TORONTO, ONTARIO -- (Marketwire) -- 02/20/13 -- Ethiopian Potash Corp. (the "Company" or "EPC") (TSX VENTURE: FED) is pleased to announce that Danakil Potash Corporation ("Danakil Corp.") has agreed to terms for the advance of US$1.5 million to G and B Central African Resources Ltd. ("G&B"), the owner of the Danakil Property, to be used towards immediate exploration and the continued development of the Danakil Property. Funds will initially be applied to re-establishing operations at site and completion of work related to the upgrading of the existing resource estimate in the South West corner of the property.
Danakil Corp. has agreed to advance US$1.5 million to G&B by way of a loan (the "Loan"), which will be guaranteed by G&B's sole shareholder, ZRH Nominees (0105) Ltd. ("ZRH"), and secured by a pledge of all of the shares of G&B owned by ZRH. Advance of the Loan is expected to occur in tranches over a 30-day period, with the initial advance of US$200,000 to be made immediately following signing.
The Loan will bear interest at a rate of 10% per annum, and will become repayable in full (together with accrued interest) on August 18, 2013. Events of default under the Loan include the Danakil Property ceasing to be held in good standing, non-payment on maturity and other customary events of default. Danakil Corp.'s ability to enforce its security over the G&B shares will be restricted until June 30, 2013, unless EPC fails to obtain the approval of its shareholders for the Danakil Joint Venture contemplated by the memorandum of understanding (the "MOU") described in EPC's press release dated January 30, 2013 (in which case Danakil Corp. will be entitled to enforce its security immediately following the date of such meeting). In the event that any draw-down request by G&B is not satisfied, Danakil Corp.'s security over the G&B shares will terminate immediately and the funds advanced under the Loan as at the termination date will become repayable at maturity of the Loan.
The MOU contemplates (among other transactions) G&B and ZRH waiving the requirement for a feasibility study (the "Waiver") under the option agreement (the "Option Agreement") among EPC, G&B and ZRH in order to enable early exercise of EPC's option (the "Option") over the G&B shares and Danakil Corp. acquiring a 70% (with EPC retaining a 30% interest) in the Danakil Property pursuant to the Danakil Joint Venture. Repayment of the Loan will be set-off against Danakil Corp.'s US$1.5 million subscription into the JVCo (as described in EPC's press release dated January 30, 2013).
The Waiver and establishment of the Danakil Joint Venture will be subject to satisfaction of all applicable conditions precedent, which will include (but not be limited to) the restructuring of all outstanding debt of G&B (other than the Loan) incurred on behalf of EPC in connection with the Option, due diligence, the execution of mutually satisfactory definitive agreements among the parties and obtaining all required approvals, including but not limited to TSXV and shareholder approvals.
The parties to the MOU have agreed to extend the deadline for the execution of the agreements contemplated therein to April 1, 2013. All third-party and regulatory approvals, as may be required, must be obtained by no later than June 30, 2013. There can be no assurance that the definitive agreements will be entered into within the time required and/or that the transactions contemplated in the MOU will be consummated. Details regarding the transactions contemplated by the MOU are described in EPC's press release dated January 30, 2013.
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