SOUTHGOBI RESOURCES

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SouthGobi Resources : Announcements and Notices - THE 2020 NOVEMBER DEFERRAL AGREEMENT

11/20/2020 | 10:37am

Hong Kong Exchanges and Clearing Limited and The Stock Exchange of Hong Kong Limited (the "Hong Kong Stock Exchange") take no responsibility for the contents of this announcement, make no representation as to its accuracy or completeness and expressly disclaim any liability whatsoever for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this announcement.

SOUTHGOBI RESOURCES LTD.

南戈壁資源有限公司*

(A company continued under the laws of British Columbia, Canada with limited liability)

(Hong Kong Stock Code: 1878)

(Toronto Stock Code: SGQ)

THE 2020 NOVEMBER DEFERRAL AGREEMENT

This announcement is made by SouthGobi Resources Ltd. (the "Company") pursuant to Rule

13.09(2)(a) of the Rules Governing the Listing of Securities on the Hong Kong Stock Exchange and the Inside Information Provisions under Part XIVA of the Securities and Futures Ordinance (Chapter 571 of the Laws of Hong Kong).

Reference is made to the press releases of the Company dated June 19 and September 14, 2020

(the "Announcements"). Capitalized terms used herein, unless otherwise defined, shall

The Company announces that on November 19, 2020, the Company entered into a deferral

agreement (the "2020 November Deferral Agreement") with Land Breeze II S.à.r.l. ("Land Breeze") and Fullbloom Investment Corporation ("Fullbloom"), each being a wholly-owned subsidiary of a major shareholder of the Company (the "Major Shareholder").

Pursuant to Section 501(c) of the Toronto Stock Exchange ("TSX") Company Manual, the Company

will be seeking approval of the 2020 November Deferral Agreement from disinterested shareholders

at a meeting of shareholders (the "Meeting") to be held at a future date to be set by the board of directors of the Company (the "Board").

The 2020 November Deferral Agreement

The principal terms of the 2020 November Deferral Agreement are as follows:

* For identification purposes only

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Effectiveness of the 2020 November Deferral Agreement

  • The 2020 November Deferral Agreement are subject to the approvals from the TSX and the shareholders of the Company in accordance with the requirements of Section 501(c) of the
    TSX Company Manual. See "Shareholders Approval Pursuant to TSX Requirements" below.

The Deferral

  • Land Breeze and Fullbloom agreed to grant the Company a deferral (the "Deferral") of the following payment until August 31, 2023 (the "Deferral Date"):
    1. a deferral of cash interest and deferral fees of approximately US$ 75.2 million which were due and payable to Land Breeze on or before September 14, 2020, under the 2020 June Deferral Agreement; (ii) semi-annual cash interest payments in the aggregate amount of US$ 16.0 million payable to Land Breeze on November 19, 2020 and May 19, 2021 under the US$ 250 million convertible debenture dated November 19, 2009 (the "Convertible Debenture");
    1. US$ 4.0 million worth of PIK Interest shares ("2020 November PIK Interest") issuable to
      Land Breeze on November 19, 2020 under the Convertible Debenture (collectively, the "2020 November Deferred Amounts"); and (iv) the payment of the management fees of Q4 2019, Q1 2020 and Q2 2020, and the accrued deferral fees related thereto that is outstanding as of September 14, 2020 (US$ 1.2 million) and the management fees to be accrued in Q3 2020 to Q3 2021 under the Amended and Restated Cooperation Agreement dated April 23, 2019 (the
      "Deferred Management Fees").
  • As consideration for the Deferral of the 2020 November Deferred Amounts, the Company agreed to pay Land Breeze a deferral fee equal to 6.4% per annum on the 2020 November Deferred Amounts (the "Deferral Fee") payable under the Convertible Debenture and the 2020 June Deferral Agreement, commencing on the date on which each such 2020 November Deferred Amount would otherwise have been due and payable under the Convertible Debenture or the 2020 June Deferral Agreement, as applicable.
  • As a consideration for the Deferral of the Deferred Management Fees, the Company agreed to pay Fullbloom a deferral fee equal to 2.5% per annum on the outstanding balance of the Deferred Management Fees (the "Cooperation Agreement Deferral Fee") payable under the Amended and Restated Cooperation Agreement, commencing on the date on which each such Deferred Management Fees would otherwise have been due and payable under the Amended and Restated Cooperation Agreement.
  • The 2020 November Deferral Agreement does not contemplate a fixed repayment schedule for the 2020 November Deferred Amounts, the Deferred Management Fees, the Deferral Fee and the Cooperation Agreement Deferral Fee. Instead, the 2020 November Deferral

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Agreement requires the Company to use its best efforts to pay the 2020 November Deferred Amounts, the Deferral Fee, and Cooperation Agreement Deferral Fee due and payable under the 2020 November Deferral Agreement to Land Breeze and Fullbloom as the case may be. During the period beginning as of the date of the 2020 November Deferral Agreement and ending as of the Deferral Date, the Company shall provide Land Breeze with monthly updates of its financial status and business operations, and the Company and Land Breeze shall on a monthly basis discuss and assess in good faith the amount (if any) of the 2020 November Deferred Amounts, the Deferred Management Fees, the Deferral Fee and Cooperation Agreement Deferral Fee that the Company may be able to repay to Land Breeze or Fullbloom (as the case may be), having regard to the working capital requirements of the Company's operations and business at such time and with the view of ensuring that the Company's operations and business would not be materially prejudiced as a result of any repayment.

  • Commencing as of November 19, 2020 and until such time before the 2020 November PIK Interest is fully repaid, Land Breeze reserves the right to require the Company to pay and satisfy the amount of the 2020 November PIK Interest, either in full or in part, by way of issuing and delivering PIK interest shares in accordance with the Convertible Debenture provided that, on the date of issuance of the PIK interest shares, the Company's common shares are listed and trading on at least one stock exchange.

Other Covenants and Event of Defaults

  • If at any time before the 2020 November Deferred Amounts and Deferral Fees are fully repaid, the Company proposes to appoint, replace or terminate one or more of its chief executive officer, its chief financial officer or any other senior executive(s) in charge of its principal business function or its principal subsidiary, the Company will first consult with, and obtain written consent (such consent shall not be unreasonably withheld) from Land Breeze prior to effecting such appointment, replacement or termination.
  • Land Breeze agreed to waive its rights arising from any default or event of default under the
    Convertible Debenture as a result of trading in the Company's common shares being suspended on the TSX beginning as of June 19, 2020 and trading in the Company's common shares being suspended on the Hong Kong Stock Exchange beginning as of August 17, 2020 and such trading suspensions having been in effect for a period of more than five trading days.

Pursuant to the 2020 November Deferral Agreement, the Company and certain of its subsidiaries agreed to certain other covenants with respect to additional debt incurrence, asset sales and dividends, and certain events of default which are customary to financing transactions of a similar nature. A summary of these covenants and events of default will be set out in the Company's

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management proxy circular (the "Management Proxy Circular") to be mailed to shareholders in connection with the Meeting.

The foregoing summary of the principal terms of the 2020 November Deferral Agreement is not comprehensive, and is qualified in its entirety by reference to the full text of the 2020 November Deferral Agreement, a copy of which has been filed on the Company's profile on SEDAR at www.sedar.com.

Partial Revocation of Cease Trade Order

On October 29, 2020, the Company obtained an order from the British Columbia Securities Commission ("BCSC"), the Company's principal securities regulator in Canada, which partially revoked the cease trade order issued on June 19, 2020 ("CTO") to, amongst other things, permit the Company to enter into the 2020 November Deferral Agreement and to convene the Meeting in order to obtain shareholder approval of the 2020 November Deferral Agreement as required under applicable TSX rules.

Board Review and Approval

The 2020 November Deferral Agreement and the transactions contemplated thereunder were reviewed and approved by the disinterested members of the Board, as well as the Company's independent directors. After considering, among other things, the terms of the Deferral and the 2020 November Deferral Agreement, the Company's financial position and the possible funding alternatives reasonably available to the Company, the Board is of the view that: (i) the Deferral is offered on reasonable commercial terms not less advantageous to the Company than if the Company obtained similar financing from a person dealing at arm's length with the Company; (ii) the terms of the Deferral are reasonable in the circumstances of the Company; (iii) the Deferral is designed to improve the financial position of the Company; (iv) the Deferral will enhance the Company's ability to continue as a going concern in the near term and provide the Company with financial flexibility to consider and explore different measures to secure additional capital or to pursue a strategic debt restructuring or refinancing plan with the Major Shareholder; and (v) the best interests of the Company and shareholders will be served by approving the Deferral and the 2020 November Deferral Agreement.

Shareholders' Approval Pursuant to TSX Requirements

Pursuant to Section 501(c) of the TSX Company Manual, the Company is required to seek approval of the 2020 November Deferral Agreement from shareholders, other than the Interested Shareholders (as defined below) (the "Disinterested Shareholders") because (i) the Major Shareholder is a related party to the Company (as a result of its beneficial ownership of more than 10% of the outstanding

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Disclaimer

SouthGobi Resources Ltd. published this content on 20 November 2020 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 20 November 2020 15:36:02 UTC

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