Palladon Ventures Ltd. ("Palladon" or the "Company") (TSX VENTURE:
PLL)(FRANKFURT: PV-1). This letter is intended to provide an update
to shareholders about recent developments at the Company, including
the equitization of Luxor Capital's indebtedness, the revised
organizational structure at Palladon Ventures Ltd., and Palladon
Iron Corporation's intentions going forward.
For the past year, the Company and its representatives
vigorously pursued funding to repay the Luxor debt that originally
matured in June 2009. The Company attempted to secure capital in
the United States, Europe, Asia, and Canada. The Company met with
financial investors, with strategic investors, and with logistics
companies involved in the shipping and sale of iron ore. Palladon
management fully appreciated the urgency of the situation, having
worked through the original default and several negotiated
extensions. While investors showed interest in the project, they
consistently refused to purchase equity for the purpose of
refunding the debt or to further fund the Company with the debt
still in place, leaving Palladon with very limited financing
options.
On the operations front, the Company also worked diligently for
the past six months to obtain agreements to ship and sell iron ore.
Unfortunately, as of March 15 the Company's efforts were not
successful and as of present date no such agreement exists. In
addition, rail and port contracts were not executed, because such
contracts would only be finalized when an off-take agreement is
executed.
On December 4, 2009, the Company executed a Letter Agreement
that provided it the option to retire the entire Luxor debt at a
significant discount prior to March 31, 2010. This agreement also
provided that if the debt was not repaid at the discounted value by
March 31st, then Luxor would write the debt down to $25 million and
also receive a 50% interest in Palladon Iron Corporation ("PIC").
The Letter Agreement was subject to TSX Venture Exchange ("TSX-V)
approval. Palladon, with assistance from its Canadian counsel,
repeatedly communicated with the TSX-V during the review process.
On several occasions, the Company requested to meet with the TSX-V
to explain the proposed transaction and the evolution of the
Agreement. The TSX-V presented the Company and its counsel with
clarifying questions, which were responded to immediately.
On February 18, 2010, the TSX-V informed the Company that it
would not approve the Letter Agreement. This decision, reached over
two months after submission, took much longer than had been
expected and exacerbated an already difficult situation. Palladon
worked closely with Canadian counsel to get the TSX-V to reconsider
its denial of the Letter Agreement. Despite these efforts and the
Company's standing offer to provide whatever information necessary,
the TSX-V would not rescind its decision, which it described as
final.
The TSX-V denial left the Company in default once again and with
no protective agreements in place. Fortunately, the Company was
able to negotiate and execute a Forbearance Agreement on March 3,
2010, pursuant to which Luxor committed to "refrain from making a
demand of payment of the outstanding principal amount and interest
under the Term Loan and from enforcing any remedies against
Palladon under the Extension Agreement" until March 15, 2010,
giving the Company additional time to attempt to negotiate an
alternative solution. The parties could not agree to an alternative
solution, leaving Palladon in default and Luxor free to realize on
its security interest, which included 100% of the shares of
Palladon Iron Corporation ("PIC").
Immediately prior to the imposed March 15 deadline, Palladon was
presented with two expressions of interest ("Proposals") for
potential financings. One was presented the night of March 14 and
the other on the morning of March 15. The Board and its counsel
carefully reviewed these Proposals. Neither of the Proposals was a
firm commitment nor a binding offer and each had many conditions,
including due diligence periods. The Company had no assurance that
the Proposals would ever yield a binding offer, and it was clear
that a significant period would be required before the terms of any
such offer could be determined. The Company was unable to negotiate
a further forbearance with Luxor extending the deadline beyond
March 15, and therefore determined that these Proposals were not
viable options.
After due deliberation, on March 15, 2010, the Board of
Directors voted unanimously to consent to the March 15, 2010,
Satisfaction and Settlement Agreement ("the equitization"), whereby
Luxor would realize on its security interest and convert its $40.55
million of indebtedness into a 78.26% interest in Palladon Iron
Corporation, and Palladon Ventures Ltd. would retain a 21.74%
interest in Palladon Iron Corporation. The Board believes that this
approach provided the best outcome for shareholders and avoided the
foreclosure proceedings or bankruptcy filing that otherwise
appeared inevitable.
Regardless of shareholder or regulatory approval that might have
been sought and obtained (or not), Luxor had the ability to realize
on its security due to the ongoing defaults under the loan
agreements, and to seize all the assets that were secured (the PIC
shares). Because the assets that Luxor eventually acquired were a
result of these circumstances and not a sale or disposition,
shareholder approval was not sought. Furthermore, the timing
imposed by Luxor did not provide for sufficient time to hold a
shareholder meeting. Had a shareholder meeting been held, it would
not have prevented Luxor from seizing the PIC shares in exercising
its remedies. The alternative scenario would have had Luxor seizing
the same assets via the bankruptcy process, the likely outcome
being that the Company would be left with no ongoing interest in
PIC.
The Board, in consultation with both its United States and
Canadian counsel, carefully and thoroughly considered all available
options, including the prospect of bankruptcy where shareholders
would likely get no recovery. Given the numerous uncertainties, the
bankruptcy path was judged an unacceptable risk. The Board acted in
the best interest of shareholders to preserve the most value it
could.
As a result of the equitization, Luxor became the majority and
controlling shareholder of Palladon Iron Corp. and its Iron
Mountain properties. Palladon Ventures will actively exercise its
rights as a significant minority shareholder in PIC, having voting
shares, a representative on the PIC Board of Directors and pro-rata
capital call rights, in addition to related minority shareholder
rights. Palladon Ventures will also be the conduit for keeping
investors apprised of developments at PIC. Luxor has committed to
provide quarterly Iron Mountain progress updates, and timely
disclosure of significant events congruent with what would be
considered material at a public company.
Palladon Ventures will continue to fulfill the compliance and
reporting obligations required to maintain its public listing, but
will reduce expenses as much as possible. The Board will be reduced
from six members to three. Steve Gilbert, Dale Gilbert and John
Brownlie have resigned, leaving members Jeff Clark, John Cutler and
Robert Getz. Dale Gilbert has also resigned from the CEO position
at Palladon Ventures to become the CEO at Palladon Iron
Corporation. The Company would like to thank these men for their
service and contributions. Management will now consist of John
Cutler as President and Leonard Sojka as CFO. Under a greatly
reduced operating budget, Palladon Ventures expects to operate with
a limited physical presence. In the near term, the Company will
need to raise a small amount of capital to fund the operating
expenses required to remain a reporting company.
Palladon Ventures and Palladon Iron remain optimistic about the
future of the Iron Mountain project, which is now debt free for the
first time since the earliest days of PIC. Consequently, PIC is
assembling a seasoned management team, starting with Dale Gilbert.
PIC has also hired financial advisors to help raise the capital
necessary to advance the concentrate scenario. PIC will continue
its efforts to secure a contract to ship run-of-mine ore, while
also evaluating the feasibility of producing an even higher
value-added product.
On Behalf of the Board of Directors,
John Cutler, President
About Palladon
Palladon Ventures Ltd. holds a significant minority interest in
Palladon Iron Corporation, which is focused on advancing the Iron
Mountain Project, an iron ore mine located west of Cedar City,
Utah.
Disclaimer for Forward-Looking Information:
Certain statements in this release are forward-looking
statements, which reflect the expectations of management.
Forward-looking statements consist of statements that are not
purely historical, including any statements regarding beliefs,
plans, expectations or intentions regarding the future, which
include the Company's continuing efforts finance current operations
and further development of the Iron Mountain Project. Such
statements are subject to risks and uncertainties that may cause
actual results, performance or developments to differ materially
from those contained in the statements. No assurance can be given
that any of the events anticipated by the forward-looking
statements will occur or, if they do occur, what benefits the
Company will obtain from them. These forward-looking statements
reflect management's current views and are based on certain
expectations, estimates and assumptions which may prove to be
incorrect. A number of risks and uncertainties could cause our
actual results to differ materially from those expressed or implied
by the forward-looking statements, including: (1) a downturn in
general economic conditions in North America and internationally,
(2) the inherent uncertainties and speculative nature associated
with mineral exploration and production, (3) a decreased demand for
minerals, (4) any number of events or causes which may delay or
cease exploration and development of the Company's property
interests, such as environmental liabilities, weather, mechanical
failures, safety concerns and labor problems; (5) the risk that the
Company does not execute its business plan, (6) inability to retain
key employees, (7) inability to finance operations and growth, (8)
other factors beyond the Company's control; and (9) the risk that
the Company will not be able to raise funds due to Luxor Capital
Group. These forward-looking statements are made as of the date of
this news release and, except as required by law, the Company
assumes no obligation to update these forward-looking statements,
or to update the reasons why actual results differed from those
projected in the forward-looking statements.
Neither TSX Venture Exchange nor its Regulation Services
Provider (as that term is defined in the policies of the TSX
Venture Exchange) accepts responsibility for the adequacy or
accuracy of this release.
Contacts: Palladon Ventures Ltd. John Cutler President
801.521.5252 801.521.5454 (FAX) info@palladonventures.com
www.palladonventures.com
Palladon Ventures Ltd. (TSXV:PLL)
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