The loan also had an option that allowed Aberdeen to call for its conversion into equity of Simmers at ZAR 0.80 per share at any time from January 1, 2007 to December 31, 2008, subject to Simmers’ shareholders’ approval. On October 16, 2008, the Company called for conversion to equity and a shareholder vote was held on February 16, 2009, whereby the Simmers’ shareholders voted against the conversion as unanimously recommended by Simmers’ board of directors. As a result, it is Aberdeen’s position that the US$10,000,000 loan was due, as of its maturity date of December 31, 2008, and Aberdeen was entitled to a 1% NSR on the gold produced on the underlying assets starting October 16, 2008. In addition, it is the Company’s position that a payment of approximately US$1,363,000 is due from Simmers which is the interest and graduated royalty calculated at a rate of 4.75% on the gold produced between October 16, 2008 and December 31, 2008, the maturity date of the loan, in addition to a 1% NSR royalty on gold production starting October 16, 2008. However, it is Simmers’ position that the request for conversion into equity has caused the loan facility to terminate, ending the remaining graduated royalty payment and forfeiting repayment of the US$10,000,000 principal and remaining interest payments. Accordingly, Simmers’ management contends that the shareholder vote to deny the conversion request has resulted in Aberdeen receiving only the 1% NSR, but not the US$10,000,000 loan principal.Aberdeen’s balance sheet, as at January 31, 2011, reflects Aberdeen’s interpretation of the agreement. As a result, the US$10,000,000 ($10,015,000) loan was still outstanding at January 31, 2011 (2010 – US$10,000,000 ($10,693,000)) and is recorded on the balance sheet. In addition, as at January 31, 2011, the Company had recorded receivables from Simmers and First Uranium totaling US$1,623,666 ($1,626,102) (2010 - US$1,579,992 ($1,689,486)). This includes the amount related to the interest and graduated royalty for the period between October 16, 2008 and December 31, 2008. It is Simmers’ contention that these amounts are not due.
Management’s interpretation is that, pursuant to section 2.6 of the Convertible Royalty Loan Agreement (the "Agreement"), the graduated royalty is calculated on production until December 31, 2008, notwithstanding Aberdeen’s request for conversion. In addition, pursuant to section 2.10 of the Agreement, if the Simmers’ shareholders do not approve the loan conversion, the 1% NSR would be in addition to the repayment of the US$10,000,000 principal and, pursuant to section 2.4 of the Agreement, the principal is repayable in cash until shareholders approve the equity conversion. Aberdeen intends to aggressively contest any alternative interpretation of the Agreement. The Company provided Simmers’ management and directors with a demand letter and a letter from Aberdeen’s legal counsel outlining Aberdeen’s interpretation of the Agreement in advance of the February 16, 2009 Simmers’ shareholder meeting. Aberdeen has also filed the Agreement between the Company and Simmers on SEDAR (www.sedar.com) under the Company’s profile. Following the vote by Simmers’ shareholders not to allow for the conversion, the Company provided Simmers’ board and management with a letter reiterating Aberdeen’s understanding of Simmers’ obligations under the Agreement. Aberdeen was informed by Simmers’ board and management that their position regarding the Agreement, as described above, had not changed. As a result, the Company engaged a leading South African law firm and in July 2009 filed a claim against Simmers and First Uranium to recover the outstanding US$10,000,000 principal and balance payable on the graduated gold royalty from the fourth quarter of calendar 2008. The aggregate amount of damages claimed by the Company is approximately US$11,400,000. Aberdeen firmly believes that its interpretation of the Agreement is correct and expects to realize the values attached to the royalty and loan on the balance sheet as of January 31, 2011. In November 2009, Simmers filed a statement of defense. The description of the Agreement herein is subject to, and qualified in all respects by, the provisions of the Agreement. The case moves forward and the trial date was originally set for November 18, 2010 but has been postponed until October 22, 2011.
In connection with the Agreement, Aberdeen holds a notarial special covering bond in the amount of US$10,000,000 plus ZAR5,000,000 ($698,000) over the assets of the North Plant on Simmers’ greater Buffels property.