RE:RE:RE:Questions need answers! Encanto Potash cancels deal with Horgen
2022-03-02 14:16 ET - News Release
Mr. Joseph Varner reports
TERMINATION AND SETTLEMENT OF HORGEN AGREEMENT
Encanto Potash Corp. and Horgen Holdings Inc. have mutually agreed to the termination of the framework agreement (FA) originally entered into in 2012, effective Feb. 17, 2022. The holders of Horgen owning in excess of 20 per cent of the shares of Horgen are Omer Suliyak, Hamad Al-Wazzan and Stavros Daskos and Aref Kanafani owning 5 per cent.
As it currently stands, the exchange has not accepted the FA for filing and, in an effort to resolve the exchange concerns, the parties to the FA agreed to termination of the FA and the settlement agreement has been implemented. The company has agreed to issue a 6 per cent promissory note in the amount of the accrued fees aggregating $10,276,550, in consideration for the due date of the note to be set as Sept. 1, 2023, as detailed in a settlement agreement dated Feb. 17, 2022. The settlement agreement is non-arm's length and has been approved by the majority of the independent board members.
The debt is unsecured. Failure to pay the note upon demand of repayment by its holder would result in the company being in default. An event of default could ultimately result in the company ceasing its operations. The note provides that the holder will not demand repayment prior to Sept. 1, 2023.
As detailed on the company's financial statements, the company has secured debt in the principal amount of $7.7-million controlled by Mr. Guistra, Mr. Suliyak and Mr. Al-Wazzan that is currently in default.
The exchange has advised the company that any subsequent agreement to settle the debt in shares would be subject to exchange approval at the time the company proposes to settle the debt, which approval will be conditional upon the company obtaining disinterested shareholder approval. In addition, the exchange has advised that all interest accrued under the promissory note issued for the debt is not eligible to be settled for shares of the company. As stated in the settlement agreement, the settlement agreement is subject to exchange approval.
The debt itself has three components:
- The success fee cash component of $6,757,550 (converted from United States dollar);
- The success fee equity component of 15 million shares at seven cents carried at cash equivalent of $1.05-million;
- Management fees, to reflect that 67.5 per cent of Horgen is owned by directors and/or officers of the company, as to $2,469,000.
Regulatory matters
The settlement agreement is subject to, among other things, and approval of the exchange, including that they will be exempt from shareholder approval pursuant to the financial hardship. The settlement agreement is a related-party transaction of the company for purposes of Multilateral Instrument 61-101 and is subject to the formal valuation and minority approval requirements thereof, unless an exemption is available. It is the intention of the company to rely on the financial hardship exemption provided for in sections 5.5(g) and 5.7(e) of MI 61-101.
The company's joint venture agreement with Muskowekan Resources Ltd. is in default and the parties are negotiating a resolution. There is no assurance that a resolution will be attained. And even if a resolution is attained, there is no assurance that the terms will be favourable for Encanto and its shareholders.
The company is actively working with the exchange to have its shares resumed trading