the terms of this Agreement. Any part of the Loan that has been repaid by the Borrower may not be re-borrowed and shall not be re-advanced to the Borrower (except by the Lender in its sole discretion as a Directed Advance pursuant to Section 3.5 ).
2.4 Use of Proceeds. The Borrower will utilize the Loan solely for the purposes specified in the applicable Draw Request in accordance with, and as specified in, the Budget.
2.5 Frequency of Draw Requests and Advances. Unless otherwise authorized by the Lender in writing, Borrower may only submit one Draw Request to Lender each Month up to a maximum amount of Two Hundred Fifty Thousand United States Dollars (US$250,000), and therefore, unless otherwise authorized by the Lender in writing, advances of the Loan shall be made no more frequently than once per Month. The initial Draw Request for the Initial Advance shall be in the amount set forth in Schedule 2.1(a) .
2.6 Lender Participation in Equity Financings. In consideration of the commitment of the Lender to make the Loan, the Borrower hereby irrevocably grants to the Lender the option and right, at any time and from time to time in the Lender's sole discretion, so long as the Lender or any of Lender's Affiliates or successors holds any Shares or is a creditor of the Borrower, to participate or to nominate any of the Lender's Affiliates, or successors to participate in any Equity Financing, at the same price and on the same terms and conditions as offered to other investors in such Equity Financing, such participation to be on a pro rata basis as determined on a partially-diluted basis by reference to the Lender's percentage interest in the Shares that the Lender holds or shall be deemed to hold pursuant to its Conversion Rights at the time when an offer of participation is made, such that the Lender may maintain its partially-diluted percentage interest in the Shares, such right to be open for acceptance by the Lender for a period of twenty (20) Business Days from the date upon which Lender receives notice of the Equity Financing. The Lender shall have the option and right, but no obligation or requirement, to participate in any such Equity Financing. If the Lender elects to participate in such Equity Financing, the Lender shall participate in such Equity Financing on the same terms and conditions as other participants in such Equity Financing. The Borrower agrees to take any and all action and to obtain any and all approvals and consents, or to cause such action to be taken and such approvals and
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consents to be obtained, as is necessary or appropriate to allow the Lender to fully participate in any Equity Financing in accordance with the provisions of this paragraph.
2.7 No Fees or Commissions. The Borrower has not incurred, nor will the Borrower incur, directly or indirectly any liability for brokerage or finder's fees or agent's commissions or any similar charges or fees in connection with this Agreement or the issuance of any Shares to the Lender contemplated hereby.
[Reserved].
2.9 Change of Control. If a Change of Control occurs at any time while the Loan is outstanding, upon the election of the Lender, either (i) the Lender will have all principal and accrued but unpaid interest under the Loan, and any other amounts due hereunder, repaid in full in accordance with Section 2.3 above, or (ii) all principal, together with all accrued and unpaid interest under the Loan, shall be converted immediately prior to the Change of Control into Tradable Shares at the Conversion Price in accordance with the Conversion Provisions.
PROCEDURE AND PAYMENT
(a) General. Interest on the Loan shall accrue and shall be payable by the Borrower at the Applicable Interest Rate, as calculated based on a 360 day year. Accrued but unpaid interest shall be payable in full on the Maturity Date. For the purposes of the Interest Act (Canada), the yearly rate of interest to which any rate calculated on the basis of a 360 day year is equivalent to the stated rate multiplied by the actual number of days in the year (365 or 366, as applicable) and divided by 360 days, and the parties hereto acknowledge that there is a material distinction between the nominal and effective rates of interest and that they are capable of making the calculations necessary to compare such rates and that the calculations herein are to be made using the nominal rate method and not on any basis that gives effect to the principle of deemed reinvestment of interest.
(i) Standard Interest Rate. Absent an Event of Default, interest on the Loan shall accrue and be payable by the Borrower at the Standard Interest Rate.
(ii) Default Interest. Interest on the Loan shall accrue and shall be payable by the Borrower at the Default Rate during all periods when an Event of Default has occurred and is continuing, including when any amounts payable by the Borrower as principal repayments, interest payments, expense payments or other amounts are due and payable hereunder, whether by acceleration or otherwise, but remain unpaid by the Borrower. Without prejudice to the rights of the Lender under the preceding sentence, the Borrower shall indemnify the Lender against any direct loss or expense which the Lender may sustain or incur as a result of the failure by the Borrower to pay the Loan when due. A certificate or other notice of the Lender submitted to the Borrower Representative setting forth the basis for the determination of Default Rate interest due and of the amounts necessary to indemnify the Lender in respect of such loss or expense, shall constitute evidence of the accuracy of the information contained therein in the absence of error and, absent notice from the Borrower Representative of such error, shall be conclusive and binding for all purposes. Interest accruing at the Default Rate shall be payable on demand in immediately available funds in United States Dollars.
(b) Payment of Interest. Provided that no Default or Event of Default has occurred and remains outstanding and subject to the prior approval of the TSX Venture Exchange, the Borrower
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shall pay interest on the Loan by delivery of Tradable Shares (the "Interest Shares") to the Lender on the Maturity Date.
The number of Interest Shares to be issued and delivered by the Borrower to the Lender to pay interest on the Loan shall be based upon a price per share that is not less than the Market Price of the Shares two (2) Business Days immediately before the accrued interest becomes payable and shall be determined by the Lender by dividing (i) the United States Dollar amount of the interest on the Loan which is due as of the Maturity Date, by (ii) the Market Price of the Shares two (2) Business Days immediately prior to the Maturity Date. For the avoidance of doubt, neither the Conversion Price nor the Market Price as at the date of this Agreement shall be used for this purpose. Furthermore, any such payment of accrued interest by Interest Shares will be subject to prior TSX Venture Exchange acceptance (with the application for TSX Venture Exchange acceptance to be made by the Borrower at the time the accrued interest becomes payable). The Borrower agrees to cooperate with the Lender in seeking and obtaining such acceptance from TSX Venture Exchange
At the option of the Lender in its sole discretion, as evidenced by a written notice thereof delivered to the Borrower Representative within five (5) Business Days prior to the Maturity Date, the Borrower shall pay interest on the Loan in United States Dollars.
Payment of interest shall be deemed satisfied upon delivery to the Lender of the interest then due: (x) in United States Dollars or (y) by the applicable number of Interest Shares, as directed by the Lender, in either case, on or prior to the Maturity Date.
(c) Fractional Interests. The Borrower shall not be required to issue fractional Interest Shares upon payment of interest on the Loan in Interest Shares. If any fraction of a Share would, except for the provisions of this Section 3.1(c) , be issuable upon payment of interest on the Loan in Interest Shares (or specified portion thereof), the Borrower shall issue to the Lender one (1) share for a fraction of an Interest Share greater than or equal to 0.50 and shall issue zero (0) shares for a fraction of an Interest Share less than 0.50.
(a) Principal Repayment. The Loan shall be due and payable in full on the Maturity Date.
(b) Voluntary Prepayment. Upon not less than five (5) Business Days' prior written notice from the Borrower Representative to the Lender, the Borrower may at any time prepay all or a portion of the Loan without penalty. Upon the giving of notice of prepayment, which shall be irrevocable, the prepayment, together with all interest accrued through the prepayment date, shall be due and payable on the date set forth therein. Any such voluntary prepayment of the Loan shall be in a minimum amount of Five Hundred Thousand United States Dollars (US$500,000) or (if lower) the full amount of the Loan then outstanding. Amounts prepaid by the Borrower may not be re-borrowed by the Borrower (except, at the option of the Lender, as a Directed Advance made by the Lender pursuant to Section 3.5 ).
(i) The Borrower will prepay the Loan or a portion thereof as provided in this Section 3.2(c)(i) together with accrued interest on such prepaid amount (A) in full upon acceleration of the due date thereof pursuant to Section 10.2 ; and (B) in full on the repayment date specified in a written notice provided to the Borrower Representative by the Lender stating that the Lender requires the Loan to be repaid as a result of the occurrence of a Repayment Event.
(ii) Amounts prepaid by the Borrower may not be re-borrowed by the Borrower (except, at the option of the Lender, as a Directed Advance made by the Lender pursuant to Section 3.5 ).
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(d) Payment of Interest. Provided that no Default or Event of Default has occurred and remains outstanding, the Borrower shall pay interest accrued through such prepayment date in Interest Shares. At the option of the Lender in its sole discretion, as evidenced by a written notice thereof delivered to the Borrower Representative within five (5) Business Days prior to the date for prepayment set forth in Section 3.2(b) or 3.2(c) above (the "Prepayment Date"), the Borrower shall pay interest associated with such prepayment in United States Dollars. Upon the Borrower receiving such written notice from the Lender, the Borrower shall promptly seek the acceptance by the TSX Venture Exchange of such interest payment in Shares. The number of Interest Shares which are required to be delivered by the Borrower to the Lender in satisfaction of any interest payment pursuant to Section 3.2(b) or 3.2(c) above, payable by the delivery of Interest Shares shall be determined by the Lender by dividing (i) the United States Dollar amount of the interest on the portion of the Loan which is to be prepaid, by (ii) the Market Price two (2) Business Days immediately prior to the Prepayment Date. Payment of interest shall be deemed satisfied upon delivery to the Lender of the interest then due: (x) in United States Dollars or (y) by the applicable number of Interest Shares, as applicable, in each case in the form directed by the Lender. The Borrower agrees to cooperate with the Lender in seeking and obtaining such acceptance from TSX Venture Exchange.
(e) Illegality. If the Lender shall notify the Borrower Representative that a Change in Law makes it unlawful, or that any central bank or other Governmental Authority asserts that it is unlawful for the Lender to perform its obligations under this Agreement to maintain the Loan then outstanding hereunder, the Borrower shall, no later than 11:00 a.m. (Denver, Colorado time) on or before the date that is the earlier of (i) the date that is thirty (30) days after such notice is provided, or (ii) the earliest date required by applicable Governmental Requirements or Change in Law, prepay all of the Loan made by the Lender then outstanding, together with accrued interest on the principal amount prepaid to the date of such prepayment and breakage fees, if any, required to be paid by the Lender as a result of such prepayment being made on such date.
3.3 Priority of Prepayments. All prepayments made by the Borrower shall be applied first to any amounts (other than principal or interest) then payable by the Borrower hereunder or under any other Loan Documents, then to accrued and unpaid interest on the Loan so prepaid, then to the principal amount of the Loan.
3.4 Payments and Computations. Except as otherwise expressly provided in this Agreement, payments by the Borrower pursuant to this Agreement or any other Loan Document, whether in respect of the Loan, interest or otherwise (other than interest or fee payments made by delivery of Shares), shall be made by the Borrower to the Lender not later than 12:00 noon (Denver, Colorado time) on the date due by delivery of United States Dollars in immediately available funds to the Lender's Account, or such other account designated from time to time by notice from the Lender to the Borrower Representative in writing at least two (2) Business Days before any such due date. Except as otherwise expressly provided in this Agreement, payments by the Borrower pursuant to this Agreement or any other Loan Document of interest, fees or other amounts in Shares shall be made by the Borrower to the Lender not later than 12:00 noon (Denver, Colorado time) on the date due by delivery of one or more duly authorized and issued Share certificates evidencing the number of Shares then due, issued in the name of the Lender or such Affiliate of the Lender as designated by the Lender in writing. All payments under this Agreement to be made by the delivery of Shares shall be made by the delivery of Tradable Shares. All decisions with respect to the payment of interest, fees or other amounts under this Agreement by either (i) the delivery of Tradable Shares, or (ii) the payment of immediately available funds, shall be made by the Lender in its sole discretion. For the purposes of converting any amount from or into United States Dollars or any other currency, the parties shall use the Exchange Rate. All payments hereunder, whether by delivery of Shares or of United States Dollars, shall be made by the Borrower without set off, deduction, withholding or counterclaim not later than
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on the date when due. Any payments received hereunder after the time and date specified in this Section 3.4 shall be deemed to have been received by the Lender on the next following Business Day. All interest shall be computed on the basis of the actual number of days (including the first day but excluding the last day) occurring during the period for which such interest is payable over a year comprised of three hundred sixty (360) days. Whenever any payment to be made hereunder shall otherwise be due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and such extension of time shall be included in computing interest, if any, in connection with such payment.
3.5 Directed Advances. Subject to compliance with all applicable requirements of the TSX Venture Exchange and receipt of its prior approval, at any time during the Conversion Period, if the Borrower has repaid all or any portion of the Loan, the Lender, in its sole discretion, has the right and option, but shall have no obligation, to cause a re-advance (a "Directed Advance") of such repaid amount, or any portion thereof, to be made to the Borrower for the purpose of allowing the Lender to convert such Loan provided to the Borrower pursuant to a Directed Advance into Conversion Shares in accordance with the Conversion Provision. The TSX Venture Exchange is expected to treat any Directed Advance as a new private placement that is subject to the TSX Venture Exchange's requirements, including its Policy 4.1.
Directed Advances shall be evidenced by the Lender's delivery of notice in writing to the Borrower Representative, such notice to be delivered to the Borrower Representative at least ten (10) Business Days prior to the date on which the Directed Advance referred to therein is made and the related conversion into Conversion Shares takes place. Subject to the requirements and approval of the TSX Venture Exchange, the Lender may make a Directed Advance at any time during the Conversion Period if the Borrower has repaid all or any portion of the Loan during the Conversion Period, and this Agreement shall remain in force and effect in accordance with its terms until the Scheduled Maturity Date for purposes of exercise of a Directed Advance, notwithstanding full and final payment and performance of the other Obligations. Any Loan received by the Borrower pursuant to a Directed Advance shall be immediately converted into Conversion Shares pursuant to the Conversion Provisions (at the then Market Price as approved by the TSX Venture Exchange) and such Loan shall be deemed repaid upon delivery to the Lender of the appropriate number of Conversion Shares in satisfaction of such Directed Advance, as calculated in accordance with the Conversion Provisions. The Borrower agrees to cooperate with the Lender in seeking and obtaining the applicable approvals from the TSX Venture Exchange as referenced in this Section 3.5.
(a) Increased Costs Generally. If any Change in Law shall:
(i) impose, modify or deem applicable any reserve, special deposit, compulsory loan, insurance charge or similar requirement against assets of, deposits with or for the account of, or credit extended or participated in by, the Lender;
(ii) subject the Lender to any Taxes and Other Taxes payable by the Lender (other than Excluded Taxes) with respect to this Agreement or any Loan made by it, or change the basis of taxation of payments to the Lender in respect thereof; or
(iii) impose on the Lender any other condition, cost or expense affecting this Agreement or Loan made by the Lender;
and the result of any of the foregoing shall be to increase the cost to the Lender of making or maintaining any Loan (or of maintaining its obligation to make any such Loan), or to reduce the amount of any sum received or receivable by the Lender hereunder (whether of principal, interest or any other amount) then, upon request of the Lender, the Borrower will pay to the Lender such
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additional amount or amounts as will compensate the Lender for such additional costs incurred or reduction suffered.
(b) Certificates for Reimbursement. A certificate of an authorized officer of the Lender setting forth the amount or amounts necessary to compensate the Lender or the Lender's Affiliate, as the case may be, as specified in paragraph (a) of this Section 3.6 and delivered to the Borrower shall be conclusive absent manifest error. The Borrower shall pay the Lender the amount shown as due on any such certificate within ten (10) Business Days after receipt thereof. Contemporaneously with such certificate the Lender shall provide the Borrower with reasonable supporting evidence of the amounts claimed to be due from the Borrower to the Lender and the steps Lender took to minimize such amounts.
(c) Delay in Requests. Failure or delay on the part of the Lender to demand compensation pursuant to this Section 3.6 shall not constitute a waiver of the Lender's right to demand such compensation.
(a) General. Any and all payments and the delivery of any and all certificates, Shares, securities or other property or consideration by the Borrower hereunder shall be made in full, free and clear of and without deduction or withholding for any and all present or future taxes, levies, duties, imposts, assessments, deductions, charges, withholdings or other similar amounts, and all liabilities with respect thereto imposed on the Borrower, other than Excluded Taxes (all such non-excluded taxes, levies, duties, imposts, assessments, deductions, charges, withholdings and liabilities being hereinafter referred to as "Taxes") and except as required by applicable law. If the Borrower shall be required by law to deduct or withhold any Taxes from or in respect of any such payment, certificate, Share, security or other property or consideration payable or deliverable hereunder to the Lender, (i) the sum payable and the certificates, Shares, securities and other property or consideration so deliverable shall, subject to applicable law, be increased as may be necessary so that after making all required deductions and withholdings (including deductions and withholdings applicable to additional sums, certificates, Shares, securities and other property or consideration payable or deliverable under this Section 3.7 ) the Lender receives an amount and certificates, Shares, securities and other property or consideration as the case may be equal to the amount and certificates, Shares, securities and other property or consideration it would have received had no such deductions or withholdings been made, (ii) the Borrower shall make such deductions or withholdings and (iii) the Borrower shall pay the full amount required to be deducted or withheld to the relevant taxation authority or other authority in accordance with applicable law and within the time for payment prescribed by applicable law. If the Lender receives a credit against Excluded Taxes for any amounts deducted or withheld, the Lender shall deliver to the Borrower the amount of such credit. If any additional Shares are to be issued pursuant to this paragraph, then such issuance is subject to compliance with the requirements of the TSX Venture Exchange and its prior approval of any such issuance. The Borrower agrees to cooperate with the Lender in seeking and obtaining applicable TSX Venture Exchange approval for any such issuance
(b) Other Taxes. In addition, the Borrower agrees to pay any present or future stamp, sales, use or documentary taxes or any other excise or property taxes, charges, duties or similar levies which arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement, any of the Loan Documents, or any Instrument contemplated thereby (hereinafter referred to as "Other Taxes"), other than Excluded Taxes.
(c) Tax Indemnity. The Borrower hereby indemnifies the Lender for, and agrees to hold the Lender harmless from, the full amount of all Taxes and Other Taxes payable by the Lender (other
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than Excluded Taxes) and any liability, cost or amount (including penalties, interest and expenses) arising therefrom or with respect thereto.
(d) Payment of Taxes. Within thirty (30) days after the date required for payment of any Taxes or Other Taxes required to be deducted or withheld by the Borrower in respect of any payment or delivery to the Lender, the Borrower will furnish to the Lender a form of evidence of payment thereof acceptable to the Lender in its sole discretion.
(e) Survival. Without prejudice to the survival of any other agreement hereunder, the agreements and obligations contained in this Section 3.7 shall survive the payment in full of the Loan, interest thereon and any other amounts due hereunder.
(f) Further Assurances. After receipt from the Borrower of each payment made pursuant to this Section 3.7 , the Lender shall, if reasonably requested by the Borrower and at the Borrower's cost and expense, submit and pursue any necessary applications to obtain any refund, credit, allowance, remission or deduction from income otherwise determined or tax otherwise payable, to which the Lender may be entitled from the taxation authorities of any relevant taxing jurisdictions in respect of any payment of Taxes or Other Taxes referred to in this Section 3.7 . If any such refund shall be received or due payment of tax reduced by reason of such refund, credit, allowance, remission or deduction, the Lender shall, to the extent that it can do so without prejudice to its ability to retain the amount of such refund, credit, allowance, remission or deduction, promptly notify the Borrower Representative thereof and account to the Borrower for an amount equal to the refund received or credit, allowance, remission or deduction given.
3.8 Usury. If any provision of this Agreement would oblige the Borrower to make any payment of interest or other amount payable to the Lender in an amount or calculated at a rate which would be prohibited by law or would result in a receipt by that Lender of "interest" at a "criminal rate" or a "usurious rate", then, notwithstanding such provision, such amount or rate shall be deemed to have been adjusted with retroactive effect to the maximum amount or rate of interest, as the case may be, as would not be so prohibited by law or so result in a receipt by the Lender of "interest" at a "criminal rate" or a "usurious rate", such adjustment to be effected, to the extent necessary (but only to the extent necessary), as follows: (a) first, by reducing the amount or rate of interest; and (b) thereafter, by reducing any fees, commissions, costs, expenses, premiums and other amounts required to be paid to the Lender which would constitute interest under applicable Governmental Requirements.
COLLATERAL SECURITY
4.1 Security Documents. As security for the due, prompt and complete repayment of the Loan and the payment of all other amounts due hereunder, and for the prompt and complete performance of all other Obligations, the Borrower shall execute and deliver to the Lender the Security Documents to which each of them is a party, in each case as and when contemplated by this Agreement or any other Loan Document.
4.2 Recordings and Filings of Security Documents. The Lender will record, register or file with or deliver to appropriate Governmental Authorities, account debtors or other Persons, the Security Documents, as necessary or appropriate, at the Borrower's expense, together with all other Instruments necessary to establish, attach, protect, maintain or perfect the Liens of the Lender, each with the Agreed Priority over all other security interest holders and mortgages.
4.3 Protection of Security Document Liens. Borrower hereby authorizes the Lender to file such financing statements and other agreements, documents, registrations, filings or Instruments with such Governmental Authorities in such jurisdictions as Lender reasonably determines to be desirable and to take such other actions as the Lender determines to be necessary or desirable to legalize, authenticate,
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protect, perfect and maintain the perfection of the Liens in the Collateral identified in the Security Documents. The Borrower agrees to cooperate with the Lender in delivering all share certificates and other certificates (together with stock transfers, transfer powers of attorney, or other appropriate Instruments, in each case executed in blank), if any, of Equity Interests pledged pursuant to a Security Document and in undertaking and completing all recordings, filings, registrations and other actions required in connection with the Security Documents, and the Borrower further agrees to promptly take all such other actions as the Lender may reasonably determine to be necessary or appropriate to confirm, perfect, maintain and protect the perfection of the Liens granted by the Security Documents.
4.4 Security Documents. Borrower hereby agrees that notwithstanding any provision of any other Loan Document to the contrary, the Liens created pursuant to the Security Documents shall secure all Obligations. The Security Documents create valid security interests in, and Liens on, the Collateral purported to be covered thereby, which security interests and Liens are currently perfected security interests and Liens, or will be perfected security interests and Liens in accordance with the requirements specified in such Security Documents or elsewhere in this Agreement, each with the Agreed Priority.
4.5 Right of Set-off. Upon the occurrence and during the continuance of any Event of Default, the Lender is hereby authorized at any time and from time to time, without notice to the Borrower Representative (any such notice being expressly waived by the Borrower), to set off and apply any and all deposits (general or special, time or demand, provisional or final), at any time held and other indebtedness at any time owing by the Lender to or for the credit or the account of the Borrower against any and all of the Obligations of the Borrower now or hereafter existing, although such Obligations may be contingent and unmatured. The Lender agrees promptly to notify the Borrower Representative and the appropriate Borrower after any such set-off and application, provided that the failure to give such notice shall not affect the validity of such set-off and application. The rights of the Lender under this Section 4.5 are in addition to other rights and remedies (including, without limitation, other rights of set-off) which the Lender may have.
CONDITIONS PRECEDENT
5.1 Conditions Precedent to this Agreement and the Initial Advance . The obligation of the Lender with respect to the Initial Advance is subject to satisfaction (or waiver by the Lender in its sole discretion) of each of the following conditions precedent:
(a) The Lender or its counsel shall have received the following, with each Instrument dated on or no more than three (3) Business Days prior to the date of the proposed advance of a Loan (or as otherwise specified herein or agreed by the Lender), and in form and substance as shall be satisfactory to the Lender:
(i) a copy of the Arrangement Agreement, duly executed by each party thereto;
(ii) this Agreement, duly executed by the Borrower;
(iii) the Promissory Note, duly executed by the Borrower, payable to the order of the Lender;
(iv) each of the Security Documents, each duly executed by the applicable Borrower, together with any financing statements, filings or other Instruments for filing or registration, notarizations thereof, notices with respect thereto or other Instruments, including applicable estoppel letters, determined by the Lender, to be necessary or desirable to establish, maintain and perfect the Liens established pursuant to the Security Documents;
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(v) to the extent not specifically referenced, each other Loan Document, duly executed by the applicable Borrower or any of its Subsidiaries, as appropriate;
(vi) an Omnibus Certificate of Officer for the Borrower, duly executed by an officer of AGC, substantially in the form of Exhibit A hereto;
(vii) a Draw Request, duly executed by an officer of the Borrower Representative, substantially in the form of Exhibit B hereto;
(viii) a certificate for the Borrower from (A) its jurisdiction of incorporation or organization (where applicable, from the Secretary of State and the Department of Revenue) and (B) each other jurisdiction identified on Schedule 5.1(a)(vii) , confirming the due organization and good standing of the Borrower in such jurisdiction, as applicable;
(ix) Reserved;
(x) security legal opinions from legal counsel to the Borrower, in form and substance acceptable to the Lender, pertaining to the validity of the Security Documents and the security interests granted thereby and the perfection of such security interests;
(xi) certificates of issuing insurance companies or brokers, confirming compliance by the Borrower with the insurance requirements set forth in Section 7.5 ;
(xii) accurate and complete copies of the financial statements of the Borrower referred to in Section 6.1(g) ;
(xiii) evidence satisfactory to the Lender that all Shares issuable pursuant to this Agreement have been duly and validly authorized, and that such issuance of Shares shall comply with all applicable Governmental Requirements, including applicable Securities laws; and
(xiv) all such other approvals, opinions, documents or Instruments as the Lender may reasonably request.
(b) all representations and warranties made by the Borrower herein and in any other Loan Document shall be true and correct;
(c) all approvals, consents and authorizations of Governmental Authorities or other Persons required in connection with this Agreement and the other Loan Documents, if any, shall have been obtained and remain in effect including the approval of the TSX Venture Exchange in connection with the issuance of Shares and Conversion Shares pursuant to this Agreement;
(d) there shall be no pending or threatened (in writing) action or proceeding before any Governmental Authority against or affecting the Borrower or any Project which could reasonably be expected to have a Material Adverse Effect on the Borrower;
(e) the Borrower shall have delivered to the Lender a copy of the current Budget, which has been approved by the Lender in its sole discretion;
(f) since August 31, 2016, there shall have been no change, event or occurrence that has had, or could reasonably be expected to have, a Material Adverse Effect on the Borrower or on any Project;
(g) the Lender shall have received, in form and substance satisfactory to the Lender, search results from all relevant jurisdictions wherein the Borrower conducts business or owns property, pertaining to all Lien filings, registrations and records appearing in such jurisdiction, together with copies of any documents, filings and Instruments on file in such jurisdictions;
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(h) all reasonably available data, reports, maps, surveys, financial statements, Instruments and other information requested by the Lender for its due diligence shall have been provided, and the Lender shall have completed its due diligence investigation of the Borrower and the Projects in scope, and with results, satisfactory to the Lender;
(i) the Lender shall be satisfied with the form of the Loan Documents;
(j) the Borrower shall have made all public disclosures (including all information material to the Borrower and the Projects) and submitted all applications, reports and information, and taken all other actions necessary, to comply fully with applicable Securities Laws, and the Lender shall have confirmed such compliance to its satisfaction;
(k) the Borrower shall have performed and complied with all agreements and conditions herein and in the other Loan Documents required to be performed and complied with on or prior to the date of the proposed Loan, except those agreements and conditions waived by the Lender;
(l) no Default or Event of Default shall have occurred and be continuing on such date or after giving effect to the Loan;
(m) except for litigation disclosed on Schedule 6.1(f) , there shall not exist any litigation, investigation, bankruptcy or insolvency, injunction, order or claim affecting or relating to the Borrower or any of its Subsidiaries, or any Project that has not been settled, dismissed, vacated, discharged or terminated;
(n) the Lender shall have received all approvals of the board of directors of the Borrower necessary to consummate the transactions contemplated by this Agreement; and
(o) the Lender shall have received all such other approvals, opinions, certificates, documents or Instruments as the Lender may reasonably request.
The Borrower Representative's tender of a Draw Request shall be deemed to constitute a representation and warranty by the Borrower as of the date of the Loan that the conditions precedent in paragraphs (a) through (o) of this Section 5.1 have been, and remain, satisfied.
5.2 Conditions Precedent to All Loans . The obligation of the Lender to make any Advance hereunder is subject to the satisfaction (or waiver by the Lender in its sole discretion) of the following conditions precedent on the date of making such Advance:
(a) The representations and warranties made by the Borrower herein, in the Security Documents or which are contained in any certificate furnished at any time under or in connection herewith shall be true and correct on and as of the date of such Loan as if made on and as of such date, except for representations and warranties expressly stated to relate to a specific earlier date;
(b) No Default or Event of Default shall have occurred and be continuing on such date or after giving effect to such Loan;
(c) Immediately after giving effect to the making of any Advance of the Loan (and the application of the proceeds thereof), the aggregate sum of all outstanding Advances shall not exceed maximum Loan amount;
(d) Except for litigation disclosed on Schedule 6.1(f) , there shall not exist any litigation, investigation, bankruptcy or insolvency, injunction, order or claim affecting or relating to the Borrower or any of its Subsidiaries, or any Project, which has had, or could reasonably be expected to have, a Material Adverse Effect, or which could reasonably be expected to affect the legality, validity or enforceability of this Agreement or any other Loan Document, that has not been settled, dismissed, vacated, discharged or terminated;
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(e) The Borrower or any Project shall not have suffered a Material Adverse Effect; and
(f) All conditions set forth in Section 2.1 and Section 2.2 , including delivery of an executed Draw Request from the Borrower Representative, shall have been satisfied and all of the specific conditions with respect to such Advance shall have been, and shall remain, satisfied; the Borrower Representative shall have certified the satisfaction of all such conditions precedent by its delivery of a Draw Request.
Each Draw Request shall be deemed to constitute a representation and warranty by the Borrower as of the date of such Advance that the conditions precedent applicable thereto have been, and remain, satisfied.
REPRESENTATIONS AND WARRANTIES
6.1 Representations and Warranties of the Borrower . The Borrower, for itself and on behalf of each of its Subsidiaries, hereby represents and warrants to the Lender as follows:
(a) Qualification and Organization . It has all requisite corporate, partnership or limited liability company power and authority to enter into this Agreement and the other Loan Documents to which it is a party and to carry out the transactions contemplated hereby and thereby. It is otherwise duly qualified to do business as a foreign corporation or other applicable entity in each jurisdiction where the nature of its business or properties requires such qualification, except where the failure to obtain such qualification could not reasonably be expected to result in a Material Adverse Effect. It is a corporation, partnership or a limited liability company, duly incorporated or organized (respectively), validly existing and in good standing under the laws of the jurisdiction of its incorporation or organization, as applicable.
(b) Subsidiaries . Except as disclosed in Schedule 6.1(b) , the Borrower does not have any direct or indirect Subsidiaries. Schedule 6.1(b) sets forth a true and complete description of the capital structure of each direct or indirect Subsidiary of the Borrower.
(c) Authorization; No Conflict . The execution, delivery and performance by it of this Agreement and of the other Loan Documents to which it is a party have been duly authorized by all necessary shareholder, manager, partner, member and corporate action on the part of the Borrower and any Subsidiary thereof and do not and will not (i) contravene the articles of incorporation, articles, charter or by-laws, operating agreement, notice of articles or similar constituent documents of the Borrower or any Subsidiary thereof; (ii) violate any provision of any Governmental Requirement, order, writ, judgment, injunction, decree, determination or award presently in effect having applicability to the Borrower or any Subsidiary thereof; (iii) result in a breach of or constitute a default under, or, except as set forth on Schedule 6.1(c) , require the consent of any Person pursuant to, any Material Agreement to which the Borrower or any Subsidiary thereof is a party or by which the Borrower, any Subsidiary thereof or any of their respective properties may be bound or affected; (iv) trigger the application of any change of control or anti-assignment provisions in any Material Agreement to which the Borrower or any Subsidiary thereof is a party or by which the Borrower, any Subsidiary thereof or any of their respective properties may be bound or affected; or (v) result in, or require, the creation or imposition of any Lien (other than Liens arising under the Security Documents) upon or with respect to any of the properties now owned by the Borrower or any Subsidiary thereof and none of the Borrower or any of its Subsidiaries is in default in any material respect under any such Governmental Requirement, writ, judgment, injunction, decree, determination or award or any such indenture, agreement, lease or instrument.
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(d) Governmental and Other Consents and Approvals . Except as set forth on Schedule 6.1(d) , no authorization or approval or other action by or consent of, and no notice to or filing or registration with, any Governmental Authority or any other Person is required (i) for the due execution and delivery of the Loan Documents, and the incurrence and due performance of, the financial obligations of the Borrower or any Subsidiary thereof under this Agreement or any other Loan Document, or (ii) except for ongoing filings obtained in the ordinary course of the Borrower' business, for the due performance of all other Obligations of the Borrower or any Subsidiary thereof under this Agreement or any other Loan Document, except for such authorizations, approvals or other actions as have been obtained or notices or filings as have been made.
(e) Binding Obligations . This Agreement and each of the other Loan Documents constitutes a legal, valid and binding obligation of the Borrower and/or each Subsidiary thereof that is a party thereto, enforceable against the Borrower or such Subsidiary thereof that is a party thereto in accordance with their respective terms (except as limited by applicable bankruptcy, insolvency, reorganization, moratorium and similar laws or equitable principles affecting enforcement of creditors' rights generally at the time in effect).
(f) Litigation . Except as set forth on Schedule 6.1(f) , there is no claim, action, lawsuit, proceeding, arbitration or investigation pending or, to the knowledge of the Borrower, threatened in writing against or involving the Borrower or any Subsidiary thereof or any Project or any portion thereof, which alleges the violation of any Governmental Requirement, or which questions the validity of this Agreement or any of the other Loan Documents or any action taken or to be taken pursuant to this Agreement or any of the Loan Documents, which involves any Material Agreement, or which could reasonably be expected to result, either in any case or in the aggregate, in a Material Adverse Effect on the Borrower.
(g) Financial Statements; No Material Adverse Change . The audited consolidated balance sheet of the Borrower as of August 31, 2016, and the related unaudited consolidated statements of operations and deficits of the Borrower for the period then ended, and the unaudited consolidated balance sheet of the Borrower as of August 31, 2017 and the related unaudited statement of operations and deficits of the Borrower for the period then ended, copies of which have been furnished to the Lender and are attached hereto as Schedule 6.1(g) , fairly present the consolidated financial condition in all material respects of the Borrower as of such dates and the consolidated results of the operations of the Borrower for the period ended on such dates, all in accordance with IFRS consistently applied. The Borrower does not have any material Contingent Liability or liability for taxes, long-term leases or unusual forward or long-term commitments which are not reflected in such financial statements. Since August 31, 2016, neither the business, operations or prospects of the Borrower, nor any of its properties or assets, have been affected by any occurrence or development (whether or not insured against) which could reasonably be expected to result, either in any case or in the aggregate, in a Material Adverse Effect on the Borrower.
(h) Other Agreements . None of the Borrower or any of its Subsidiaries is a party to any indenture, loan or credit agreement or any lease or other agreement or Instrument (other than the Material Agreements) or subject to any charter or other corporate restriction which could reasonably be expected, upon a default thereunder or otherwise, to result in a Material Adverse Effect on the Borrower.
(i) Information Accurate . All reports, certificates, status updates and other information delivered to the Lender are true, accurate and complete in all material respects. None of the written information delivered to the Lender by the Borrower or any Subsidiary thereof in connection with this Agreement or the transactions contemplated hereby or in connection with the business of the Borrower or the Projects contains any material misstatement of fact or omits to state a material fact, and all projections contained in any such information, exhibits or reports,
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were based on information which, when delivered, was true and correct in all material respects as of the date thereof, and to the knowledge of the Borrower all calculations contained in such projections were accurate in all material respects, and such projections presented the then-current estimate of the future business, operations and affairs of the Borrower or such Subsidiary thereof and, since the date of the delivery of such projections, except as disclosed in the financial statements delivered pursuant to Section 6.1(g) , there has been no change in the assumptions underlying such projections, or the basis therefor or the accuracy thereof.
(j) Title; Liens .
(i) Schedule 1.1(e) completely and accurately describes all real property interests, including but not limited to leasehold interests and, including but not limited to, any and all surface estates and mineral estates owned by or subject to any license, option or similar agreement in favor of the Borrower that is part of the Projects;
(ii) The Borrower and each Subsidiary thereof has good and marketable title to its owned real property and has valid rights to its leased property, including, in each case, the Properties, free and clear of Liens, except for Permitted Liens. Schedule 1.1(e) describes the Borrower's ownership in, to and of each Property and identifies any joint venturers, partners or other Persons that own an interest in any Property. Except as described in Schedule 1.1(e), the Borrower owns an undivided one hundred percent (100%) of the beneficial and legal interest in each Property, free and clear of all Liens (subject only to Permitted Liens), royalties, production payments and other rights and interests of third parties, and the Borrower have good and marketable title thereto;
(iii) Except as set forth on Schedule 1.1(e), there are no Royalties (of any kind or nature whatsoever, howsoever designated), production payments or other non-cost bearing interests in or to any Property or any Project;
(iv) All taxes, charges, rates, levies and assessments that, if unpaid, would create a Lien or charge on any Project or any other property of the Borrower, have been paid in full and will be paid in full, in each case prior to delinquency;
(v) All contractors, subcontractors, agents and other Persons providing services, materials or labor on or for the benefit of any Project have been paid in a timely manner for all work performed or services, goods or labor provided, on or with respect thereto, except where such payments are subject to a bona fide dispute, which is being diligently pursued by the Borrower pursuant to appropriate procedures;
(vi) The Borrower and each Subsidiary thereof has delivered or made available to the Lender all requested surveys, reports, core sample information, data and other information concerning the Projects and all assets, property and interests associated therewith, including the nature of the rights and interests thereto and therein owned by the Borrower and each Subsidiary thereof, which is in the possession or control of the Borrower or Subsidiary thereof or to which the Borrower or Subsidiary thereof has access; and
(vii) The Security Documents create valid and effective Liens in and on the Collateral purported to be covered thereby, which Liens are currently (or will be upon the filing of appropriate Instruments with appropriate Governmental Authorities) perfected Liens with the Agreed Priority.
(k) Capital Structure . The Borrower and each Subsidiary thereof has the number of Equity Interests specified in Schedule 6.1(k) . All Equity Interests identified in such Schedule are duly and validly issued and are fully paid and non-assessable. The Borrower has duly authorized sufficient Shares to permit the satisfaction of any obligation to issue Shares to the Lender as described
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herein (including with respect to the issuance of Shares with respect to the Interest Shares). Except for such Shares, and as indicated in Schedule 6.1(k) , the Borrower does not have any outstanding warrants, options, preferential rights or other obligations to issue additional shares or other Equity Interests, including any stock or securities convertible into or exercisable or exchangeable for any shares of its capital stock or any rights or options to purchase any of the foregoing, or to convert any existing Indebtedness to Equity Interests in the Borrower. Except as set forth on Schedule 6.1(k) , none of the Borrower or any of its Subsidiaries is a party to or subject to a shareholders agreement, voting agreement, proxy agreement, lock-up or other similar agreement with respect to the ownership or control of Equity Interests of the Borrower or any of its Subsidiaries.
(l) Material Agreements; Absence of Default . The Material Agreements identified in Schedule 1.1(d) hereto include all of the contracts, agreements, leases, Instruments and other binding commitments and undertakings of the Borrower and its Subsidiaries, the performance or breach of which could reasonably be expected to have a Material Adverse Effect on the Borrower, and the Borrower has provided the Lender with copies of each such Material Agreement. None of the Borrower or any of its Subsidiaries is in material default under any of the Material Agreements, none of them has received any written notice of an asserted default thereunder from any other Person, and none of them has knowledge of a material breach by any counterparty thereto or the inability of any counterparty thereto to perform its obligations thereunder.
(m) Taxes and Other Payments . Except for matters which could not reasonably be expected to have a Material Adverse Effect, the Borrower and each Subsidiary thereof has filed all Tax returns and reports required by law to have been filed by it and has paid all Taxes and governmental charges thereby shown to be owing and all claims for sums due for labor, material, supplies, personal property and services of every kind and character provided with respect to, or used in connection with its respective properties and no claim for the same exists except as permitted hereunder, except any such Taxes, charges or amounts which are being diligently contested in good faith by appropriate proceedings and for which adequate reserves in accordance with IFRS have been set aside on the books of the Borrower or such Subsidiary, as applicable.
(n) Environmental Laws . Except as set forth in Schedule 6.1(n) hereto:
(i) each Project has been owned, developed, operated, leased and utilized in material compliance with all applicable Governmental Requirements, including Environmental Laws;
(ii) there are no currently outstanding or pending consent decrees, clean-up orders, mitigation orders, compliance orders, remediation orders or other material orders, decrees, judgments or other administrative or judicial requirements outstanding under any Environmental Law with respect to any Project or any other property owned or held by the Borrower;
(iii) none of the Borrower or any of its Subsidiaries has received any written notice of material violation, alleged material violation, material non-compliance, material notice of investigation, liability or potential material liability or request for information with respect to Environmental Laws or other environmental matters with regard to any Project or any other property owned or held by the Borrower, nor does the Borrower have knowledge or reason to believe that any such notice will be received or is being threatened; and
(iv) with respect to each Project or any other property owned or held by the Borrower, there have been no past (which have been adversely determined), and there are no pending or threatened, lawsuits, claims, complaints, injunctions or any other governmental or judicial actions or proceedings with respect to any alleged material violation of any Governmental Requirements, including Environmental Law.
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(o) Indebtedness . Except as disclosed in Schedule 6.1(o) hereto or specifically identified in the financial statements identified in Section 6.1(g), none of the Borrower or any of its Subsidiaries has any existing intercompany Indebtedness, any Indebtedness for borrowed money, or any other Indebtedness.
(p) Compliance with Laws, Etc . Except as disclosed in Schedule 6.1(p) , the Borrower and each Subsidiary thereof is in compliance in all material respects with all Governmental Requirements, including Environmental Laws and Securities Laws, as applicable. Except as disclosed in Schedule 6.1(p), each Project is in compliance in all material respect with all Governmental Requirements.
(q) Operation of Projects . The Borrower have heretofore made available to the Lender all feasibility studies and geological, reserve, resource, metallurgical, engineering and financial data and evaluations of the Projects prepared by or for the benefit of the Borrower or otherwise in the possession of the Borrower. The Borrower is not aware of any inaccuracy or omission in such information which has had or could reasonably be expected to result in a Material Adverse Effect. The Budget has been developed by the Borrower in a prudent manner in accordance with standard industry practice, and the Borrower has no knowledge of any fact or state of affairs related thereto, or any defect or deficiency therein, which would cause it to be unable to undertake and complete the Budget during the period and at the costs specified therein.
(r) Foreign Corrupt Practices . None of the Borrower or any Affiliate of the Borrower or any Representative acting on behalf of the Borrower or any of its Subsidiaries has: (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment to any foreign or domestic governmental official or employee from corporate funds; (iii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended or other similar Governmental Requirements applicable to the Borrower; or (iv) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
(s) Project Permits . Except for permits, licenses, approvals, authorizations and consents which are to be obtained by the Borrower or Subsidiary thereof from time to time in the ordinary course of business and the absence or delay of which has not had and could not reasonably be expected to have a Material Adverse Effect on the development or operation of any Project, all permits, licenses, approvals, authorizations and consents of Governmental Authorities which are necessary to undertake and conduct the business of the Borrower or any Subsidiary thereof as it is currently being conducted are identified in Schedule 6.1(s) hereto (collectively, the "Project Permits"). All Project Permits necessary to undertake and conduct the activities contemplated by the Budget have been obtained and are in full force and effect in accordance with their terms, free of material defaults, and no written notice alleging a breach or default under any of the Project Permits or challenging or questioning the validity of such Project Permit has been delivered, except to the extent disclosed to the Lender in Schedule 6.1(s) .
(t) Shares and Securities Representations .
(i) The Shares to be issued to the Lender pursuant hereto and the issuance thereof have been duly authorized and, when issued and delivered in accordance with the terms of this Agreement, will have been validly issued and will be fully paid and non-assessable. The Shares are, and will be, issued free and clear of any Lien, and the issuance of the Shares will not be subject to any preemptive or other similar right.
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(ii) The Borrower has received all necessary approvals and acceptances under applicable Securities Laws with respect to the Borrower entering into this Agreement and performing its obligations hereunder.
(iii) The Borrower is a reporting issuer or the equivalent in British Columbia, Alberta and Ontario and is in compliance in all material respects with its obligations under applicable Securities Laws of British Columbia, Alberta and Ontario and of the TSX Venture Exchange and is not included in any list of defaulting reporting issuers maintained by the securities commissions of British Columbia, Alberta and Ontario.
(iv) The Borrower and its Affiliates have not taken, and will not take, directly or indirectly, any action designed to, or that might reasonably be expected to, cause or result in stabilization or manipulation of the price of the common stock to facilitate the sale or resale of the Shares or affect the price at which the Shares may be issued or resold, and the Borrower and its Affiliates will not, directly or indirectly, sell or purchase any Shares prior to the Maturity Date.
(v) The issuance of the Shares and, if applicable, the Conversion Shares and the Interest Shares, will be exempt from the prospectus requirements of applicable Securities Laws and no document will be required to be filed and no proceeding taken or approval, permit, consent, order or authorization obtained under any such applicable Securities Laws in connection with the first trade of the Shares (assuming that: (i) at the time of such trade, at least four months have elapsed from the "distribution date" (as such term is defined in National Instrument 45-102)); (ii) such trade is not a "control distribution" as defined in National Instrument 45-102; (iii) no unusual effort is made to prepare the market or create a demand for the security that is the subject of the trade; (iv) no extraordinary commission or consideration is paid to a person or company in respect of the trade; and, (v) if the Lender is an insider of AGC, it has no reasonable grounds to believe that AGC is in default of "securities legislation" (as defined in National Instrument 14-101 Definitions)).
(vi) The Borrower's executive officers and directors understand the nature of the Shares being sold hereby and recognize that the issuance of the Shares will have a potential dilutive effect on the equity holdings of other holders of the Borrower's equity or rights to receive equity of the Borrower. The board of directors of the Borrower has concluded in its good faith business judgment that the issuance of the Shares is in the best interests of the Borrower. The Borrower specifically acknowledges that its obligation to issue the Shares, is binding upon the Borrower and enforceable regardless of the dilution such issuance may have on the ownership interests of other shareholders of the Borrower or parties entitled to receive equity of the Borrower.
(vii) There are no material disagreements of any kind presently existing, or reasonably anticipated by the Borrower to arise between the Borrower and the accountants and lawyers presently employed by the Borrower, including but not limited to disputes or conflicts over payment owed to such accountants and lawyers, nor have there been any such disagreements during the two years prior to the closing of the offerings hereunder.
(viii) The Borrower has not incurred, nor will it incur, directly or indirectly, any liability for brokerage or finder's fees or agent's commissions or any similar charges or fees in connection with this Agreement or the issuance of any Shares contemplated hereby.
(u) Solvency . As of the Closing Date, and after giving effect to the transactions contemplated hereby, the Borrower and its Subsidiaries: (i) are and will be solvent, (ii) have sufficient capital to carry on their business and transactions, and all business and transactions in which they are about to engage, and to pay their debts as they become due, (iii) do not believe
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that they will incur debts or liabilities beyond their ability to pay such debts or liabilities as they mature, and (iv) own property having a value, both at fair valuation and at present fair saleable value, greater than the amount required to pay their probable liabilities (including contingent liabilities).
(v) ERISA . Except as would not reasonably be expected to result in a Material Adverse Effect:
(i) Each Plan is in compliance with the applicable provisions of ERISA, the Code and other applicable laws. Each Plan that is intended to qualify under Section 401(a) of the Code has received a favorable determination letter from the IRS or an application for such a letter is currently being processed by the IRS with respect thereto and, to the best knowledge of each Borrower, nothing has occurred which would prevent, or cause the loss of, such qualification. Each Borrower and each ERISA Affiliate have made all required contributions to each Plan subject to Section 412 of the Code, and no application for a funding waiver or an extension of any amortization period pursuant to Section 412 of the Code has been made with respect to any Plan.
(ii) There are no pending or, to the best knowledge of each Borrower, threatened claims, actions or lawsuits, or action by any Governmental Authority, with respect to any Plan. There has been no prohibited transaction or violation of the fiduciary responsibility rules with respect to any Plan.
(iii) (A) No ERISA Event has occurred or is reasonably expected to occur; (B) no Plan has any Unfunded Pension Liability; (C) no Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability under Title IV of ERISA with respect to any Plan (other than premiums due and not delinquent under Section 4007 of ERISA); (D) no Loan Party nor any ERISA Affiliate has incurred, or reasonably expects to incur, any liability (and no event has occurred which, with the giving of notice under Section 4219 of ERISA, would result in such liability) under Sections 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and (E) no Loan Party nor any ERISA Affiliate has engaged in a transaction that could be subject to Sections 4069 or 4212(c) of ERISA.
(w) Defined Benefits Plans . The Borrower does not maintain, sponsor, administer, contribute to or participate in, any pension plan with a "defined benefit provision" as such term is defined under the Income Tax Act (Canada).
6.2 Representations and Warranties of the Lender . The Lender hereby represents and warrants to the Borrower that the following are true and correct as of the date of this Agreement and will be true and correct as of the date of the issuance of any Shares as provided hereunder as though made as of such date, except to the extent such representations and warranties are specifically made as of a particular date (in which case such representations and warranties will be true and correct as of such date):
(a) Risk of Loss . The Lender recognizes that: (i) the acquisition of the Shares involves a high degree of risk, is speculative and only investors who can afford the loss of their entire investment should consider investing in the Borrower and/or the Shares; (ii) the Lender may not be able to liquidate its investment; (iii) transferability of the Shares is limited; and (iv) in the event of a disposition of the Shares, the Lender could sustain the loss of its entire investment.
(b) Accredited Investor . The Lender is an "accredited investor" as defined in National Instrument 45-106. The Lender agrees to furnish any additional information requested by the Borrower to assure compliance with applicable Securities Laws in connection with the purchase and sale of the Shares.
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(c) Evaluation .
(i) The Lender has such knowledge, skill and experience in business, financial and investment matters that the Lender is capable of evaluating the merits and risks of an investment in the Shares. With the assistance of the Lender's own professional advisors, to the extent that the Lender has deemed appropriate, the Lender has made its own legal, tax, accounting and financial evaluation of the merits and risks of an investment in the Shares and the consequences of this Agreement. The Lender has considered the suitability of the Shares as an investment in light of its own circumstances and financial condition and the Lender is able to bear the risks associated with an investment in the Shares.
(ii) The Lender has relied solely upon the information provided by the Borrower in making its decision to invest in the Shares and has not relied upon any other representation or other information (whether oral or written) from any other third party.
(d) No General Solicitation . The Lender represents that no Shares were offered or sold to it by means of any form of general solicitation or general advertising, and in connection therewith the Lender did not: (A) receive or review any advertisement, article, notice or other communication published in a newspaper or magazine or similar media or broadcast over television or radio whether closed circuit, or generally available; or (B) attend any seminar meeting or industry investor conference whose attendees were invited by any general solicitation or general advertising.
(e) Prospectus Exemption . The Lender understands that the issuance of the Shares is exempt from the prospectus requirements of applicable Securities Laws. The Shares have not been and will not be registered under the United States Securities Act of 1933 , as amended (the "U.S. Securities Act"), or any state securities laws and the Shares may not be offered or sold in the United States or to a U.S. person except in compliance with the requirements of an exemption from registration under the U.S. Securities Act and any applicable state securities laws;
AFFIRMATIVE COVENANTS OF THE BORROWER
Until full and final payment and performance of the Obligations (other than contingent indemnification Obligations for which no claim has been made and Obligations related to any unexercised right to make a Directed Advance), the Borrower shall, unless the Lender otherwise consents in writing (which consent the Lender may grant or withhold in its sole discretion), perform all covenants in this Article 7 .
7.1 Compliance with Laws, Etc . Except as set forth in Schedule 7.1 with respect to past compliance (so long as the applicable Borrower or Subsidiary thereof diligently disputes the alleged non-compliance in good faith and pursuant to appropriate procedures), the Borrower shall comply, and shall cause each of its Subsidiaries to comply, in all material respects, with all applicable Governmental Requirements, including Environmental Laws, and the Borrower shall own, operate and manage, and shall cause each of its Subsidiaries to own, operate and manage, the Projects in compliance in all material respects with all applicable Governmental Requirements, including Environmental Laws. The Borrower shall pay, and shall cause each Subsidiary thereof to pay, all Taxes, assessments, and governmental charges imposed upon them or their respective property before the same become delinquent, except to the extent contested in good faith and adequately reserved for in accordance with IFRS to the Borrower or any Subsidiary thereof.
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7.2 Project Permits . The Borrower shall comply, and shall cause each of its Subsidiaries to comply, in all material respects with all Project Permits. The Borrower shall own, operate and use, and shall cause each of its Subsidiaries to own, operate and use, each Project in compliance with the Project Permits in all material respects. The Borrower shall, and shall cause each of its Subsidiaries, to obtain all Project Permits, and the Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, all Project Permits in full force and effect.
7.3 Reporting Requirements . The Borrower Representative shall deliver to the Lender the reports, information, notices and certificates set forth below:
(a) Monthly Reports . As soon as practicable, but in any event no later than ten (10) days after the end of each Month, the Borrower Representative shall submit to the Lender a report with respect to the Borrower and the Projects during the preceding Month, in form and content satisfactory to the Lender, to include a summary description of actions taken with respect to the Projects during the prior Month, a description of actual expenditures (as compared to the Budget) and such other data and information reasonably requested by the Lender.
(b) Monthly Financial Information . As soon as available and in any event within ten (10) days after the end of each fiscal month of the Borrower, the Borrower Representative shall deliver to the Lender a consolidated unaudited balance sheet of the Borrower, each as of the end of such month and unaudited statements of consolidated income of the Borrower for such month and for the period commencing at the end of the previous fiscal year and ending with the end of such month.
(c) Annual Financial Information . As soon as available and in any event within ninety (90) days after the end of each fiscal year, a consolidated balance sheet of the Borrower as of the end of such year and consolidated statements of income, cash flow and retained earnings of the Borrower for such year audited by UHY McGovern Hurley LLP or other independent registered accountants reasonably acceptable to the Lender.
(d) Litigation; Claims . Promptly after initiation thereof or receipt of notice with respect thereto, notice of any claims, proceedings, litigation or material disputes by, against, or otherwise involving the Borrower or any Subsidiary thereof, or any Project, or other litigation which could reasonably be expected to have a Material Adverse Effect on the Borrower or any Subsidiary thereof, together with copies of the court filings or other documents associated therewith.
(e) Securities Law and Exchange Filings . All annual information forms, proxy circulars, material change reports, prospectuses and other filings by the Borrower with Governmental Authorities in respect of securities matters and compliance with Securities Laws, and all material filings with any public stock exchange upon which the Shares are traded.
(f) Material Agreements . Promptly after receipt thereof, copies of any notices of default or claims of material breach received or sent by the Borrower or any Subsidiary thereof, pertaining to any of the Material Agreements or any Project, and, promptly after receipt thereof, copies of all Material Agreements entered into by the Borrower after the date of this Agreement.
(g) Environmental Matters . Promptly after the filing or receipt thereof, copies of (i) all new Project Permits, together with a description thereof and (ii) all claims by and notices with or from any Governmental Authority or any other Person alleging material noncompliance with or violation of Environmental Laws or Project Permits and any correspondence in response thereto.
(h) Reserved .
(i) Changes in Capital Structure . The Borrower Representative shall promptly provide the Lender with prior written notice of any change in the number and ownership of Equity Interests of
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the Borrower, including an updated Schedule 6.1(k) to replace the Schedule 6.1(k) provided to the Lender on the date of this Agreement.
(j) Other Information; Updated Schedules . Such other certificates, reports, data, and information respecting the condition or operations, financial or otherwise, of the Borrower or any Subsidiary thereof or the Projects as the Lender may from time to time reasonably request. Revised and updated Schedules prepared and provided by the Borrower on behalf of the Borrower pursuant to this Section 7.3 shall be in form and content reasonably acceptable to the Lender.
7.4 Inspection . At any reasonable time during normal business hours and from time to time, on reasonable notice, the Borrower shall permit, and shall cause each of its Subsidiaries to permit, the Lender and its Representatives to examine and make copies of and abstracts from the records and books of account of, and to visit the properties of, the Borrower and each Subsidiary thereof (including the Projects) and to discuss the affairs, finances and accounts of the Borrower or any Subsidiary thereof with any Representative of the Borrower or any Subsidiary thereof. If no Default or Event of Default has occurred and is continuing, the Lender may visit and inspect the Projects once per year at the expense of the Borrower. If no Default or Event of Default has occurred and is continuing, the cost and expense of visits and inspections by the Lender and its Representatives, other than as stated herein, shall be for the account of the Lender. At any time when a Default or Event of Default has occurred and is continuing, the cost and expense of all site visits and inspections by the Lender or its Representatives shall be for the account of the Borrower. Borrower will not be responsible for injuries to or damages suffered by Representatives of the Lender while visiting the properties of the Borrower or a Subsidiary thereof (including the Projects) if such injuries or damages are caused by or directly result from the gross negligence or willful misconduct of the Lender or its Representatives.
7.5 Maintenance of Insurance . The Borrower shall maintain, and shall cause each of its Subsidiaries to maintain, with respect to its assets and business generally and with respect to the Projects, insurance with responsible and reputable insurance companies or associations that covers liabilities, property damage or loss and other risks in such amounts, with such deductibles, covering such risks and otherwise on such terms and conditions as shall be customary for corporations engaged in the same or similar businesses. Each of the Borrower's insurance policies, excluding the Borrower's director and officer insurance policies, shall name the Lender as loss payee or additional insured, as appropriate, and shall contain an endorsement providing that such insurance cannot be terminated or amended without at least thirty (30) days prior notice to the Lender, and the Borrower Representative shall have provided certificates of issuing insurance companies or brokers, confirming compliance by the Borrower with the insurance requirements set forth in this Section 7.5 .
7.6 Keeping of Records and Books of Account . The Borrower shall keep, and shall cause each of its Subsidiaries to keep, adequate records and books of account, in which complete entries shall be made reflecting all financial transactions of the Borrower and each Subsidiary thereof, and with respect to the Borrower and each Subsidiary thereof on a consolidated basis, the foregoing shall be in accordance with IFRS to the Borrower and each Subsidiary thereof at such point in time, and in each case, consistently applied.
7.7 Preservation of Existence, Etc . The Borrower shall preserve and maintain, and shall cause each of its Subsidiaries to preserve and maintain, its respective corporate existence, rights, franchises and privileges in the jurisdiction of their incorporation or formation; and, the Borrower will qualify and remain qualified, and will cause each of its Subsidiaries to qualify and remain qualified, as a foreign entity in each jurisdiction in which such qualification is necessary in view of their business and operations or the ownership of their properties. The Borrower will comply in all material respects, and will cause each of its Subsidiaries to comply in all material respects, with all applicable Governmental Requirements and all Securities Laws, concerning disclosure of matters relevant to such Persons and their properties; and, the Borrower will timely file, and will cause each of its Subsidiaries to timely file,
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full and complete reports concerning their business and operations as required by such Governmental Requirements and Securities Laws.
7.8 Conduct of Business . The Borrower shall engage solely, and will cause the Borrower and each of its Subsidiaries to engage solely, in the business of developing and operating the Projects, and other activities incident thereto, in accordance with generally accepted industry practices. The Borrower shall, and shall cause each of its Subsidiaries, to develop, manage, operate and use the Projects in accordance with prudent industry practices and with the Budget.
7.9 Notice of Default . The Borrower Representative shall furnish to the Lender as soon as possible and in any event within three (3) Business Days after discovering the occurrence of each Event of Default or Default continuing on the date of such statement, a statement of the president or chief financial officer of the Borrower Representative, setting forth the details of such Event of Default or Default, and the action which the Borrower proposes to take with respect thereto.
7.10 Defense of Title and Rights . The Borrower shall preserve and defend, and shall cause each of its Subsidiaries to preserve and defend, its respective ownership of all right, title and interest in and to the Properties and the Projects, and its other material assets, property and rights as such title is represented and warranted in Section 6.1(j) . The Borrower shall defend, and shall cause each Subsidiary thereof to defend, the Liens in favor of the Lender under the Security Documents, and the Borrower shall maintain and preserve, and shall cause each Subsidiary thereof to maintain and preserve, such Liens as perfected Liens with their Agreed Priority. The Borrower shall ensure that the Security Documents shall at all times cover and extend to all assets, properties, rights and interests of the Borrower or Subsidiary.
7.11 Material Agreements . The Borrower shall comply with, and shall cause each Subsidiary thereof to comply with, the terms and conditions of each of the Material Agreements except where any non-compliance could not reasonably be expected to cause a material default under such Material Agreement or to have a Material Adverse Effect.
7.12 Maintenance of Unissued Shares; Compliance with Securities Laws; TSX Venture Exchange Listing and Compliance .
(a) AGC shall, and shall cause each Subsidiary to, comply in all material respects with all applicable Securities Laws. Forthwith after the issuance of Shares pursuant to this Agreement, AGC shall file such forms, documents and Instruments, and to take such actions as may be required by Securities Laws and TSX Venture Exchange relating to the issuance or registration of any Tradable Shares.
(b) AGC shall, and shall cause each Subsidiary to, comply with all applicable TSX Venture Exchange rules and policies, including TSX Venture Exchange quantitative and qualitative continued listing requirements, and AGC shall maintain its listing on TSX Venture Exchange in good standing.
(c) AGC will at all times maintain sufficient authorized but unissued Shares to meet its obligations hereunder, and all Shares issued to the Lender hereunder shall be Tradable Shares.
7.14 Public Announcements . The Borrower will receive Lender's consent prior to issuing any press release or other public announcement regarding this Agreement, the Lender (or any of its Affiliates) or the transactions contemplated hereby. The Borrower shall not make or issue any public announcement, press release, public statement or other public filing or issuance with respect to this Agreement, the transactions contemplated hereby, or the Lender (or any of its Affiliates), without the prior review, comment and approval of the Lender; provided , that if such public announcement, press release, public statement or other public filing or issuance is required by applicable Governmental
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Requirements, then the Lender shall not unreasonably withhold or delay its consent. The party proposing to make an announcement, press release, public statement or other public filing shall provide a copy of any such proposed public announcement, press release, public statement or other public filing or issuance to the Lender for review and comment at least two (2) Business Days prior to release. The Borrower agrees to incorporate any reasonable comments or changes proposed by the Lender. Any comments provided by the Lender shall not be considered certification by such party as to the accuracy, veracity or completeness of the information contained in such public announcement, press release, public statement or other public filing or issuance, or a confirmation or certification by the Lender that the content of such document complies with Securities Laws or other applicable Governmental Requirements.
7.15 Maintenance of Borrower's Account . The Borrower shall establish and maintain the Borrower's Account as its primary operating account, in the location and with the bank or financial institution described on Schedule 1.1(a) , and shall not change such account without the Lender's prior written consent. The Borrower shall ensure that the Borrower's Account remains subject at all times to a Lien in favor of the Lender as established by the applicable Security Documents. The Borrower shall maintain all proceeds of the Loan in the Borrower's Account until such time as amounts are withdrawn and expended as allowed by Section 2.5 in accordance with the Budget.
7.16 Completion of Actions . The Borrower shall promptly and diligently use its best efforts to pursue, obtain, complete and satisfy those actions and undertakings set forth on Schedule 7.16 hereto by the deadlines provided therein; provided , that , if such actions and undertakings are not completed to the reasonable satisfaction of the Lender by the deadlines set forth in Schedule 7.16 , then it shall be an Event of Default hereunder.
7.17 Shares Delivered to the Lender . All Shares issued and delivered to the Lender, whether as Interest Shares or otherwise, shall be (a) fully paid, duly issued and non-assessable; (b) issued by AGC in original certificates reflecting the Lender (or its designee) as the owner thereof and will bear a legend in accordance with applicable Securities Laws; (c) free and clear of all Liens and other claims of right or interest by any third Person and shall be free and clear of other contractual restrictions or obligations (other than those agreed to and entered into by the Lender); and (d) such Shares shall be freely transferrable in accordance with Securities Laws on a public stock exchange of recognized standing.
NEGATIVE COVENANTS OF THE BORROWER
Until the full and final payment and performance of the Obligations (other than contingent indemnification Obligations for which no claim has been made and Obligations related to any unexercised right to make a Directed Advance), the Borrower shall, unless the Lender otherwise consents in writing (which consent the Lender may grant or withhold in its sole discretion), perform all covenants in this Article 8 .
8.1 Indebtedness . Borrower shall not, and shall cause its Subsidiaries to not, directly or indirectly, create, incur, assume, agree to or suffer to exist, any Indebtedness, except (a) Indebtedness hereunder; (b) Indebtedness secured by Liens permitted by Section 8.2 , so long as the principal amount of such Indebtedness shall not increase from the amount in existence on the Closing Date; (c) Indebtedness existing on the date hereof disclosed to the Lender on Schedule 6.1(o) hereto, so long as the principal amount of such Indebtedness shall not increase from the amount in existence on the Closing Date; (d) unsecured account trade payables, bank overdrafts and other similar unsecured Indebtedness incurred in the ordinary course of business, so long as such amounts are not overdue or delinquent; (e) Debt Financing provided by a third Person to the Borrower to the extent necessary to develop and operate a Project related thereto in accordance with the Budget, to the extent that the
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terms, conditions and amount of such Debt Financing are consented to by the Lender in its sole discretion and are in compliance with the Budget; and (f) unsecured Indebtedness of the Borrower owing to any of its Subsidiaries (provided that such intercompany Indebtedness is subordinated, pledged as security for the Obligations, and postponed to the payment in full of the Obligations).
8.2 Liens, Etc . Borrower shall not, and the Borrower shall cause its Subsidiaries to not, directly or indirectly, create, grant, incur, assume, agree to or suffer to exist any Lien upon or with respect to any of its properties or assets, including any portion of the Properties or its interest in the Projects or any other real or personal property or assets of the Borrower or any Subsidiary of the Borrower, now owned or hereafter acquired, or assign or otherwise convey any right to receive the production, proceeds or income therefrom (other than with respect to the sale of mineral production from the Projects), except:
(a) Liens for taxes, assessments or governmental charges or levies if the same shall not at the time be delinquent or thereafter can be paid without penalty, or are being contested in good faith and by appropriate proceedings;
(b) Liens imposed by law, such as carriers, warehousemen and mechanics' liens and other similar liens arising in the ordinary course of business associated with amounts not yet due and payable, or which are being diligently disputed by the Borrower in good faith and pursuant to appropriate procedures;
(c) reserved;
(d) reserved;
(e) Liens outstanding on the date hereof and described in Schedule 6.1(j) hereto;
(f) Liens arising under the Security Documents;
(g) cash or governmental obligations deposited in the ordinary course of business in connection with contracts, bids, tenders or to secure workmen's compensation, unemployment insurance, surety or appeal bonds, reclamation bonds, costs of litigation (when required by law), public and statutory obligations;
(h) Liens given in the ordinary course of business to a public utility or any municipality or governmental or other public authority when required by such utility or municipality or governmental or other authority in connection with the operations of the Borrower; and
(i) Liens securing third-party financing for the Projects as contemplated and permitted by Section 8.1(e) .
Notwithstanding the foregoing, if the Borrower shall grant or allow a Lien on any of its properties or assets in violation of this Section 8.2 , then it shall be deemed to have simultaneously granted an equal and ratable Lien on any such properties or assets to and in favor of the Lender as additional security for the Obligations, to the extent that such a Lien has not already been granted to the Lender.
8.3 Assumptions, Guarantees, Etc. of Indebtedness of Other Persons . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, directly or indirectly, assume, guarantee, endorse or otherwise become directly or contingently liable (including, without limitation, liable by way of agreement, contingent or otherwise, to purchase, to provide funds for payment, to supply funds to or otherwise invest in the debtor or otherwise to assure the creditor against loss) in connection with any Indebtedness of any other Person, except (a) guarantees by endorsement of negotiable instruments for deposit or collection or similar transactions in the ordinary course of business or (b) in connection with Indebtedness contemplated by Section 8.1(e) .
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8.4 Liquidation; Merger; Change in Ownership . Except as provided under the Arrangement Agreement, the Borrower shall not, and the Borrower shall cause its Subsidiaries to not, liquidate or dissolve, or enter into any consolidation, amalgamation, arrangement, business combination or merger, or enter into any partnership, joint venture or other combination where such combination involves a contribution by the Borrower or any Subsidiary thereof of all or substantially all of its assets, or sell, lease or dispose of its business or assets as a whole or in an amount which constitutes substantially all of such assets, or enter into any agreement with respect to the foregoing or agree to do or undertake any of the foregoing.
8.5 Restrictive and Inconsistent Agreements . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, enter into any agreement or undertaking or incur or suffer any obligation prohibiting or inconsistent with the performance by the Borrower of its Obligations under the Loan Documents or any Material Agreement.
8.6 Burdens on Production . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, grant, sell, transfer, assign or convey, directly or indirectly, to any Person any Royalty (of any kind or nature whatsoever, howsoever designated), production payment or other non-cost bearing interests in or to any Property or any Project, other than the Royalties listed in Schedule 1.1(e).
8.7 Investments in Other Persons . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, directly or indirectly: (a) make any loan or advance of credit (other than as contemplated by the Budget, or approved capital expenditures and exploration expenses, or from the Borrower to the Borrower) to any Person utilizing the Loan proceeds or (b) purchase or otherwise acquire the capital stock, indebtedness, obligations of, or any interest in, any Person (other than readily marketable direct obligations of the United States of America and certificates of time deposit issued by a commercial bank of recognized standing operating in the United States of America, or other investment grade instruments reasonably approved by the Lender).
8.8 Sale of Project Assets . The Borrower shall not, and shall cause its Subsidiaries to not, directly or indirectly, sell, transfer, assign or otherwise dispose of any of their respective assets or properties, including any assets or properties related to any Project, except for sales of graphite in the ordinary course of business pursuant to (a) sales agreements in existence as of the Closing Date and disclosed on Schedule 1.1(d) , and (b) sales agreements approved by the Lender. The Borrower shall not, and shall cause its Subsidiaries to not, directly or indirectly, enter into or agree to any offtake agreement, supply agreement, sales agreement or other Instrument relating to the sale, conveyance, transfer or grant of an interest in graphite produced at or from any Project, without the prior written approval of the Lender, except for sales of graphite in the ordinary course of business pursuant to sales agreements approved by the Lender in accordance with the foregoing.
8.9 Acquisitions . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, purchase or acquire any Equity Interests of any Person, or purchase or acquire all or substantially all the assets of any Person, or purchase or acquire a division or business of any Person.
8.10 Dividends; Reduction in Capital . The Borrower shall not (a) declare, accrue or pay any dividends, whether in cash or in Equity Interests, or (b) buy back any of its Shares or otherwise reduce its capital, while any Loan or any other amount hereunder remains outstanding and unpaid.
8.11 Limitation on the Issuance of Shares . The Borrower shall not sell, transfer or issue, and the Borrower shall not cause or permit any Subsidiary to sell, transfer or issue, any Equity Interest of the Borrower or any Subsidiary, except for the sale, transfer or issuance of Equity Interests to any of its Subsidiaries, which are subject to an Equity Interest Pledge Agreement in favor of the Lender upon the sale, transfer or issuance of such Equity Interests to the Borrower. The Borrower shall not split, subdivide, combine, consolidate, reverse split, or reclassify any shares of its capital stock, undertake any
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capital reorganization or declare, set aside or pay any dividend or other distribution (whether in cash, stock or property or any combination thereof).
8.12 Budget . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, materially amend, modify, supplement or revise the Budget without the prior consent of AGC's Board of Directors and, if such consent is obtained, then by the Lender, which consent may be withheld by the Lender in its sole discretion. For the purposes of the foregoing, a material amendment, modification, supplement or revision requiring consent of AGC's Board of Directors and the Lender shall not include an anticipated or actual negative variance in the Budget (a) created solely by a change in the timing of when the Borrower makes an expenditure or (b) that relates solely to an expenditure that the Borrower, to its knowledge and in accordance with generally accepted industry practices, reasonably expects to offset against other savings within the period of time covered by such Budget. The Borrower shall not, and shall cause its Subsidiaries to not, make, agree to make, accrue or incur any expenditure of any nature whatsoever, or any commitment therefor, unless such expenditure is included and described in the Budget or unless such expenditure receives prior approval by AGC's Board of Directors and, if such approval is obtained, then by the Lender, which approval may be withheld by the Lender in its sole discretion.
8.13 Material Agreements . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, (a) enter into or agree to enter into any Material Agreement, or (b) modify, amend or knowingly waive any material rights with respect to any Material Agreement to which any such Person is a party, in each case without the prior written consent of the Lender.
8.14 Limitation on Hedging . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, enter into any Hedge Contract without the prior written consent of the Lender.
8.15 Transactions with Affiliates . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, sell, lease, assign or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with or make any payments to, any Affiliate or any officer or employee of the Borrower or a Subsidiary of the Borrower; provided , however that the Borrower or Subsidiary may engage in such a transaction so long as (a) it is entered into and completed in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrower or such Subsidiary than could be obtained on an arm's-length basis from unrelated parties, (b) it does not remove any property or asset from the coverage of any Security Document in favor of the Lender or otherwise have a material adverse effect on any Collateral or any Security Document, and (c) the Borrower Representative has provided written notice thereof to the Lender.
8.16 New Subsidiaries . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, organize or acquire any Subsidiary. In the event the Lender consents to the organization or acquisition of a Subsidiary by the Borrower, (a) the Borrower Representative shall provide the Lender with written notice thereof and an updated Schedule 6.1(b) to replace the Schedule 6.1(b) provided to the Lender on the date of this Agreement; and (b) the Borrower and each new Subsidiary of the Borrower shall execute and deliver such Security Documents and other Instruments reasonably requested by the Lender.
8.17 Use of Loan Proceeds . The Borrower shall not, and the Borrower shall cause its Subsidiaries to not, use the proceeds of any Loan, or any portion thereof, for any purpose other than as expressly set forth in Section 2.5 hereof.
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CONVERSION PROVISIONS
9.1 Conversion . As a condition to this Agreement and the Loan to be made hereunder, the Borrower hereby agrees to the conversion of the Loan into Tradable Shares at the option of the Lender in accordance with the terms set forth herein. Beginning on the Closing Date, the terms and conditions set forth in this Article 9 , together with those set forth in Schedule 9 , shall apply to the conversion of the Loan, or any portion thereof, together with any outstanding interest thereon, into Tradable Shares (the "Conversion Shares"), from time to time.
9.2 Conversion; Issuance of Shares .
(a) Conversion Rights . The Borrower hereby irrevocably grants to the Lender the option and right, exercisable from time to time in the Lender's sole discretion during the Conversion Period, and upon three (3) Business Days prior written notice to the Borrower Representative (the "Conversion Notice") to convert all or any portion of the Loan, together with any outstanding interest thereon, into Conversion Shares at the Conversion Price (the "Conversion Rights") whereupon the relevant portion of the Loan shall be deemed permanently repaid upon issuance of the Conversion Shares to the Lender. The Conversion Notice shall be in the form of Attachment I to Schedule 9 and shall specify (i) the principal amount of the Loan to be converted into Conversion Shares (the "Conversion Amount"); (ii) the accrued and unpaid interest due on the Conversion Amount; (iii) the effective date for the conversion and delivery of Conversion Shares to the Lender (the "Conversion Date"); (iv) the Conversion Price; and (v) the number of Conversion Shares to be issued by AGC in satisfaction of such conversion. The number of Conversion Shares to be issued by AGC to the Lender shall be determined by the Lender by calculating (x) the sum of (A) the Conversion Amount plus (B) the amount of accrued and unpaid interest on the Conversion Amount, divided by (B) the Conversion Price with any such adjustments required to comply with the TSX Venture Exchange Corporate Finance Manual. The Lender may also specify in the Conversion Notice the denominations and number of certificates for the Conversion Shares to be issued by AGC in connection with such conversion, the name in which such certificates should be titled and issued and delivery instructions with respect thereto. Each Conversion Notice will be irrevocable when it is effective under the notice provisions of this Agreement. AGC shall promptly issue and deliver to the Lender the applicable number of Conversion Shares, and the Conversion Amount will be deemed to have been repaid by the Borrower upon irrevocable delivery of such Conversion Shares, issued in the name of the Lender (or its designee).
(b) Payment in Dollars . Notwithstanding the right of the Lender to exercise its Conversion Rights as set forth in this Article 9 , if the Lender does not exercise its Conversion Rights at any time prior to the Scheduled Maturity Date, then the Borrower shall repay the Loan on the Scheduled Maturity Date by delivery of United States Dollars in immediately available funds to the Lender's Account, or such other account designated by the Lender in accordance with Article 3 .
(c) Directed Advances . The Borrower hereby acknowledges and confirms the right granted to the Lender to make Directed Advances to the Borrower at any time during the Conversion Period in the amounts and as permitted by Section 3.5 , and immediately to exercise the right to convert the amount of any such Directed Advance into Conversion Shares in accordance with Section 9.2(a) .
9.3 Conversion Amount . The Lender may exercise its Conversion Rights at any time, and from time to time, during the Conversion Period, with respect to all or any portion of the Loan then outstanding of US$50,000 and larger, and with respect to an amount smaller than US$50,000 if such smaller amount represents the entire amount of the Loan outstanding.
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9.4 Fractional Interests . AGC shall not be required to issue fractional Conversion Shares upon conversion. If any fraction of a Conversion Share would, except for the provisions of this Section 9.5 , be issuable on a conversion of the Loan, or any portion thereof, together with any outstanding interest thereon, AGC shall issue to the Lender one (1) share for a fraction of a Conversion Share greater than or equal to 0.50 and shall issue zero (0) shares for a fraction of a Conversion Share less than 0.50.
9.5 Transfer of Conversion Provisions to Successors to the Borrower . If AGC is acquired by another Person or another Person becomes the record or beneficial owner of more than seventy-five percent (75%) of the then outstanding voting Equity Interests of AGC (and the Lender has provided its prior written consent to such transaction and has waived any Default or Event of Default created thereby), AGC shall cause such Person to extend to the Lender, in a written agreement in form reasonably acceptable to the Lender, rights to convert the Loan into Shares in such Person, on terms substantially equivalent to the Conversion Provisions, with adjustments to such terms as reasonably necessary to reflect the market capitalization or, if not publicly traded, the net asset value, of AGC and of such other Person at the time of the acquisition of the Shares of AGC by such Person.
EVENTS OF DEFAULT
10.1 Event of Default . Each of the following events shall be an "Event of Default" hereunder:
(a) Nonpayment . The Borrower shall fail to repay the Loan as and when due hereunder (whether at stated maturity, by prepayment, on demand or otherwise), or shall fail to pay interest hereunder when due (whether on a payment date, by prepayment, on demand or otherwise), or shall fail to pay any other amount due hereunder when due (whether on the date when due, by prepayment, on demand or otherwise).
(b) Specific Defaults . The Borrower shall fail to observe or perform any of its covenants contained in Sections 7.14 , 7.16 , 7.17 , or Article 8 of this Agreement.
(c) Other Defaults . The Borrower shall fail to observe or perform any of its covenants contained in this Agreement or any other Loan Document, other than the covenants referred to in clauses (a) and (b) above, and the Borrower has not remedied such default within ten (10) days after the earlier of (x) the date the Borrower's became aware of such default or (y) the date on which written notice of default was been given by the Lender to the Borrower Representative.
(d) Representation or Warranty . Any representations or warranty made by the Borrower under or in connection with this Agreement, or the other Loan Documents shall prove to have been incorrect, incomplete or misleading in any material respect when made.
(e) Cross-Default . A default (howsoever characterized) shall occur under (i) any Loan Document, (ii) any Material Agreement (subject to applicable cure periods thereunder, if any), or (iii) any agreement or Instrument pertaining to Indebtedness permitted by Section 8.1 ; or the Borrower shall fail to pay any Indebtedness, or any interest or premium thereon, when due (whether by scheduled maturity, required prepayment, acceleration, demand or otherwise) and such default or failure to pay is not being contested by the Borrower in good faith; or, any other default under any agreement or Instrument relating to any such Indebtedness or any other event, shall occur and shall continue after the applicable grace period, if any, specified in such agreement or Instrument, if the effect of such default or event is to accelerate, or to permit the acceleration of, the maturity of such Indebtedness, unless such default or event shall be waived by the holders or trustees of such Indebtedness; or any such Indebtedness shall be declared to be due and payable, or required to be prepaid (other than by a regularly scheduled required prepayment), prior to the stated maturity thereof.
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(f) Bankruptcy; Insolvency . (i) The Borrower shall initiate or commence any case, proceeding or other action (A) under any existing or future Bankruptcy Law, or otherwise seeking to have it judged bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding-up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (B) seeking appointment of a receiver, receiver and manager, trustee, custodian, administrator, conservator, liquidator, controller, monitor or other similar official for it or for all or any substantial part of its assets, or the Borrower shall make a general assignment for the benefit of its creditors; or (ii) a receiver, receiver and manager, trustee, custodian, administrator, conservator, liquidator, controller, monitor or other similar official is appointed for the Borrower or for all or any substantial part of its assets or any steps are taken with respect to such appointment; or (iii) there shall be commenced against the Borrower any case, proceeding or other action of a nature referred to in clause (i) above which (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed, undischarged or unbonded for a period of sixty (60) days; or (iv) there shall be commenced against the Borrower any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets which results in the entry of an order for any such relief which shall not have been vacated, discharged, or stayed or bonded pending appeal within sixty (60) days from the entry thereof; or (v) the Borrower shall take any action in furtherance of, or indicating its consent to, approval of, authorization of, or acquiescence in, any of the acts set forth in clause (i), (ii), (iii), or (iv) above; (vi) any corporate action, legal proceedings or other formal procedure is taken in relation to the foregoing; or (vii) the Borrower generally shall not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due.
(g) Judgments . A final judgment or order for the payment of money shall be rendered against the Borrower and, in either case, either; (A) enforcement proceedings shall have been commenced by any creditor upon such judgment or order; or (B) a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect for any period of twenty (20) consecutive days.
(h) Security Interest . Any Security Document after delivery thereof shall for any reason, except to the extent permitted by the terms thereof or the terms hereof, cease to create a valid and perfected Lien having the Agreed Priority with respect to any of the Collateral purported to be covered thereby, or the Borrower shall so state or claim in writing.
(i) Collateral Enforcement . Creditors of the Borrower or the Borrower having a Lien against or in respect of the property and assets thereof, or any part thereof, realize upon or enforce any such security against such property and assets or any part thereof and such realization or enforcement shall continue in effect and not be released, discharged or stayed within the lesser of twenty (20) days and the period of time prescribed under applicable laws for the completion of the sale of or realization against the assets subject to such seizure or attachment.
(j) Expropriation/Condemnation . An Expropriation Event shall have occurred.
(k) Regulatory Action . Any Governmental Authority shall take any action with respect to the Borrower, or with respect to any Project or any Collateral subject to the Security Documents, which has had or could reasonably be expected to have a Material Adverse Effect on the Borrower or a Project or the ability of the Borrower to repay the Loan or to meet its other Obligations in a timely manner unless such action is set aside, dismissed or withdrawn within twenty (20) days of its institution or such action is being contested in good faith, its effect is stayed during such contest and the Borrower are allowed to continue development of such Project during such period in accordance with the Budget. A material breach or default under any Project Permit shall occur, or any such Project Permit is voided, rescinded, cancelled, terminated or not reissued, and as a result thereof, the Borrower is required to cease or delay a material operation in the Project affected by such action or such action otherwise has a Material Adverse Effect on such Project.
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(l) Cessation of Project Operations . Any Project, or any material portion thereof, shall be abandoned or terminated, or development or operation of any Project shall be terminated or reduced materially from the level of exploration, development, operation and use contemplated by the Budget.
(m) Material Adverse Change . A change in the business, financial condition or prospects of the Borrower or any Project occurs, which has had, or could be reasonably expected to have, a Material Adverse Effect.
(n) Change of Control . A Change of Control shall have occurred.
(o) Delisting; Suspension . The Borrower's Shares shall be suspended or delisted from TSX Venture Exchange.
(p) Arrangement Agreement . A breach by the Borrower of any of the terms and conditions, or a termination, of the Arrangement Agreement.
(q) ERISA Events . An ERISA Event occurs with respect to a Plan or Multiemployer Plan which has resulted or could reasonably be expected to result in a Material Adverse Effect.
10.2 Remedies Upon Event of Default .
(a) Termination of Obligations . Upon the occurrence of an Event of Default specified in Section 10.1(f) of this Agreement, all obligations of the Lender hereunder to provide any additional Advance shall terminate, but such termination shall not limit any rights or remedies of the Lender hereunder. In the case of any Event of Default specified in Section 10.1 (other than Section 10.1(f) ), upon notice by the Lender to the Borrower Representative of the Lender's election to declare the Borrower in default, then the obligations of the Lender hereunder shall terminate, but such termination shall not limit any rights or remedies of the Lender hereunder. The date on which such notice is sent or, in the case of an Event of Default specified in Section 10.1(f) of this Agreement, the date of such Event of Default, shall be the "Date of Default."
(b) Acceleration upon Notice . Upon the Date of Default and upon notice from the Lender of an Event of Default specified in Section 10.1 (other than Section 10.1(f) ), the Loan, together with all interest thereon and all other amounts owed by the Borrower hereunder to the Lender, shall be accelerated and become immediately due and payable in full.
(c) Acceleration without Notice . Immediately and automatically upon the occurrence of an Event of Default specified in Section 10.1(f) , without delivery of any notice by the Lender, the Loan and all amounts owed by the Borrower hereunder shall be automatically accelerated and immediately due and payable on the Date of Default.
(d) Availability of Rights and Remedies . Upon the occurrence of an Event of Default, all of the rights and remedies provided to the Lender in this Agreement, each of the Security Documents, and each other Loan Document shall immediately become available to the Lender, and the Lender shall have all other rights and remedies available at law or in equity.
(e) Cumulative Rights and Remedies . All rights and remedies of the Lender set out in this Agreement, the Security Documents, the other Loan Documents and otherwise available at law or in equity are cumulative, and no right or remedy contained herein or therein is intended to be exclusive; each such right or remedy is in addition to every other right and remedy contained in this Agreement, the Security Documents and the other Loan Documents, or in any existing or future agreement, or now or in the future existing at law, in equity, by statute or otherwise.
(f) Waiver of Presentment . Except as expressly provided above in this Section 10.2 , presentment, demand, protest and all other notices of any kind are hereby expressly waived. From
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and after the Date of Default, interest on the Loan shall accrue at the Default Rate and shall be payable on demand.
(g) Specific Performance; Special Remedies . The Borrower acknowledges and agrees that any failure of the Borrower to comply with this Agreement will cause irreparable harm and injury and that the remedy at law for any breach or threatened breach of any such provision will be inadequate and, accordingly, the Lender shall, in addition to all other rights and remedies that the Lender may have, be entitled, with or without notice to the Borrower to the fullest extent permitted by applicable law, to seek an injunction or temporary restraining order to prevent such breach or threatened breach and to enforce specifically the terms and provisions of this Agreement. Injunctive relief, temporary restraining orders and specific performance may be imposed and enforced judicially or by arbitrators. Such remedies are cumulative and not exclusive and are in addition to all other remedies available to the Lender under this Agreement, the other Loan Documents or otherwise.
11.1 Amendments, Etc. Except as otherwise expressly provided in this Agreement, no amendment or waiver of any provision of this Agreement, nor consent to any departure by the Borrower or the Lender therefrom, shall in any event be effective unless the same shall be in writing and signed by the other party, and, in the case of any amendment, by the Borrower and the Lender and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.
11.2 Notices; Etc. All notices, requests, demands and other communications provided for hereunder shall be in writing (including facsimile communication) and transmitted to the following address or facsimile:
or, as to each Party, at such other address or number as shall be designated by such Party in a written notice to the other. All notices, requests, demands or other communications to or upon the respective Parties hereto shall be in writing (including by facsimile or e-mail), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made: (a) when delivered by hand, upon receipt; (b) when transmitted via telecopy (or other facsimile device) to the number set out herein,
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upon transmission; (c) the Business Day immediately following the day on which the same has been delivered prepaid (or pursuant to an invoice arrangement) to a reputable national overnight air courier service; (d) the third Business Day following the day on which the same is sent by certified or registered mail, postage prepaid; or (e) when delivered by e-mail, upon the sender's receipt of an acknowledgment from the intended recipient (such as by the "return receipt requested" function, as available, return e-mail or other written acknowledgment), provided that if such notice, request, demand or communication transmitted by e-mail is not sent during the normal business hours of the recipient, such notice, request or demand shall be deemed to have been sent at the opening of business on the next Business Day for the recipient. Notices delivered to the Lender pursuant to Article 2 or Article 3 hereof shall not be effective until actually received by the Lender. The Borrower agrees that any notice, request, demand or communication delivered to the Borrower Representative in accordance with the terms of this Section 11.2 shall constitute and be deemed delivery of such notice, request, demand or communication to the Borrower.
11.3 No Waiver; Remedies. No failure on the part of the Lender to exercise, and no delay in exercising, any right hereunder, or under any other Loan Document shall operate as a waiver thereof; nor shall any single or partial exercise of any right hereunder, or under any other Loan Document preclude any other or further exercise thereof or the exercise of any other right. The remedies herein provided are cumulative and not exclusive of any remedies provided by law.
11.4 Costs, Expenses and Taxes. The Borrower agrees to pay after January 1, 2018 and on or before January 31, 2018 all reasonable costs and expenses of the Lender in connection with the negotiation, preparation, execution, delivery, and performance of this Agreement, the other Loan Documents and the other documents and Instruments to be delivered hereunder, including, without limitation the reasonable fees and expenses of all legal counsel and independent consultants to the Lender and all other out-of-pocket expenses of the Lender. The Borrower agrees to pay on demand all actual, out of pocket reasonable costs and expenses of the Lender in connection with the administration of this Agreement and the other Loan Documents, including the reasonable costs and expenses incurred by the Lender in connection with one (1) annual site visit by the Lender to the Projects per year, and all reasonable costs and expenses, if any, in connection with any amendments, waivers or consents and the protection of the Lender's rights with respect to and the enforcement of this Agreement, the other Loan Documents and the other documents to be delivered hereunder (whether incurred before, during or after commencement of any bankruptcy, reorganization or insolvency actions pertaining to the Borrower). All such expenses will be itemized in reasonable detail. In addition, the Borrower agrees to pay any and all stamp, mortgage recording and other Taxes, filing fees, duties or charges payable or determined to be payable in connection with the execution and delivery of this Agreement, the other Loan Documents and the other documents to be delivered hereunder, and the Borrower agrees to indemnify and save the Lender harmless from and against any and all liabilities with respect to or resulting from any delay in paying or omission to pay such Taxes, filing fees or charges. The Borrower acknowledges that it shall pay all aforementioned costs, expenses and taxes regardless of whether any Loan is advanced.
11.5 Indemnification. The Borrower agrees to indemnify the Lender and each of the Lender's Affiliates and their respective directors, partners, managers, members, owners, principals, shareholders, officers, employees, agents, consultants and Representatives (each, an "Indemnified Party" and collectively, the "Indemnified Parties"), from and against, and to defend and hold each of the Indemnified Parties harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, fines, suits, costs, assessments, charges, claims, Taxes and Other Taxes (other than Excluded Taxes), expenses, payments or disbursements of any kind whatsoever, including attorneys' fees and expenses, and all reasonable fees and time charges and disbursements for attorneys who may be employees of any Indemnified Party (collectively "Losses") which may at any time (including, without limitation, at any time following the payment of the Obligations) be imposed on, incurred or suffered
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by or asserted against any Indemnified Party in any way relating to or arising out of (a) this Agreement or any other Loan Document or any Instrument contemplated by or referred to herein or therein, the transactions contemplated hereby or thereby, or the use of the Loan, or (b) a breach or default (whether or not constituting a Default or Event of Default) by the Borrower, or (c) any action or proceeding brought by or against an Indemnified Person due to its entering into or being a party to any Loan Document or by reason of its exercising or performing, or causing the exercise or performance of, any right, power, remedy, obligation or action under any Loan Document, whether or not related to the enforcement of any Loan Document, or (d) any act or omission of the Borrower, or (e) the business or operations of the Borrower or the ownership, management, administration or operation of the Projects, any Property or any other property of the Borrower, or the condition thereof, or (f) any other matter whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement and any other Loan Document, except, in each case, with respect to Losses arising entirely out of the gross negligence or willful misconduct of the Lender or such Indemnified Party as determined by a court of competent jurisdiction by a final and nonappealable judgment. This Section 11.5 shall survive the repayment of the Obligations, the repayment of the Promissory Note and the termination of this Agreement.
11.6 Binding Effect; Assignment. This Agreement shall be binding upon and inure to the benefit of the Borrower, the Lender and their respective permitted successors and assigns. The Borrower shall not have the right to assign any of its rights or obligations hereunder or any interest herein or in any other Loan Document without the prior written consent of the Lender. Subject to Governmental Requirements, the Lender may, at any time, without the consent of the Borrower, assign to its respective successors and Affiliates, or may grant participation to one or more banks, financial institutions or other Persons, in or to all or any part of, and may assign to one or more banks, financial institutions or other Persons, all or any part of, this Agreement, the other Loan Documents and the Loan, and, to the extent of such assignment, such assignee shall have the same obligations, rights and benefits with respect to the Borrower as it would have had if it were a lender hereunder.
11.7 Governing Law. THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS (EXCEPT AS OTHERWISE STATED THEREIN) SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF COLORADO, NOT INCLUDING THE CONFLICTS OF LAW AND CHOICE OF LAW PROVISIONS THEREOF.
11.8 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HERETO HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION.
11.9 Execution in Counterparts; Facsimile Signatures. This Agreement may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. This Agreement may be validly executed and delivered by facsimile, portable document format (.pdf) or other electronic transmission, and a signature by facsimile, portable document format (.pdf) or other electronic transmission shall be as effective and binding as delivery of a manually executed original signature.
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11.10 Inconsistent Provisions. In the event of any conflict between this Agreement and any of the other Loan Documents, the provisions of this Agreement shall govern and be controlling.
11.11 Severability. If any provision hereof is determined to be ineffective or unenforceable for any reason, the remaining provisions hereof shall remain in effect, binding on the parties and enforceable at the election of the Lender in its sole discretion.
11.12 Governing Language. For all purposes, this English language version of this Agreement shall be the original, governing instrument and understanding of the parties. In the event of any conflict between this English language version of the Agreement and any subsequent translation into any other language, this English language version shall govern and control.
11.13 Survival of Representations and Warranties. All representations and warranties made hereunder and in any document, certificate or statement delivered pursuant hereto or in connection herewith shall survive the execution and delivery of this Agreement and the making of any Loan. Such representations and warranties have been and will be relied upon by the Lender, regardless of any investigation made by the Lender or on behalf of the Lender and notwithstanding that the Lender may have had actual or constructive notice or knowledge of (a) any inaccuracy or incompleteness of any representation and warranty, whenever made, or (b) of the existence of a Default, whether at the Closing Date or at the time of any advance of a Loan, and such representations and warranties shall continue in full force and effect as long as any Loan or any other Obligation has not been paid or performed in full.
11.14 Entire Agreement; Schedules and Exhibits. The Schedules to this Agreement and the Exhibits to this Agreement form an integral part of this Agreement and are incorporated herein by reference and expressly made a part hereof. This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof, superseding all prior statements, representations, discussions, agreements and understandings, oral or written, relating to such subject matter, including all term sheets and commitment letters.
11.15 Further Assurances. The Borrower shall execute, acknowledge and deliver to the Lender such other and further documents, certificates and Instruments and do or cause to be done such other acts as the Lender reasonably determines to be necessary or desirable to effect the intent of the parties to this Agreement or otherwise to protect and preserve the interests of the Lender hereunder, promptly upon request of the Lender, including the execution and delivery of any and all documents, certificates and Instruments which are necessary or advisable to create, protect, maintain or perfect in favor of the Lender, Liens on all Collateral of the Borrower.
11.16 Acknowledgements. Each of the parties hereto hereby acknowledges that: it has been advised by its own legal counsel in the negotiation, preparation, execution and delivery of this Agreement and each other Loan Document;
(a) this Agreement and the other Loan Documents shall not be construed against any party or more favorably in favor of any party based upon which party drafted the same, it being agreed and acknowledged that all parties contributed substantially to the negotiation and preparation of this Agreement and the other Loan Documents;
(b) the Lender has no fiduciary relationship with or duty to the Borrower arising out of or in connection with this Agreement or any other agreement, arrangement, Instrument or investment, and the relationship between the Lender, on one hand, and the Borrower, on the other hand, in connection herewith is solely that of debtor and creditor;
(c) neither this Agreement nor any other Loan Document to which the Borrower and the Lender is a party (nor any other agreement, arrangement, Instrument or investment, between the Lender, on one hand, and the Borrower, on the other hand) creates a joint venture, partnership,
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agency relationship or fiduciary duty, and no joint venture, partnership, agency relationship or fiduciary duty shall be deemed to exist, between the Lender and the Borrower;
(d) the Lender is and has been acting solely as a principal and the Lender has not been, is not, and will not be, acting as an advisor, agent or fiduciary for the Borrower;
(e) the Lender may be engaged in a broad range of transactions that involve interests that differ from those of the Borrower and its Affiliates, and the Lender has no obligation to disclose any of such interests to the Borrower or its Affiliates; and
(f) the Borrower will not claim that any Lender has rendered advisory services of any nature or with respect to, or owes a fiduciary or similar duty to, the Borrower in connection with this Agreement, the other Loan Documents, the transactions contemplated hereby or thereby, or the process leading thereto.
11.17 Submission to Jurisdiction; Venue; Service.
(a) The Borrower irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the courts of the State of Colorado and of the United States District Court sitting in the State of Colorado, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or any other Loan Document, or for recognition or enforcement of any judgment, and each of the parties hereto irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement or in any other Loan Document shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement or any other Loan Document against the Borrower or its properties in the courts of any jurisdiction.
(b) The Borrower irrevocably and unconditionally waives to the fullest extent permitted by applicable law, any objection that it may now or hereafter have to the laying of venue of any action or proceeding arising out of or relating to this Agreement or any other Loan Document in any court referred to in Section 11.17(a) hereof. The Borrower hereby irrevocably waives, to the fullest extent permitted by applicable law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court.
(c) The Borrower hereto irrevocably consents to service of process in the manner provided for notices in Section 11.2 hereof. Nothing in this Agreement will affect the right of any party hereto to serve process in any other manner permitted by applicable law.
11.18 Termination of Covenants. Upon (i) the complete and irrevocable payment in full of the Loan and all accrued interest thereon, together with all other fees, expenses and other amounts due hereunder and under each other Loan Document, and (ii) the complete and irrevocable payment and performance of all other Obligations (other than any unexercised right of the Lender to advance a Directed Advance prior to the Scheduled Maturity Date and any contingent indemnification Obligation for which no claim has been made), then all covenants of the Borrower contained in Article 4 , Article 5 , Article 7 and Article 8 hereof will terminate (other than with respect to those that expressly survive repayment). For purposes of certainty, the right and option of the Lender to make Directed Advances to the Borrower and to convert such Directed Advance into Shares in accordance with the Conversion Provisions shall not terminate, and may not be terminated by the Borrower, prior to the Scheduled Maturity Date, and this Agreement shall remain in full force and effect for such purpose.
11.19 Borrowers Jointly and Severally Liable. Notwithstanding anything to the contrary herein, the Loan and the other Obligations constitute the joint and several obligations of each Borrower, and the
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Lender may at its option enforce the entire amount of the Loan made available to any Borrower and the other Obligations owing by such Borrower against such Borrower or any Borrower. The Lender may exercise remedies against any Borrower and its property separately, whether or not the Lender exercises remedies against any other Borrower or its property. The Lender may enforce any Borrower's obligations without enforcing any other Borrower's obligations or any Borrower's obligations under this Section 11.20. Any failure or inability of the Lender to enforce any Borrower's obligations shall not in any way limit the Lender's right to enforce the respective obligations of any other Borrower or any Borrower's obligations under this Section. If the Lender forecloses or exercises similar remedies under any one or more Security Documents with respect to any given Borrower, then such foreclosure or similar remedy shall be deemed to reduce the balance of such Borrower's Loans only to the extent of the cash proceeds actually realized by the Lender from such foreclosure or similar remedy or, if applicable, the Lender's credit bid at such sale, regardless of the effect of such foreclosure or similar remedy on the Loans secured by such Security Documents under the applicable state law. For the avoidance of doubt, each Borrower shall be jointly and severally liable for all Obligations of each other Borrower.
11.20 Borrower Representative. Each Borrower hereby designates Tyler Dinwoodie, an Executive Vice President of AGC, as the "Borrower Representative" as its representative and agent on its behalf for the purposes of issuing each Draw Request, giving instructions with respect to the disbursement of the proceeds of the Loans, giving and receiving all other notices and consents hereunder or under any of the other Loan Documents, and taking all other actions (including in respect of compliance with covenants) on behalf of any Borrower under the Loan Documents. Borrower Representative hereby accepts such appointment. Lender may regard any notice or other communication pursuant to any Loan Document from Borrower Representative as a notice or communication from each Borrower, and may give any notice or communication required or permitted to be given to any Borrower or each Borrower hereunder to Borrower Representative on behalf of such Borrower or each Borrower. Each Borrower agrees that each notice, election, representation and warranty, covenant, agreement and undertaking made on its behalf by Borrower Representative shall be deemed for all purposes to have been made by such Borrower and shall be binding upon and enforceable against such Borrower to the same extent as if the same had been made directly by such Borrower.
11.21 Authorized Disclosure of Confidential Information; Restrictions. The Lender will keep all Confidential Information confidential and not disclose it to any third Person, except that Confidential Information may be disclosed (i) to any Representatives or Affiliate of the Lender (each, a "Permitted Third Party") (it being understood that the Permitted Third Party to whom such disclosure is made will first be informed of the confidential nature of such Confidential Information and instructed to keep such Confidential Information confidential); (ii) to the extent required by any Governmental Authority or any Governmental Requirement, as determined by Lender in its sole discretion (for the avoidance of doubt, the Lender will be required to publicly file this Agreement as an exhibit to Form 8-K with the United States Securities and Exchange Commission); (iii) in connection with the exercise of any rights or remedies hereunder or under any other Loan Document or any suit, action or proceeding relating to this Agreement or any other Loan Document or the enforcement of rights hereunder or thereunder; (iv) subject to an agreement containing provisions substantially the same as those of this Section 11.22 , to any assignee or any prospective assignee of the Lender to which the Lender may assign any of its rights or obligations under this Agreement; or (v) with the prior written consent of the Borrower. "Confidential Information" means all information received from the Borrower (regardless of whether such information was received before or after the Closing Date), relating to the Borrower or its business, whether disclosed verbally or in writing, learned thereby, including confidential, proprietary and material non-public information; provided that, in the case of information received from the Borrower or any Subsidiary thereof after the date hereof, such information is clearly identified at the time of delivery as confidential or consists of financial or other reports required to be submitted under Section 7.3 hereof. "Confidential Information" shall not include any information that (x) is in the
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possession of the Lender or a Permitted Third Party prior to disclosure by the Borrower; (y) is in the public domain prior to disclosure to the Lender or a Permitted Third Party; or (z) lawfully enters the public domain through no violation of this Section 11.22 after disclosure to the Lender or any Permitted Third Party. The Lender acknowledges and agrees that it is aware, and it shall advise each Permitted Third Party who is informed as to the matters which are the subject of this Agreement, that it is receiving information of the Borrower that may include material non-public information and that applicable Securities Laws may impose restrictions on trading securities when in possession of such information and on communicating such information to any other person. Any Representative of the Lender who attends a meeting of the Board of Directors of the Borrower shall be permitted, and the Borrower hereby acknowledges its authorization, to disclose any Confidential Information to the Lender and any other Permitted Third Party for the purposes of managing the Lender's investment. Any Person required to maintain the confidentiality of Confidential Information as provided in this Section 11.22 shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Confidential Information as such Person would accord to its own confidential information.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written.
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BORROWER: | |||||
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ALABAMA GRAPHITE CORP. |
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By: |
/s/ TYLER W. P. DINWOODIE
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Name: | Tyler W. P. Dinwoodie | ||||
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Title: | Executive Vice President | ||||
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ALABAMA GRAPHITE COMPANY, INC. |
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By: |
/s/ TYLER W. P. DINWOODIE
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Name: | Tyler W. P. Dinwoodie | ||||
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Title: | President and Director | ||||
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Executed before me this 9th day of December, 2017 |
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/s/ DOUGLAS F. CALDWELL
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Lawyer, Notary Public, Commissioner, etc.
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Signature Pages to Loan Agreement
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LENDER: | |||||
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WESTWATER RESOURCES, INC. |
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By: |
/s/ CHRISTOPHER JONES
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Name: | Christopher Jones | ||||
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Title: | President and Chief Executive Officer |
Signature Pages to Loan Agreement
December 10, 2017
Board
of Directors
Westwater Resources, Inc.
6950 South Potomac Street
Ste. 300
Centennial, CO 80112
Members of the Board of Directors:
Roth Capital Partners, LLC ("Roth, "us" or "we") understands that Westwater Resources, Inc., a corporation organized under the laws of Delaware ("WWR" or the "Parent"), WWR's wholly-owned subsidiary 1143738 B. C. Ltd., a corporation existing under the laws of British Columbia, Canada (the "Purchaser") and Alabama Graphite Corp., a corporation existing under the laws of British Columbia, Canada ("AGC" or the "Company"), intend to enter into an Arrangement Agreement (the "Arrangement Agreement"), in which, pursuant to a Plan of Arrangement, WWR will acquire (through the Purchaser) all of the Common Shares of the Company in exchange for Parent Shares, Company Options in exchange for Replacement Options issued by the Parent, and the conversion of Company Warrants to the right to receive the same aggregate consideration in Parent Shares, all reflecting an exchange Ratio of 0.08 shares of WWR common stock for each common share of AGC (the "Share Exchange Ratio"). In each case, capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Arrangement Agreement.
You have asked us to render an opinion, as of the date hereof, with respect to the fairness, from a financial point of view, to the Parent and stockholders of Parent of the aggregate consideration payable to Company Securityholders pursuant to the Plan of Arrangement.
For purposes of the opinion set forth herein, we have reviewed execution drafts of the Arrangement Agreement, Plan of Arrangement, and related ancillary documents, and we have also, among other things:
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In conducting our review and arriving at our opinion, with your consent, we have not independently investigated or verified any of the foregoing information and we have assumed and relied upon such information as being accurate and complete in all material respects, and we have further relied upon verbal or written assurances of senior management of WWR that such information was accurate and complete in all material respects when given to us and that they are not aware of any facts or circumstances that would make or render any of such information inaccurate, incomplete or misleading in any material respect. With respect to the AGC Forecasts, we have assumed that they have been reasonably prepared on bases reflecting the best currently available estimates and good faith judgments of the management of AGC as to the future financial performance of AGC. We have not been engaged to assess the achievability of any projections or the assumptions on which they were based, and we express no view as to such projections or assumptions. In addition, we have not assumed any responsibility for any independent valuation or appraisal of the assets, liabilities or business operations of WWR or AGC, nor have we been furnished with any such valuation or appraisal. In addition, we have not assumed any obligation to conduct, nor have we actually conducted, any physical inspection of the properties or facilities of WWR or AGC.
We also have assumed, with your consent, that the Plan of Arrangement will be consummated substantially in accordance with the terms set forth in the Arrangement Agreement and in compliance with the applicable provisions of the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended, Business Corporation Act (British Columbia), and all other applicable federal, state and local statutes, rules, regulations promulgated thereunder and the rules and regulations of The NASDAQ Stock Market, TSX Venture Exchange, and any other applicable exchanges, that the representations and warranties of each party in the Arrangement Agreement are true and correct, that each party to the Plan of Arrangement will perform on a timely basis all covenants and agreements required to be performed by it under the Arrangement Agreement, and that all conditions to the consummation of the Plan of Arrangement will be satisfied without waiver thereof. In addition, we have assumed that the number of AGC Securityholders executing Dissent Rights will not be material to the Plan of Arrangement as a whole. We have further assumed that the final Arrangement Agreement when signed by all relevant parties will conform in all material respects to the execution draft of the Arrangement Agreement dated December [10], 2017, and that the Plan of Arrangement will be consummated as described in the draft Arrangement Agreement. We have also assumed that all governmental, regulatory and other consents and approvals contemplated by the Arrangement Agreement will be timely obtained and that, in the course of obtaining any of those
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consents and approvals, no modification, delay, limitation, restriction or condition will be imposed or waivers made that would have a material adverse effect on WWR or AGC or on the contemplated benefits of the Plan of Arrangement.
Our opinion addresses only the fairness, from a financial point of view to the Parent and shareholders of Parent, as of the date hereof, of the aggregate consideration payable to Company Securityholders pursuant to the Plan of Arrangement. Our opinion does not in any manner address any other aspect or implication of the Plan of Arrangement or any agreement, arrangement or understanding entered into in connection with the Plan of Arrangement or otherwise, including, without limitation, the fairness of the amount or nature of any compensation to any officers, directors or employees of, or any class of such persons, relative to the consideration in the Plan of Arrangement. Our opinion also does not address the relative merits of the Plan of Arrangement as compared to any alternative business strategies that might exist for WWR, the underlying business decision of WWR to proceed with the Plan of Arrangement, or the effects of any other transaction in which WWR might engage. The issuance of this opinion was approved by an authorized internal fairness committee of Roth in accordance with our customary practice. Our opinion is necessarily based on economic, monetary, market, financial and other conditions as they exist and can be evaluated, and the information made available to us, as of the date hereof. We express no opinion as to the underlying valuation, future performance or long-term viability of WWR or AGC. Further, we express no opinion as to the actual value of the shares of WWR when issued pursuant to the Arrangement Agreement or the prices at which shares of WWR will trade at any time before, after or during the Plan of Arrangement. It should be understood that, although subsequent developments or events may affect various assumptions used by us in preparing our opinion, we do not have any obligation to update, revise or reaffirm our opinion based on such developments or events or otherwise and we expressly disclaim any responsibility to do so. Our opinion does not address any legal, tax or accounting matters.
We note that, in connection with performing and rendering our services to WWR, we were not authorized to and did not solicit any expressions of interest from any other parties with respect to any other merger, sale or other business combination involving WWR.
We have acted as financial advisor to WWR in connection with the Plan of Arrangement and will receive a fee for our services payable upon delivery of this opinion to the WWR's Board of Directors following a request from such Board that our opinion be so delivered. Our fee is not contingent upon the consummation of the Plan of Arrangement. We will be reimbursed for our reasonable out of pocket expenses incurred in rendering services to WWR, subject to an agreed maximum amount. Payment of such reimbursement is not contingent upon consummation of the Plan of Arrangement. WWR has agreed to indemnify us for certain losses, claims, damages and liabilities arising out our performance of services pursuant to our engagement with WWR.
Roth, as part of its investment banking business, is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes. We are a full service securities firm engaged in securities trading and brokerage activities, as well as providing investment banking and other financial services. In the ordinary course of business, we and our affiliates may acquire, hold or sell, for our and our affiliates' own accounts and for the accounts of customers, equity, debt and other securities and financial instruments (including bank loans and other obligations) of WWR or AGC, and, accordingly, may at any time hold a long or a short position in such securities.
It is understood that this letter is solely for the information of the Board of Directors of WWR in connection with its evaluation of the Plan of Arrangement and does not constitute a recommendation to any stockholder of WWR as to how such stockholder should vote or otherwise act or refrain from acting on any matter relating to the Plan of Arrangement. This opinion may not be relied upon by any
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other person, or used for any other purpose. Except as expressly contemplated by and subject to the limitations set forth in the Arrangement Agreement, this opinion may not be reproduced, disseminated, quoted or referred to at any time, in any manner or for any purpose without our prior written consent.
We acknowledge that a copy of this opinion may be included in its entirety as an exhibit, and a summary of the contents of this opinion may be disclosed, in any filing that WWR is required to make with the U.S. Securities & Exchange Commission in connection with the Plan of Arrangement only to the extent WWR has concluded upon advice of counsel that such inclusion or disclosure is required by applicable law.
On the basis of and subject to the foregoing, we are of the opinion, as of the date hereof, that the aggregate Consideration payable to Company Securityholders pursuant to the Plan of Arrangement is fair, from a financial point of view, to the Parent and the shareholders of Parent.
Very truly yours,
/s/
Roth Capital Partners, LLC
Roth Capital Partners, LLC
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Westwater Resources, Inc.
IMPORTANT SPECIAL MEETING INFORMATION |
ELECTRONIC VOTING INSTRUCTIONS
Available 24 hours a day, 7 days a week!
Instead of mailing your proxy, you may choose one of the voting methods outlines below to vote your proxy.
VALIDATION DETAILS ARE LOCATED BELOW IN THE TITLE BAR. Proxies submitted by the Internet or telephone must be received by 1:00 a.m., Central Time, on March [ ], 2018.
Vote by Internet
· Go to www.investorvote.com/WWR · Or scan the QR code with your smartphone · Follow the steps outlined on the secure website
Vote by telephone
· Call toll free 1-800-652-VOTE (8683) within the USA, US territories & Canada on a touch tone telephone · Follow the instructions provided by the recorded message |
Using a
black ink
pen, mark your votes with an X as show in
this example. Please do not write outside the designated area:
x
Special Meeting Proxy Card
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Proposals The Board of Directors recommends a vote FOR Proposals 1 and 2. |
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Against |
Abstain |
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1 To approve the WWR Stock Issuance proposal to approve WWR issuing its common stock pursuant to the Arrangement Agreement with Alabama Graphite. |
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2. To approve the adjournment proposal to adjourn or postpone the Special Meeting, if necessary or appropriate, to solicit additional proxies, in the event that there are not sufficient votes at the time of the Special Meeting to approve the WWR Stock Issuance. |
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Change of Address Please print new address below. |
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Authorized Signatures This section must be completed for your vote to be counted. Date and Sign Below |
Please sign exactly as name(s) appears hereon. Joint owners should each sign. When signing as attorney, executor, administrator, corporate officer, trustee, guardian, or custodian, please give full title.
Date (mm/dd/yyyy) Please print date below |
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Signature 1 Please keep signature within the box |
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Signature 2 Please keep signature within the box |
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IF YOU HAVE NOT VOTED VIA THE INTERNET OR TELEPHONE, FOLD ALONG THE PERFORATION, DETACH AND RETURN THE BOTTOM PORTION IN THE ENCLOSED ENVELOPE. |
Proxy Westwater Resources, Inc.
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Notice of Special Meeting of Stockholders
6950 S. Potomac Street, Suite 300
Centennial, Colorado 80112
Proxy Solicited by Board of Directors for Special Meeting March [ ], 2018
Christopher M. Jones and Terence J. Cryan, or either of them, each with the power of substitution, are hereby authorized to represent and vote the shares of the undersigned, with all the powers which the undersigned would possess if personally present, at the Special Meeting of Stockholders of Westwater Resources, Inc. to be held on March [ ], 2018 or at any postponement or adjournment thereof.
Shares represented by this proxy will be voted as directed by the stockholder when properly executed. If no such directions are indicated, shares represented by this proxy will be voted FOR Proposal 1 and FOR Proposal 2.
In their discretion, the Proxies are authorized to vote upon such other business as may properly come before the meeting.
(Items to be voted appear on reverse side.)
1 Year Westwater Resources Chart |
1 Month Westwater Resources Chart |
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