SPECIAL MEETING OF SECURITYHOLDERS

 

YOUR VOTE IS IMPORTANT!

Vote your shares FOR the Arrangement Resolution today

 

Meeting Date:
March 9, 2018

Meeting Time:
11:00 am (Toronto time)

Meeting Location:
Miller Thomson LLP
40 King Street West
Suite 5800
Toronto, Ontario M5H 3S1
CANADA

 

VOTE YOUR SHARES PRIOR TO THE DEADLINE ON MARCH 7, 2018
at 11:00 am (Toronto time)

At the Special Meeting, Alabama Graphite Corp. (“Alabama Graphite” or the “Corporation”) Shareholders are being asked to vote on the proposed Arrangement Resolution involving an acquisition of Alabama Graphite by Westwater Resources, Inc. (“Westwater”).  Shareholders are encouraged to read the Letter to Shareholders and Management’s Information Circular for further information and reasons to vote FOR the Arrangement Resolution.

The following is an excerpt from the Alabama Graphite Corp. Management Information Circular. Please read the entire Management Information Circular before voting.

Reasons to vote FOR the Arrangement:

In reaching its unanimous determination that it is advisable and in the best interests of Alabama Graphite to complete the Arrangement and to recommend that Alabama Graphite’s Securityholders vote in favor of the Arrangement in the absence of a Superior Proposal, the Alabama Graphite Board and the Special Committee consulted and received advice from its financial and legal advisors as well as Alabama Graphite’s management and considered a number of factors, including the following:

  • Ongoing Concern Questions: Echelon was also not able to identify any reasonable or feasible alternative transactions or strategies for Alabama Graphite. In addition, Echelon noted that if the contemplated transactions with Westwater were terminated, then Alabama Graphite’s ability to continue as a going concern would be in serious question.
  • Immediate Interim Funding: Westwater agreed to provide Alabama Graphite with immediate interim funding to resolve Alabama Graphite’s current working capital deficit, to pay outstanding payables, and to fund its essential operations until the close of the Arrangement, which is targeted for early second quarter of 2018.  This interim funding was very significant as compared to the probable alternative, which would likely have involved a highly dilutive, deeply-discounted common share and warrant offering by Alabama Graphite that still would have faced some deal completion and timing risks and related uncertainties.
  • Value per Share Significantly Close to Market Price: Westwater has offered Alabama Graphite Securityholders consideration that, at the time the Arrangement Agreement was agreed to, was significantly close to the market price of the Alabama Graphite Shares prior to the announcement of the proposed Arrangement.  Pursuant to the Arrangement Agreement, each issued and outstanding Alabama Graphite Share will be purchased by Westwater and the holder thereof will receive 0.08 of one Westwater Share (the “Exchange Ratio”), which represented a value of approximately CAD$0.113 per Alabama Graphite Share based upon the closing price of USD$1.10 for Westwater’s Shares on NASDAQ on December 12, 2017, the last trading date before the Arrangement Agreement was announced. The share Exchange Ratio represented a discount of approximately 5.7% to the closing price of Alabama Graphite’s Shares on the TSXV on December 12, 2017.  It is expected that this puts the holders of Alabama Graphite’s Shares in a better value position as compared to the feasible alternative transactions or resulting circumstances.
  • Fairness Opinion: The Alabama Graphite Board and Special Committee considered the independent fairness opinion provided by Echelon which stated that, as at December 11, 2017 and based upon and subject to the assumptions, limitations and qualifications stated in the fairness opinion, the consideration proposed to be paid to Alabama Graphite Shareholders pursuant to the Arrangement is fair, from a financial point of view, to Alabama Graphite Shareholders.
  • Price Discovery and Determination Process: The Alabama Graphite Board and Special Committee considered that, although it was not able to negotiate a higher price from Westwater, the price at which Alabama Graphite’s Shares are to be acquired pursuant to the Arrangement was principally negotiated between well-informed parties with high degrees of knowledge and due diligence regarding Alabama Graphite and its business, and under circumstances where no collateral benefits are expected to be provided to any related party or Alabama Graphite’s management. In addition, at numerous times during the past two years Alabama Graphite had pursued several potential significant transactions including, but not limited to: a strategic partnership with a major utility company; joint venture arrangements; an earn-in agreement; debt financing agreements; a spin-off and bifurcation of its business; various merger and acquisition ideas and scenarios involving strategic acquirers; and other capital market alternatives. While some of these potential projects did not evolve beyond being early conceptual ideas, the Alabama Graphite Board, the Special Committee and members of Alabama Graphite’s management had become aware, through this process of canvassing alternatives, of the valuation range that could be expected under various scenarios.  In addition, Echelon was engaged by the Special Committee to both provide the Echelon Fairness Opinion and provide advice regarding any known alternative courses of action, which it was able to do.
  • A Superior Proposal is Unlikely: Echelon advised the Special Committee that it is unlikely that a Superior Proposal will materialize. The Special Committee believes there are several reasons for this, including: (i) there is a very small market of players or candidates for strategic acquisitions in the graphite sub-sector of the mineral exploration and development industry and many of these participants have been in contact with Alabama Graphite and are either fully invested or consumed with the development of their current properties or do not have the financial resources to develop any additional properties or mineral projects at this time; and (ii) it is unlikely that a significant change of control proposal or significant investment will arise from a purely financial player or institutional investor since Alabama Graphite’s mineral property assets are at the pre-production stage and are not capable of producing revenues and profits without further exploration and development work (in the form of a feasibility study and related downstream value-added processing research and development). In the graphite sub-sector in Canada, financial investors (as opposed to strategic investors) are not generally expected to have an appetite for significant investments until after the completion of a “bankable” feasibility study coupled with an off-take agreement with a significant customer resulting in reasonably predictable cash flows and timing expectations.
  • A Bird in Hand”: Alabama Graphite has been in a process for the past two years to search for ways to find significant funding to not only sustain itself but to meet its growth and project development plans.  While it became apparent to the Alabama Graphite Board and the Special Committee that short term solutions are and have been considered feasible, if pursued determinedly, these short term solutions were becoming limited to significantly discounted and dilutive financing solutions that would not be consistent with maximizing shareholder value. Accordingly, one of the important considerations to the Alabama Graphite Board and the Special Committee in regard to pursuing and approving the transaction with Westwater was to obtain the interim loan financing and join forces with an impressive mineral development company with, among other strengths, superior financial resourcefulness.  Alabama Graphite has received this important interim funding from Westwater and, if the Arrangement is completed, Alabama Graphite will face less future financing risk than it would likely have faced under the alternative scenarios.
  • Alabama Graphite’s Coosa Project and Future Graphite Production Will Be A Priority For Westwater: Although the shareholders of the Combined Company will have exposure to a portfolio of important 21st Century green energy materials projects (graphite, lithium and uranium), Westwater’s priority following the closing of the Arrangement is expected to be graphite and the Coosa Project.  In an Alabama Graphite press release dated December 13, 2017 Westwater’s chief executive officer Chris Jones said “This is a transformational merger for our shareholders that positions our combined company as having assembled a formidable portfolio of American ‘must-have’ green-energy mineral projects, with the Coosa Project being our new priority core asset. We will be meeting with all stakeholders and state regulatory entities shortly and we are full speed ahead with development of the project in Alabama.” [emphasis added]  The Alabama Graphite Board and the Special Committee believe it is important that the continued development of Alabama Graphite’s current business is expected to be prioritized by Westwater following the completion of the Arrangement. This will allow Alabama Graphite Shareholders to continue to have their presumably desired economic exposure to the United States graphite industry through an equity security in a small capitalization company with capable management that is prioritizing the Coosa Project, while at the same time own a portion of a corporation with a portfolio of green energy mineral projects and expected superior financial resourcefulness.
  • Potential Synergies The Alabama Graphite Board and Special Committee considered that the Arrangement may result in several synergies or situations that may be accretive or conducive to creating and maximizing future shareholder value, including but not limited to:
    (i) the Combined Company will be headquartered in Centennial, Colorado (a suburb of Denver) and some potential customers (including U.S. governmental departments or other U.S. customers who may be influenced by U.S. protectionist policies or US domestic security of supply concerns) may prefer to deal with a US-domiciled and controlled supplier rather than a Canadian one;
    (ii) there may be equity valuation benefits from both asset diversification and product synergies related to Westwater’s lithium and uranium project portfolios;
    (iii) the Combined Company may be more attractive to investment research coverage by green-energy sector analysts; and
    (iv) there may be cost savings due to the potential elimination of duplicative head office and management expenses.
  • The Arrangement Agreement Represents the Current Best Terms that Westwater is Willing to Offer: After receiving Westwater’s proposal, the Special Committee was able to negotiate several changes to the terms which eventually resulted in the Arrangement Agreement that was executed on December 13, 2017. The Alabama Graphite Board and the Special Committee believe that the Arrangement Agreement represents the current maximum consideration and best terms that Westwater is willing to offer to Alabama Graphite and the Alabama Graphite Securityholders.
  • The Valuation of Westwater’s Shares The market price of Westwater’s Shares as traded on NASDAQ has fallen since its 52-week high in early 2017 and has also declined modestly during the three months prior to the date of the Arrangement Agreement.  The Alabama Graphite Board and the Special Committee believe that these circumstances may enhance the upside appreciation potential or otherwise minimize the downside potential for Alabama Graphite Shareholders as compared to if the Arrangement Agreement and the Exchange Ratio were agreed to and settled at a time when Westwater’s Shares were trading at or near their 52-week highs.
  • The Terms of the Arrangement Agreement: Under the Arrangement Agreement, the Alabama Graphite Board remains able to respond, in accordance with its fiduciary duties, to unsolicited proposals that are more favourable to Alabama Graphite and its securityholders as compared to the Arrangement. A third party can still make an unsolicited take-over bid or other proposal to Alabama Graphite and its securityholders if any such third party desires. The Supporting Shareholders who have executed the Voting and Support Agreements are not expected to control the outcome of the Securityholder Meeting.  Accordingly, the Alabama Graphite Board and Special Committee believe that a reasonable opportunity exists for any yet undiscovered acquirer that may exist to emerge and present a Superior Proposal if it chooses to do so.
  • Secondary Market Liquidity: The Alabama Graphite Board and the Special Committee believe that at times the value of the Alabama Graphite Shares may have suffered from a liquidity discount.  Specifically, at certain times the volume of Alabama Graphite Shares traded on certain trading days in the secondary marketplaces was not substantial, or at least not substantial enough for significant positions to be entered or exited in a relatively short period of time without having an influence on the market price.  This liquidity risk may have had an influence on prices.  Following the completion of the Arrangement, the Alabama Graphite Board and the Special Committee believe that the Westwater Shares are expected to have better liquidity on the NASDAQ marketplace as compared to Alabama Graphite’s past periodic experiences of lower volumes and lower liquidity prior to the completion of the Arrangement.
  • Dissent Rights: Registered Alabama Graphite Shareholders who oppose the Arrangement may, upon compliance with certain conditions, exercise their dissent rights and receive the fair value of their Alabama Graphite Shares in accordance with the Plan of Arrangement.
  • Approval Opportunity, Thresholds and Procedures: The Alabama Graphite Board and the Special Committee considered that it was appropriate under the circumstances to allow Alabama Graphite Shareholders the opportunity to consider and approve or reject the proposed transaction rather than deny the Alabama Graphite Shareholders this opportunity. The Alabama Graphite Board and the Special Committee considered the fact that the Arrangement Resolution must be approved by two-thirds of the votes cast in person or by proxy at the Securityholders Meeting to be protective of the rights of Alabama Graphite Shareholders. The Arrangement must also be approved by the Court, which will consider the fairness of the Arrangement to all Alabama Graphite Securityholders, thereby adding another protection for securityholders.

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETING OF SECURITYHOLDERS

The following are answers to certain questions that you may have regarding the Securityholder Meeting. The information in this section may not provide all of the information that might be important to you in determining how to vote and Alabama Graphite urges you to read carefully the remainder of this Circular. Additional important information is also contained in the attached to or incorporated by reference in, this Circular.

Q:        What are Alabama Graphite Securityholders being asked to vote on?
A:         Alabama Graphite Securityholders are being asked to vote on the Arrangement Resolution to approve the Arrangement, substantially in the form of Appendix “B” to this Circular.

Q:        Does the Alabama Graphite Board support the Arrangement?
A:         Yes, the Alabama Graphite Board has determined that the Arrangement is in the best interests of Alabama Graphite and is fair to Alabama Graphite Securityholders, and recommends that Alabama Graphite Securityholders vote FOR the Arrangement Resolution.

Q:        Why is the Arrangement the best choice for Alabama Graphite’s business and prospects going forward?
A:         The Boards of Directors of Westwater and Alabama Graphite consider the Arrangement to be a compelling and fair transaction, which is expected to provide significant strategic and financial benefits to the shareholders of both companies. Alabama Graphite has been in a process for the past two years to search for ways to find significant funding to not only sustain itself but to meet its growth and project development plans.  While it became apparent to the Alabama Graphite Board and the Special Committee that short-term solutions are and have been considered feasible, if pursued determinedly, these short-term solutions were becoming limited to significantly discounted and dilutive financing solutions that would not be consistent with maximizing shareholder value. Accordingly, one of the important considerations to the Alabama Graphite Board and the Special Committee in regard to pursuing and approving the transaction with Westwater was to obtain the interim loan financing and join forces with an impressive mineral development company with, among other strengths, superior financial resourcefulness. 

Q:        Are Alabama Graphite Securityholders being asked to take a discount on their Alabama Graphite Shares?
A:         Yes. Pursuant to the Arrangement Agreement, each issued and outstanding Alabama Graphite Share will be purchased by Westwater and the holder thereof will receive 0.08 of one Westwater Share, which represented a value of approximately CAD$0.113 per Alabama Graphite Share based upon the closing price of USD$1.10 for Westwater’s Shares on NASDAQ on December 12, 2017, the last trading date before the Arrangement Agreement was announced. This exchange ratio represents a discount of approximately 5.7% to the closing price of Alabama Graphite’s Shares on the TSXV on December 12, 2017.  Notwithstanding this discount, it is expected that this puts the holders of Alabama Graphite’s Shares in a better value position as compared to the feasible alternative transactions or resulting circumstances.

Q:        Did the Alabama Graphite Board consider any other alternatives?
A:         Yes. The Alabama Graphite Board and its Special Committee conducted a strategic review to identify all reasonable alternatives and the ideal path to further its strategic business plan. The Alabama Graphite Board identified Westwater through this process and spent several months developing a relationship and carefully negotiating the best deal possible for Alabama Graphite Shareholders.  In addition, the Special Committee’s financial advisor, Echelon Wealth Partners Inc. advised on the available alternatives and considered these alternatives when it provided its fairness opinion.

Q:        How will Alabama Graphite be managed after the Arrangement is completed?
A:         Following completion of the Arrangement, Alabama Graphite will become a wholly-owned subsidiary of Westwater. Westwater will accordingly at that time be the sole shareholder of Alabama Graphite. Shortly after becoming the sole shareholder, Westwater will elect a new board of directors for Alabama Graphite.  None of the current members of Alabama Graphite’s board of directors are expected to be re-elected to Alabama Graphite’s board following completion of the Arrangement.  Alabama Graphite’s future board of directors may appoint or retain some but not all of the current officers of Alabama Graphite.  Following completion of the Arrangement, the former shareholders of Alabama Graphite will be shareholders of Westwater and will be able to participate in the future election of Westwater’s directors and thereby influence the management of Westwater (and therefore also Alabama Graphite) through ordinary shareholder activities and participation.

Q:        What will Alabama Graphite Securityholders receive for their Alabama Graphite Securities?
A:         Under the Arrangement, each Alabama Graphite Shareholder (other than Dissenting Holders) will receive, for each Alabama Graphite Share held, 0.08 of a Westwater Share. Furthermore, Westwater shall issue Replacement Options in exchange for Alabama Graphite Options under the Arrangement, which Replacement Options shall have terms and conditions substantially similar to the original Alabama Graphite Options. Each holder of an Alabama Graphite Warrant outstanding immediately prior to the effective time of the Arrangement, shall receive upon the subsequent exercise of such holder’s Alabama Graphite Warrant, in accordance with its terms, and shall accept in lieu of each Alabama Graphite Share to which such holder was theretofore entitled upon such exercise but for the same aggregate consideration payable therefor, 0.08 of a Westwater Share.

See and “The Arrangement – Principle Steps of the Plan of Arrangement”.

Q:        When will the Arrangement become effective?
A:         Subject to obtaining the Court approval and the requisite securityholder approvals, as well as the satisfaction of all other conditions precedent, it is anticipated that the Arrangement will be completed in early second quarter of 2018.

Q:        What will happen if the Arrangement is not completed for any reason?
A:         If the Arrangement is not completed for any reason, the Arrangement Agreement may be terminated. Under the Arrangement Agreement, Alabama Graphite would be required to pay an Expense Reimbursement of US$1.5 million in the event the Arrangement Agreement is terminated in certain circumstances.

Under the Loan Agreement, Westwater provided a secured convertible non-revolving line of credit to Alabama Graphite 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 Alabama Graphite’s real and personal property. The termination of the Arrangement Agreement constitutes an event of default under the Loan Agreement, whereupon Westwater may accelerate the loan by delivering a notice to Alabama Graphite, on which date the entire outstanding loan balance would then be immediately due and payable. If the Arrangement does not occur, it is uncertain and unlikely whether Alabama Graphite would be able to repay such outstanding balance under the Loan Agreement.

Q:        Who can help answer my questions?
A:         If you have any questions about this Circular or the matters described in this Circular, please contact your professional advisor or Laurel Hill Advisory Group at:

            Telephone: +1 604-620-2224

            Email: dsalmon@laurelhill.com

Please refer to the “General Information About the Meeting and Voting — Beneficial Alabama Graphite Shareholders” in the Alabama Graphite Corp. Management Informaion Circular.