(a) subscribing for US$1.2 million of Convertible Loan Notes,
convertible at the Conversion Price, conditional on Shareholders
approving the Resolution and satisfaction or waiver of the
Conditions, with such subscription to occur within approximately 14
Business Days after approval of the Resolution (being the Tranche
One Notes); and
(b) agreeing to underwrite the Open Offer and Placing through
the potential subscription for additional Convertible Loan Notes,
also convertible at the Conversion Price, up to a total maximum
amount (excluding the Tranche One Notes) of US$2.8 million subject
to the Resolution being approved and satisfaction or waiver of the
Conditions (being the Underwriting Facility).
Assuming the Open Offer and the Placing proceed to raise US$2.8
million from investors other than Greenstone, the Tranche One Notes
will be converted either fully or in part (depending on the Issue
Price and the FT Exchange Rate) such that Greenstone will hold no
more than 29.99 per cent. of the Issued Share Capital following the
Open Offer and the Placing and such conversion.
Under the terms of the Greenstone Placing, Greenstone may deduct
from the Tranche One Notes amount (being US$1.2 million) (on
payment thereof in accordance with the terms of the Subscription
Agreement) the sum of US$200,000 (being 5 per cent. of the total
amount of Greenstone's commitment of US$4.0 million pursuant to the
Greenstone Placing) in consideration for the obligations of
Greenstone under the Subscription Agreement.
Completion of the Greenstone Placing is conditional on the
Resolution being approved by Shareholders and is subject to the
satisfaction or waiver of the following conditions (which apply
equally to the issue of the Tranche One Notes and any Underwriting
Loan Notes):
(a) no material change having occurred prior to the date of the
relevant subscription as to the business, assets, capital structure
or prospects of the Company, in the reasonable opinion of
Greenstone; and
(b) nothing having occurred or failed to occur which amounts to
an event of default pursuant to the terms of the Convertible Loan
Note Instrument (as summarised in Appendix I below), or would do so
if at the time of the occurrence or failure in question the
Convertible Loan Note Instrument had been executed (conditions (a)
and (b) together being the "Conditions").
Greenstone has the sole right to determine whether the
Conditions have been satisfied or have become incapable of
satisfaction.
As noted in (b) above, the Convertible Loan Notes are subject to
certain events of default, which are more fully summarised in
Appendix I below.
The terms of the Greenstone Placing are set out in more detail
in Appendix I below.
3. The Code
The Company is a public company incorporated in England and its
Ordinary Shares are admitted to trading on AIM. Accordingly, the
Code applies to the Company.
Under Rule 9 of the Code, where: (i) any person acquires an
interest in shares (as defined in the Code) which, when taken
together with shares in which he or persons acting in concert with
him are interested, carry 30 per cent. or more of the voting rights
of a company subject to the Code; or (ii) any person who, together
with persons acting in concert with him, is interested in not less
than 30 per cent. but does not hold shares carrying more than 50
per cent. of the voting rights of a company subject to the Code and
such person, or persons acting in concert with him, acquires
further interests in shares which increase his percentage of the
voting rights, such persons are normally obliged to make a general
offer to all the remaining shareholders to purchase, in cash, their
shares at the highest price paid by him, or any person acting in
concert with him, within the preceding 12 months (a "Mandatory
Offer").
As stated above, assuming the Open Offer and the Placing proceed
to raise US$2.8 million from investors other than Greenstone, the
Tranche One Notes will be converted either fully or in part
(depending on the Issue Price and the FT Exchange Rate) such that
Greenstone will hold no more than 29.99 per cent. of the Issued
Share Capital following the Open Offer and the Placing and such
conversion.
Greenstone currently holds approximately 29.48 per cent. of the
Issued Share Capital. Greenstone may have the ability to increase
its shareholding significantly above 30 per cent. or, possibly, 50
per cent. of the then Issued Share Capital on any conversion of the
Tranche One Notes, Underwriting Loan Notes, and any further
Convertible Loan Notes arising from settlement of unpaid interest
by the issue of further Convertible Loan Notes in accordance with
the Convertible Loan Note Instrument. However, this would require
that, among other things: (i) the Placing and the Open Offer are
not fully subscribed to raise US$2.8 million; and (ii) the
Underwriting Facility is therefore required to be used.
In certain circumstances it is possible to seek a waiver from
the Panel of the obligation to make a Mandatory Offer. Such a
waiver would require the approval of a majority of the independent
shareholders of the relevant company, excluding the party seeking
the waiver (a "Whitewash").
The process of obtaining a Whitewash is costly and
time-consuming and would be likely to slow up the process of
raising much needed finance for the Company in the short term.
Accordingly, Greenstone has requested the Company not to seek a
Whitewash, and accepts that any conversion of the Convertible Loan
Notes which causes Greenstone's shareholding to increase to 30 per
cent. or more of the then Issued Share Capital will trigger a
requirement on Greenstone to make a Mandatory Offer at the highest
price paid by Greenstone for any interest in Ordinary Shares in the
previous 12 months.
The Greenstone Placing is conditional on the Resolution being
approved by Shareholders, so that Shareholders (including
Greenstone) do have the ability to consider, and vote on, the
Resolution having regard to the terms of the Greenstone
Placing.
4. Relationship Agreement
Pursuant to the Relationship Agreement (entered in to at the
same time as the 2014 Investment Agreement and which remains in
force for such time that Greenstone (or any member of its group)
retains a Significant Interest in the Company) certain restrictions
are placed on Greenstone. These include (but are not limited to) a
requirement for all agreements between the Company and Greenstone
(or its group) to be concluded on an arm's length basis, an
undertaking not to influence or seek to influence the running of
the Company or any member of the Group at an operational level
(without the consent of the Company's chief executive officer), an
undertaking not to exercise voting rights to seek or procure any
amendment to the Articles which would be inconsistent with the
terms of the Relationship Agreement, and usual orderly market
restrictions.
Greenstone also enjoys certain benefits and protections pursuant
to the Relationship Agreement. These include (but are not limited
to) the right to appoint a director to the Board whilst Greenstone
(or any member of its group) holds a Significant Interest, the
right for the Greenstone-nominated director to join certain
committees of the Company, a right to participate in any issue of
equity carried out by the Company so as to maintain Greenstone's
percentage shareholding, and certain marketing rights in relation
to the products produced by the Company's projects (including,
without limitation, the Namib Project).
Greenstone may, upon conversion of the Convertible Loan Notes,
be entitled to increased marketing rights under the Relationship
Agreement. Under the Relationship Agreement, Greenstone will have
the right, from 3 July 2017, being the third anniversary from the
date of the Relationship Agreement, and for so long as it holds an
interest in voting rights representing 15 per cent. or more of the
rights to vote at a general meeting of the Company, to nominate
potential customers and be afforded the opportunity to negotiate
and purchase on an arm's length basis and on terms no less
favourable to the Company than those offered to third parties a
proportion of the Company's mineral production, equal to its
interest in such voting rights. Therefore, for so long as such
right exists, any conversion of Convertible Loan Notes will
increase such right.
With effect from the issue of the Tranche One Notes, which is
conditional on the Resolution being passed and the Conditions being
satisfied or waived, the Relationship Agreement will be amended;
details of the proposed changes are set out in paragraph A5 of
Appendix I below.
5. Related Party Transaction
Greenstone is a related party of the Company for the purposes of
the AIM Rules by virtue of its shareholding. In such circumstances,
the Independent Directors are required by the AIM Rules, in
consultation with Strand Hanson, the Company's nominated adviser
under the AIM Rules, to consider the proposals and reach an opinion
as to whether the terms of the transaction are fair and reasonable
insofar as Shareholders are concerned.
The Independent Directors have considered other sources of
funding before entering into negotiations and ultimately reaching
agreement with Greenstone. In general terms, raising debt or equity
finance for pre- production mining ventures has become more and
more difficult over the last five years, as both debt and equity
investors have increasingly turned away from the sector and
commodity prices have continued to weaken. The Independent
Directors have considered other alternative sources of funding,
including bank debt and private equity, and have concluded that
such alternatives would not be available to the Company, within the
required timeframe, on terms more beneficial than those offered by
Greenstone.
North River (LSE:NRRP)
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North River (LSE:NRRP)
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