NIOCORP DEVELOPMENTS LTD Debt Disclosure

7.	CONVERTIBLE DEBT

 

		As of June 30,
		2021				2020
Current Portion:
Nordmin note		$	1,123			$	-
Convertible promissory notes			-				800
Lind IV convertible security			-				38
Total current portion		$	1,123			$	838
Noncurrent Portion:
Lind III convertible security		$	6,784			$	-

   

Lind III Convertible Security

 

On February 19, 2021, the Company issued to Lind Global Asset Management III, LLC (“Lind III”), an entity managed by The Lind Partners, a New York-based asset management firm (“The Lind Partners”), a convertible security (the “Lind III Convertible Security”) pursuant to a definitive convertible security funding agreement, dated as of February 16, 2021 (the “Lind III Agreement”), between the Company and Lind III. The Lind III Convertible Security has a face value of $11,700 (representing $10,000 in funding plus an implied 8.5% interest rate per annum for the term of the Lind III Convertible Security). After deducting a $350 commitment fee as set forth in the Lind III Agreement, NioCorp received net proceeds of $9,650 from the funding of the Lind III Convertible Security. As further discussed in Note 5, on April 23, 2021, the Company used a portion of the proceeds from the funding of the Lind III Convertible Security to purchase a key land parcel associated with the Company’s Elk Creek Project, with the remainder to be spent for general corporate purposes.

 

The Lind III Convertible Security has a term of (i) 24 months or (ii) 30 calendar days after the date on which the face value of the Lind III Convertible Security is nil due to such amount having been fully converted and/or fully repaid (including with any applicable premium) in accordance with the terms of the Lind III Agreement, whichever is earlier. The Lind III Convertible Security constitutes the direct, general and unconditional obligation of the Company and ranks pari-passu with the Company’s other indebtedness. The Lind III Convertible Security is guaranteed on a secured basis by 0896800 and ECRC.

 

The Lind III Convertible Security is secured by all of the assets and property of the Company and 0896800, including all of the issued and outstanding shares of 0896800 pledged by the Company and all of the issued and outstanding shares of ECRC pledged by 0896800, and certain real property and fixtures of ECRC. The liens securing the Lind III Convertible Security rank pari-passu with the liens securing a non-revolving credit facility (the “Smith Credit Facility”) with a limit of $3,500 with Mark Smith, President, Chief Executive Officer (“CEO”) and Executive Chairman of NioCorp, pursuant to the Credit Facility Agreement, dated January 16, 2017, between the Company and Mr. Smith, as amended from time to time. The liens securing the Lind III Convertible Security rank senior to the liens securing the Smith Credit Facility on any amount that is owed by the Company to Mr. Smith in excess of $4,000.

 

Pursuant to the Lind III Agreement, Lind III is entitled to convert the Lind III Convertible Security into Common Shares in monthly installments over its term at a price per Common Share equal to 85% of the volume-weighted average price Common Shares on the Toronto Stock Exchange (“TSX”) for the five trading days immediately preceding to the date on which Lind III provides notice to the Company of its election to convert. The Lind III Agreement provides that Common Shares issuable upon conversion, together with the number of Common Shares issued upon exercise of Warrants, shall not exceed 43,588,000 Common Shares. Subject to certain exceptions, the Lind III Agreement contains restrictions on how much of the Lind III Convertible Security may be converted in any particular month. The Lind III Agreement also provides NioCorp with the option to buy back the remaining face amount of the Lind III Convertible Security in cash at any time; provided that, if the Company exercises such option, Lind III will have the option to convert up to 33.33% of the remaining face amount into Common Shares at the price described above. In addition, Lind III is entitled to accelerate its conversion right to the full amount of the face value of the Lind III Convertible Security or demand repayment thereof in cash upon the occurrence of an event of default and other designated events described in the Lind III Agreement.

 

On February 19, 2021, in connection with the funding and issuance of the Lind III Convertible Security, the Company issued 8,558,000 Common Share purchase warrants, exercisable at a price per Common Share of C$0.97, expiring February 19, 2025 (the “Lind III Warrants”), to Lind III pursuant to the Lind III Agreement.

 

The Company identified embedded derivatives in the Lind III Convertible Security that were evaluated to be immaterial at both the closing date and at June 30, 2021.

 

The Company allocated the net proceeds of $9,477 from the Lind III Convertible Security as follows:

 

	●	$1,712 was booked to Common Stock, representing the fair value of the Lind III Warrants based on the Black Scholes pricing model using a risk-free interest rate of 0.40%, an expected dividend yield of 0%, a volatility of 51.60%, and an expected life of 4.0 years.
	●	$7,938 was booked to the convertible debt liability. Transaction costs of $173, in addition to a commitment fee of $350, were recognized as a direct deduction from the debt liability, resulting a net opening balance of $7,765. This balance will be accreted up to face value of the Lind III Convertible Security at maturity using the effective interest method and recorded as non-cash interest expense in the consolidated statement of operations.

 

Based on the Company’s closing Common Share price of C$1.70 as of June 30, 2021, conversion of the remaining Lind III Convertible Security balance, including accrued interest, would require the issuance of approximately 13,738,000 Common Shares. For each C$0.01 change in the fair value of one Common Share, the total shares the Company would be obligated to issue would change by approximately 110,000 shares.

 

Changes in the Lind III Convertible Security are as follows:

  

		Convertible Security
Initial valuation		$	7,765
Conversions			(1,600	)
Accretion expense			619
Balance, June 30, 2021		$	6,784

 

The Lind III Convertible Security contains financial and non-financial covenants customary for a facility of this size and nature, and includes a financial covenant defining an event of default as all present and future liabilities of the Company or any of its subsidiaries, exclusive of related party loans, for an amount or amounts exceeding C$2.0 million, and which have not been satisfied on time or within 90 days of invoice, or have become prematurely payable as a result of its default or breach. The Company was in compliance with these covenants as of June 30, 2021.

 

Nordmin Note

 

On December 18, 2020, the Company issued a convertible note in the principal amount of approximately $1,872 (the “Nordmin Note”) and 500,000 Common Share purchase warrants, exercisable at a price per Common Share of $0.80, expiring December 18, 2022 (the “Nordmin Warrants”) to Nordmin Engineering Ltd. (“Nordmin”) pursuant to a convertible note and warrant subscription agreement, dated December 18, 2020 (the “Nordmin Agreement”), between the Company and Nordmin. Under the Nordmin Agreement, Nordmin agreed to subscribe for and purchase the Nordmin Note and Nordmin Warrants for a subscription price of approximately $1,804. This amount was set off against the amount owed to Nordmin by NioCorp for past services.

 

The Nordmin Note will mature on December 18, 2021, and has no stated interest rate, an implied interest rate of 5% per annum and, subject to certain terms and conditions, is convertible into up to 4,500,000 Common Shares at a conversion price of 92% of the five-day volume-weighted average price of the Common Shares on the TSX at the time of conversion. The Nordmin Note contains restrictions on how much of the principal amount may be converted in any 30-day period. The Nordmin Note also provides the Company with the option to prepay, in whole or in part, any outstanding principal amount thereunder, upon three days’ notice to Nordmin. In addition, Nordmin is entitled to accelerate the maturity of the Nordmin Note and require the Company to prepay the outstanding principal amount upon the occurrence of an event of default and other designated events described in the Nordmin Note. The Nordmin Note constitutes the direct, general and unconditional obligation of the Company. The Nordmin Note is unsecured and ranks effectively junior to the Company’s secured indebtedness, including under the Lind III Convertible Security, the Smith Loan and the Smith Credit Facility, to the extent of the value of the assets securing such indebtedness.

 

Pursuant to the terms of the Nordmin Agreement, on December 18, 2020, the Company issued 836,551 Common Shares to Nordmin upon an initial conversion of $450 in principal amount of the Nordmin Note at a conversion price of C$0.684 per share.

 

The Company accounted for this transaction as a debt extinguishment under Accounting Standards Codification 470, Debt. Accordingly, the Company wrote off the value of the existing obligation, calculated the fair value of the Nordmin Note and recorded a loss of $163 on the difference in the consolidated statement of operations. This loss included $63 related to the fair value of the Nordmin Warrants at closing. The fair value of the Nordmin Warrants was estimated based on the Black Scholes pricing model using a risk-free interest rate of 0.32%, an expected dividend yield of 0%, a volatility of 43.16%, and an expected life of 2.0 years.

 

The Company initially recorded the Nordmin Note at a fair value of $1,740. The remaining initial fair value balance will be accreted up to net face value of the Nordmin Note over the remaining time until maturity using the effective interest method. In addition, transaction costs of $25 were expensed at closing.

Changes in the Nordmin Note are as follows:

  

		Convertible Note
Extinguishment of accounts payable		$	1,740
Conversions			(668	)
Accretion expense			51
Balance, June 30, 2021		$	1,123

  

Based on the Company’s closing Common Share price of C$1.70 as of June 30, 2021, conversion of the remaining Nordmin Note balance would require the issuance of 819,000 Common Shares. For each C$0.01 change in the fair value of one Common Share, the total shares the Company would be obligated to issue would change by approximately 4,800 shares.

 

Convertible Promissory Notes

 

The Company completed a non-brokered private placement of unsecured convertible promissory notes, for gross proceeds of $800 in October 2015. The convertible promissory notes bore interest at a rate of 8%, payable quarterly in arrears, were non-transferable and had an original term of three years from the date of issue. Principal under the convertible promissory notes was convertible by lenders at any time into, and payable by the Company in, Common Shares of the Company at a conversion price of C$0.97 per Common Share, calculated on conversion or repayment using the then-current Bank of Canada noon exchange rate. Interest, when due, was payable either in cash or Common Shares, at the election of the Company. Effective October 10, 2018, the due date for the convertible promissory notes was extended for one year to October 14, 2019, and effective October 10, 2019, the due date was extended for one year to October 14, 2020. All other terms and conditions remained unchanged. Effective October 12, 2020, the maturity date for $750 of the Company’s outstanding convertible promissory notes was extended for one year to October 14, 2021. All terms and conditions remained unchanged, except the amended agreement provides that the Company may repay all or any of the amount of outstanding principal and any accrued but unpaid interest, with 14 days’ advance written notice (the “Notice”), as follows:

  

	●	with respect to the outstanding principal and any accrued but unpaid interest, in cash, using the Bank of Canada daily US$-C$ exchange rate on the date of the Notice; or
	●	with respect to the outstanding principal only, provided that the volume weighted average trading price of the Common Shares is C$0.97 or greater for a period of ten consecutive trading days prior to the date of the Notice, and subject to Toronto Stock Exchange approval, by converting all or any portion of the outstanding principal into Common Shares at a conversion rate of C$0.97 per Common Share, using the Bank of Canada daily US$-C$ exchange rate on the date of the Notice.

 

One of the Company’s convertible promissory notes valued at $50 was not extended under the agreement above and was converted into 67,695 Common Shares on October 14, 2020. On March 16, 2021, the remaining convertible notes, with a face value of $750, were converted into 976,921 Common Shares on March 16, 2021. In addition, the Company paid $11 to the noteholders for outstanding interest accrued through the conversion date.

 

The conversion feature of the convertible promissory notes met the definition of a derivative liability instrument because the conversion feature was denominated in a currency other than the Company’s Canadian dollar functional currency and the conversion rate was variable and therefore did not meet the “fixed-for-fixed” criteria outlined in ASC 815-40-15. As a result, the conversion feature of the convertible promissory notes was required to be recorded as a derivative liability recorded at fair value and marked-to-market each period with the changes in fair value each period being charged or credited to income. The remaining balance of the conversion feature was written off at final conversion.

 

Lind IV Convertible Security Funding

 

		Convertible Security
Balance June 30, 2020		$	38
Conversions, at fair value			(38	)
Balance, June 30, 2021		$	-

  

On June 27, 2018, the Company signed a definitive convertible security funding agreement (the “Lind IV Agreement”) with Lind Asset Management IV, LLC (“Lind IV”). Pursuant to the issuance of a convertible security (the “Lind IV Convertible Security”), a total of $1,000 was funded on July 9, 2018. Upon payment of the $1,000 in funding by Lind IV to the Company, the Lind IV Convertible Security was issued in the amount of $1,200.

 

The remaining balance of the Lind IV Convertible Security was converted to Common Shares on July 9, 2020.