The Company is initiating proceedings today in the Ontario
Superior Court of Justice (the "Court") under the
Companies' Creditors Arrangement Act (the
"CCAA") seeking approval for a Court supervised
restructuring process to implement the Transaction, including
the immediate initiation of a sale solicitation process and a
stay of certain creditor claims. Holders of approximately 40%
of the aggregate principal amount of Notes have executed a
support agreement (the "Support Agreement") in
which they have agreed to support and vote for the
Transaction. The Company will continue to solicit additional
Noteholder support for the Transaction. Noteholders who wish
to become "Consenting Noteholders" and participate
in the Early Consent Consideration (as defined in the Support
Agreement) are permitted to do so until May 15, 2012, and
further information will be available on the website of the
proposed monitor in the CCAA proceedings, FTI Consulting
Canada, Inc. at http://cfcanada.fticonsulting.com/sfc.
Sino-Forest made the decision to initiate CCAA proceedings
with the unanimous authorization of its Board of Directors
after thorough consultation with its advisors and extensive
consideration of other alternatives.
"We believe the full value of our assets will only be
achieved if we are able to continue operating the business,
and repair and preserve relationships with our customers and
suppliers. We believe that the CCAA restructuring process is
the best method to secure our future and will allow the time
and stability required to normalize operations following the
allegations made against the Company by Muddy Waters, LLC
("Muddy Waters").
The Transaction we have negotiated is indicative of the
support of a significant portion of Sino-Forest's
Noteholders," said Judson Martin, Vice-Chairman and
Chief Executive Officer of Sino-Forest.
The Support Agreement provides that the Company will make an
application to the Court under the CCAA for an order
approving a sale solicitation process pursuant to which
Sino-Forest's financial advisor, Houlihan Lokey
("Houlihan") will solicit from third parties offers
to purchase substantially all of Sino-Forest's assets
(other than certain excluded assets).
Further details regarding the sale solicitation process will
be announced by the
Company following approval of a sale process order by the
Court.
The Support Agreement provides that if the Company does not
obtain an acceptable offer resulting from the sale
solicitation process, the Company will implement a
restructuring transaction (the "Restructuring
Transaction") in which Sino-Forest will transfer
substantially all of its assets, other than certain excluded
assets, to a newly formed entity ("Newco") owned
and controlled by the Noteholders in full and final
settlement of all claims of any person in respect of the
Notes. The assets transferred to Newco pursuant to the
Restructuring Transaction would include all of the shares of
the Company's directly owned subsidiaries and all of the
receivables of the Company owed by its direct and indirect
subsidiaries, but exclude certain litigation claims of the
Company against third parties which will be transferred to a
litigation trust (the "Litigation Trust")
established to pursue such claims, including claims against
Muddy Waters, and US$20 million in cash, which will be
transferred to and used to fund the Litigation Trust.
If the Restructuring Transaction occurs, the Support
Agreement provides that Junior Constituents (as defined in
the Support Agreement) will receive: (a) their pro rata share
of non-transferable "Contingent Value Rights" of
Newco which will entitle them to receive 15% of the value of
Newco, if any, in excess of U.S.$1.8 billion (being the
approximate principal amount of the Notes) plus accrued
interest on the Notes up to and including the CCAA filing
date, for no additional consideration upon the occurrence of
a liquidity event of Newco within seven years following the
implementation date of the Restructuring Transaction, and (b)
a right to receive their pro rata share of (i) 100% of any
proceeds realized by the Litigation Trust for claims against
or settlements with
Muddy Waters and its joint actors, and (ii) the first $25
million of any proceeds realized from claims against or
settlements with third parties other than Muddy Waters and
its joint actors. If at the time proceeds are available for
distribution from the Litigation Trust, the enterprise value
of Newco is less than 85% of the principal amount of the
Notes plus accrued interest on the Notes up to and including
the CCAA filing date (the "Threshold Amount"), 30%
of the remaining proceeds realized from claims against or
settlements with third parties other than Muddy Waters and
its joint actors will be paid to Noteholders (up to a maximum
of the difference between the Threshold Amount and the
enterprise value of Newco) and the remaining proceeds will be
paid to Junior Constituents. If the enterprise value of Newco
at the time such proceeds are available for distribution from
the Litigation Trust is more than the Threshold Amount,
Junior Constituents will receive 100% of the remaining
proceeds realized from claims against or settlements with
third parties other than Muddy Waters and its joint
actors.
Many of the terms of the Restructuring Transaction remain to
be settled between the parties in definitive documentation.
The transactions contemplated by this press release will be
subject to various conditions, including relevant creditor,
regulatory and Court approvals. Sino-Forest continues to be
subject to a cease trade order of the Ontario Securities
Commission which prohibits trading in Sino-Forest's
securities.
Additional details regarding the Transaction are contained in
the Support Agreement, a copy of which will be available at
www.sedar.com and on the proposed monitor's website at
http://cfcanada.fticonsulting.com/sfc. There can be no
assurance as to when or if a Transaction will be completed,
or as to the terms of any such Transaction.
The Company also announced that it has commenced an action in the Court against Muddy Waters, Carson Block, and others, relating to the allegations made against the Company by Muddy Waters, and trading in Sino-Forest shares prior to and following the public release on June 2, 2011, of a report prepared by Muddy Waters. The action alleges that public statements made by Muddy Waters and Carson Block were defamatory. The action seeks damages in the amount of $4 billion and the recovery of profits made by Muddy Waters and others in connection with the Muddy Waters report.
Cash Balance, Cash Flow Projections and Third Quarter Financial Statements
As part of its negotiations with the Ad Hoc Committee, and
pursuant to confidentiality agreements, the Company provided
to certain Noteholders who were parties to such agreements,
information regarding the Company's cash balance as of
March 2, 2012
and its expected cash flow needs for the remainder of 2012.
The confidentiality agreements require Sino-Forest to
publicly disclose this information by the sooner of the
commencement of any proceedings under the CCAA and April 30,
2012. The cash balance and cash flow projections provided to
such Noteholders are attached to this news release as
Schedule A.
The cash balance and cash flow projections are internal
documents prepared by management of the Company and are
subject to the assumptions set out in the projections. In
addition, the cash balance and cash flow projections were
prepared as at March 2, 2012, and may no longer reflect the
Company's current circumstances or the current estimates
of management of the Company. Neither the Board of Directors
of Sino-Forest nor any of its committees has approved the
cash balance or cash flow projections. Sino-Forest does not,
as a matter of course, publish its budgets or make external
projections or forecasts of its anticipated financial
position, expenditures, cash balances or cash flows. The
non-public information provided to the Ad Hoc Committee was
not prepared with a view to being disclosed publicly and is
included in this news release only because such information
was made available to the Ad Hoc Committee. Subject to
applicable securities laws, Sino-Forest does not intend to or
anticipate that it will, and disclaims any obligation to,
furnish updated projections or forecasts or similar forward
looking information to holders of securities issued by
Sino-Forest or to include such information in documents
required to be filed with the applicable Canadian securities
regulatory authorities or otherwise make such information
publicly available.
Sino-Forest will also file with the Court today in the CCAA
proceedings, draft copies of its financial statements for the
three and nine months ended September 30, 2011 (the
"Draft Q3 Financial Statements"). The Draft Q3
Financial Statements will not be filed with the Canadian
securities regulators, but will be available on the website
of the proposed monitor at
http://cfcanada.fticonsulting.com/sfc. Sino-Forest cautions
readers that the Draft Q3 Financial Statements are in draft
form only, and they do not and are not intended to comply
with the requirements of applicable securities law or
Canadian generally accepted accounting principles. As
previously disclosed, the Company cautions readers that its
historical financial statements, including the Draft Q3
Financial Statements, may not be reliable and should not be
relied upon for any purpose. The Draft Q3 Financial
Statements have been prepared by management of the Company
and have not been reviewed or approved by the Board of
Directors of the Company, any committee of the Board of
Directors or the Company's auditors.
Sino-Forest has determined that it will not be in a position
to file its audited annual financial statements for fiscal
2011 by the March 30, 2012 deadline. Sino-Forest has
made considerable efforts to address issues identified by its
Audit Committee and the Independent Committee and by its
external auditor, Ernst & Young LLP, as requiring resolution
in order for Sino-Forest to be in a position to obtain an
audit opinion in relation to its 2011 annual financial
statements. However, as yet, Sino-Forest has not been able to
satisfactorily address those issues for audit purposes for
the same reasons previously disclosed. Sino-Forest has also
determined not to file its annual information form by the
prescribed deadline and will apply to the Court for
postponement of its annual meeting of shareholders for the
duration of the CCAA proceedings.
Sino-Forest also announced that Albert Ip has resigned for
health reasons from his position as Senior Vice President,
Development & Operations North-East and South- West China.
Mr. Ip has agreed to serve as a consultant to Sino-Forest on
a part-time basis. "I would like to thank Albert for his
service to Sino-Forest," said Judson Martin,
Vice-Chairman and Chief Executive Officer of Sino-Forest.
Houlihan is acting as financial advisor to Sino-Forest,
Bennett Jones LLP is acting as Canadian legal advisor to
Sino-Forest and Osler Hoskin & Harcourt LLP is acting as
Canadian legal advisor to the Board of Directors of
Sino-Forest. The Ad Hoc Committee of Noteholders is being
advised by Moelis & Company, Goodmans LLP and Hogan Lovells
LLP.
Sino-Forest Corporation is a leading commercial forest plantation operator in China. Its principal businesses include the ownership and management of tree plantations, the sale of standing timber and wood logs, and the complementary manufacturing of downstream engineered-wood products. Sino-Forest also holds a majority interest in Greenheart Group Limited (HKSE:00094), a Hong-Kong listed investment holding company with assets in Suriname (South America) and New Zealand and involved in sustainable harvesting, processing and sales of its logs and lumber to China and other markets around the world. Sino-Forest's common shares have been listed on the Toronto Stock Exchange under the symbol TRE since 1995. Learn more at www.sinoforest.com.
No stock exchange or regulatory authority has approved or disapproved of information contained herein. This news release contains forward-looking information within the meaning of applicable securities laws, including statements relating to: the Company's expectations regarding the proposed sale solicitation process pursuant to which the Company and its advisors would seek potential purchasers of the Company's assets and the expected terms of any such third party sale; the Company's expectations regarding the proposed restructuring transaction involving the Company pursuant to which Noteholders would acquire the assets of the Company and the expected terms and consideration payable under such transaction; the Company's beliefs regarding the benefits of a court supervised process under the CCAA and the perceived benefits of that process on the Company's attempts to normalize its operations; the Company's expectations regarding its ability to complete its annual financial statements; and the
Company's intentions regarding the proposed closing of any transaction. The forward looking statements expressed or implied by this news release are subject to important risks and uncertainties. When used in this news release, the words "believe", "intend", "estimate", "expect", "will", "plan", "consider", "may", "projections", and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain such words. Forward-looking statements are based on estimates and assumptions made by the Company in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors that the Company believes are appropriate in the circumstances. The results or events predicted in these statements may differ materially from actual results or events and are not guarantees of future performance of Sino-Forest. Factors which could cause results or events to differ from current expectations include, among other things: actions taken by Noteholders, other lenders, other creditors, shareholders, regulators, governmental agencies and other stakeholders to enforce their rights; the Company's ability to find a purchaser for the Company's assets in the sale solicitation process; the Company's ability to finalize definitive documentation regarding a sale transaction or restructuring transaction on the terms contemplated, if at all; the Company's ability to complete any sale transaction or the restructuring transaction in the timeframe contemplated, if at all, which is subject to the satisfaction or waiver of numerous conditions some of which are beyond the control of the Company, including the approval of the Court, the Company's creditors and other stakeholders and securities and other regulatory authorities; the outcome of examinations currently underway by law enforcement, securities regulatory authorities and the Company's auditors; the outcome of class action or other proceedings which have been or may in future be initiated against the Company; the accuracy and outcome of the results of tree asset testing undertaken by the Company; our reliance on key employees; our ability to acquire rights to add itional standing timber; our ability to meet our expected plantation yields; the cyclical nature of the forest products industry and price fluctuation in and the demand and supply of logs; our reliance on the relationship with local plantation land owners and/or plantation land use rights holders, authorized intermediaries, key customers, suppliers and third party service providers; our ability to operate our production facilities on a profitable basis; changes in currency exchange rates and interest rates; the evaluation of our provision for income and related taxes; economic, political and social conditions and government policy in China, the Republic of Suriname and New Zealand, and stock market volatility; and other factors not currently viewed as material that could cause actual results to differ materially from those described in the forwarding-looking statements. For additional information with respect to certain of these and other factors, see the reports filed by Sino-Forest Corporation with applicable Canadian securities administrators. Sino-Forest Corporation disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
FOR INVESTOR INQUIRIES PLEASE CONTACT: BRUNSWICK GROUP
LIMITED
Tel: + 1 646 625 7452
FOR MEDIA INQUIRIES PLEASE CONTACT: BRUNSWICK GROUP
LIMITED
Email: sinoforest@brunswickgroup.com
New York
Stan Neve
Tel: +1 212 333 3810
Hong Kong
Tim Payne
Cindy Leggett-Flynn
Tel: +852 3512 5000
Summary Cashflow Since Publicly Disclosed on November 15, 2011