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Item 1. Legal Proceedings

2020-08-14 compared with 2020-05-15 · 50 added, 104 removed, 20 unchanged (89% of the section changed)

LEGAL PROCEEDINGS

Immediately following CW-Cooperatief’s

acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company,

Norte Sur Agua, S.

(“NSA”).

NSA subsequently transferred ownership of half of its shares in NSC to

EWG Water LLC (“EWG”) and the other half of its shares in NSC to an individual (the “individual shareholder”).

In February 2012, CW-Cooperatief paid $300,000 to enter into an agreement (the “Option Agreement”) that provided it

with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for

a price of $1.0 million along with an immediate usufruct and power of attorney to vote those shares.

Such shares constituted 25%

of the ownership of NSC as of February 2012.

In May 2013, NSC repaid a $5.7 million loan payable to CW-Cooperatief by

issuing additional shares of its stock.

As a result of this share issuance to CW-Cooperatief, we acquired 99.99% of the ownership

The Option Agreement contained an anti-dilution provision that required CW-Cooperatief to transfer or otherwise cause the

individual shareholder to acquire, for a total price of $1 (regardless of their par or market value), shares in NSC of an amount

sufficient to maintain the individual shareholder’s 25% ownership interest in NSC if (i) any new shares of NSC were

issued subsequent to the execution of the Option Agreement (causing the individual shareholder’s 25% ownership interest in

NSC to be decreased);

Immediately following CW-Cooperatief’s acquisition of its initial 50% ownership in NSC, the remaining 50% ownership interest in NSC was held by an unrelated company, Norte Sur Agua, S.

NSA subsequently transferred ownership of half of its shares in NSC to EWG Water LLC (“EWG”) and the other half of its shares in NSC to an individual (the “individual shareholder”).

In February 2012, CW-Cooperatief paid $300,000 to enter into an agreement (the “Option Agreement”) that provided it with an option, exercisable through February 7, 2014, to purchase the shares of NSC owned by the individual shareholder for a price of $1.0 million along with an immediate usufruct and power of attorney to vote those shares.

Such shares constituted 25% of the ownership of NSC as of February 2012.

In May 2013, NSC repaid a $5.7 million loan payable to CW-Cooperatief by issuing additional shares of its stock.

As a result of this share issuance to CW-Cooperatief, we indirectly acquired 99.99% of the ownership of NSC.

The Option Agreement contained an anti-dilution provision that required CW-Cooperatief to transfer or otherwise cause the individual shareholder to acquire, for a total price of $1 (regardless of their par or market value), shares in NSC of an amount sufficient to maintain the individual shareholder’s 25% ownership interest in NSC if (i) any new shares of NSC were issued subsequent to the execution of the Option Agreement (causing the individual shareholder’s 25% ownership interest in NSC to be decreased);

and (ii) CW-Cooperatief did not exercise its share purchase option by February 7, 2014.

CW-Cooperatief

exercised its option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

In January 2018, EWG initiated an

ordinary mercantile claim against the individual shareholder, NSC and CW-Cooperatief, (with AdR being named as a third party to

be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”).

The paragraphs that follow include a description of such litigation, while subparagraphs a) through f) that follow describe certain

separate amparo claims, an appeal and an administrative act arising from or relating to such ordinary mercantile claim, all in

chronological order.

CW-Cooperatief exercised its option and paid the $1.0 million to the individual shareholder to purchase the Option Agreement shares in February 2014.

In January 2018, EWG initiated an ordinary mercantile claim against the individual shareholder, NSC and CW-Cooperatief, (with AdR being named as a third party to be called to trial) before the Tenth Civil Judge in Tijuana, Baja California for Mercantile Matters (the “Tenth Civil Judge”).

The paragraphs that follow include a description of such litigation, while subparagraphs a) through f) that follow describe certain separate amparo claims, an appeal and an administrative act arising from or relating to such ordinary mercantile claim, all in chronological order.

Due to the current global COVID-19 pandemic, most tribunals in Mexico suspended their activities since March, with certain such tribunals restarting activities in August.

As such, several resolutions are pending issuance.

In the ordinary mercantile claim, EWG challenged, among other things, the transactions contemplated under the Option Agreement, and therefore, the capital investment transactions that increased the ownership interest of CW-Cooperatief in NSC to 99.99% as a consequence of the Option Agreement.

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and (d) order public officials in Mexico and credit institutions abroad to refrain from authorizing or executing any legal act related with the activities of the plaintiff, the co-defendants and the third party called to trial to avoid damages to third parties, including those with whom negotiations or any form of commercial or administrative activities, or activities of any other nature related with the “Rosarito”

water desalination project, are being conducted.

The Tenth Civil Judge granted, ex-parte, the preliminary relief sought by EWG, which resulted in the issuance of official writs to several governmental and public entities involved with the Project, including the registration of the pendency of the lawsuit in certain public records.

a) AdR amparo claim against

the preliminary relief sought by EWG.

In April 2018, AdR filed an

amparo against the official writs issued by the Tenth Civil Judge to two governmental entities.

In May 2018, the amparo claim

was amended to also request protection against additional official writs issued by the Tenth Civil Judge to two other governmental

entities and one banking institution.

In May 2018, the Third District Court for Amparo and Federal Trials in the State of

Baja California with residence in Tijuana granted a temporary suspension of the effects and consequences of the claimed official

writs issued by the Tenth Civil Judge pending a further determination by the Third District Court.

Such suspension was granted

definitively in July 2018, and in August 2018, a resolution determining that the claimed official writs are unconstitutional,

EWG appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the

amparo filed by AdR.

However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned

in subparagraph b) that follows.

a) AdR amparo claim against the preliminary relief sought by EWG.

In April 2018, AdR filed an amparo against the official writs issued by the Tenth Civil Judge to two governmental entities.

In May 2018, the amparo claim was amended to also request protection against additional official writs issued by the Tenth Civil Judge to two other governmental entities and one banking institution.

In May 2018, the Third District Court for Amparo and Federal Trials in the State of Baja California with residence in Tijuana granted a temporary suspension of the effects and consequences of the claimed official writs issued by the Tenth Civil Judge pending a further determination by the Third District Court.

Such suspension was granted definitively in July 2018, and in August 2018, a resolution determining that the claimed official writs are unconstitutional, was issued.

EWG appealed such resolution, and in January 2020, the Collegiate Tribunal resolving such appeal dismissed the amparo filed by AdR.

However, such dismissal does not adversely impact AdR, considering the resolution to the appeal mentioned in subparagraph b) that follows.

On October 16, 2018, NSC was served with the ordinary mercantile claim.

1 unchanged sentence

In addition to such legal response, NSC filed (i) a request to submit the claim to arbitration, based on certain provisions of the by-laws of NSC, (ii) an appeal remedy against the preliminary relief, and (iii) a request for the setting of a guarantee to release the preliminary relief granted in favor of EWG.

b) Appeal filed by NSC against the preliminary relief

sought by EWG.

The appeal remedy previously mentioned

in item (ii) suspended the proceeding (through the posting of a guarantee by NSC) and was resolved in December 2019 and

communicated to EWG in January 2020.

Such resolution revoked the order of the Tenth Civil Judge whereby EWG was granted the

preliminary relief.

filed by EWG against the revocation of the preliminary relief.

In January 2020, EWG filed

a new amparo claim against the resolution of the appeal remedy previously mentioned in item (ii).

NSC has responded to this new

amparo to vigorously oppose such amparo claim of EWG and to uphold the resolution of such appeal remedy.

To this date, this amparo

claim has not been resolved and, as such, it does not affect the revocation of the preliminary relief.

On February 26, 2019, the Tenth Civil Judge acknowledged NSC’s the filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii) granting EWG a period of three business days to, among others, state what it deemed convenient to its interest.

Further, on February 26, 2019, the Tenth Civil Judge set the guarantee requested in NSC’s November 7, 2018 legal response, in the form of a security deposit in the amount of 1,000,000 Mexican pesos, to release the preliminary relief sought by EWG.

b) Appeal filed by NSC against the preliminary relief sought by EWG.

The appeal remedy mentioned previously in item (ii) suspended the proceeding (through the posting of a guarantee by NSC) and was resolved in December 2019 and communicated to EWG in January 2020.

Such resolution revoked the order of the Tenth Civil Judge whereby EWG was granted the preliminary relief.

c) Amparo filed by EWG against the revocation of the preliminary relief.

In January 2020, EWG filed a new amparo claim against the resolution of the appeal remedy previously mentioned in item (ii).

NSC has responded to this new amparo to vigorously oppose such amparo claim of EWG and to uphold the resolution of such appeal remedy.

To this date, this amparo claim has not been resolved and, as such, it does not affect the revocation of the preliminary relief.

On February 26, 2019, the Tenth Civil Judge acknowledged NSC’s filing of the legal response to the ordinary mercantile claim, its request to submit to arbitration, and the appeal remedy previously mentioned in item (ii), granting EWG a period of three business days to, among others, state what it deemed convenient to its interest.

On March 4, 2019, NSC filed before the Tenth Civil Judge evidence of such security deposit, requesting the release of the mentioned preliminary relief.

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Further, on April 12, 2019, the Tenth Civil Judge ruled that the request for arbitration filed on November 7, 2018 was not applicable under Mexican law.

filed by NSC against the resolution rejecting submission to arbitration.

On May 17, 2019, NSC filed

an amparo claim against the April 12, 2019 ruling.

Such amparo claim was resolved on October 31, 2019, ordering the Tenth

Civil Judge to issue a new resolution on the request to submit the claim to arbitration.

EWG filed an appeal remedy opposing such

order for the issuance of a new resolution, and NSC has filed pleadings to uphold the order for the issuance of a new resolution

challenged by EWG.

In March 2020, such appeal remedy was resolved in favor of NSC, as the order to the Tenth Civil Judge for

issuing a new resolution was confirmed.

While such order requires the Tenth

Civil Judge to issue a new resolution on the matter of arbitration, this order does not necessarily imply that the Tenth Civil

Judge shall rule to move to arbitration.

However, if the new resolution is unfavorable for NSC, NSC is prepared to vigorously

oppose such resolution.

e) Administrative

cancellation of registrations before the Public Registry of Property.

Despite the posting of the previously mentioned 1,000,000 Mexican

pesos guarantee in February 26, 2019 to release the preliminary relief sought by EWG within the ordinary mercantile claim,

the Tenth Civil Judge failed to make the resolution effective, which would thereby rescind the previously mentioned preliminary

relief granted to EWG.

Consequently, on June 19,

before obtaining a resolution revoking the preliminary relief as mentioned previously), NSC filed before the Public

Registry of Property of Baja California a cancellation request for the provisional lien and the preventive annotation recorded

against NSC’s property in the public real estate records.

On June 24, 2019, the Public

Registry of Property of Baja California issued an encumbrances cancellation resolution, approving the release of the provisional

lien and the preventive annotation recorded against NSC’s property in the public real estate records.

Such encumbrances cancellation

resolution was registered before the Public Registry of Property of Playas de Rosarito on June 25, 2019.

2019, the Public Registry of Property of Playas de Rosarito issued a certificate of no liens with respect to the real estate owned

f) Amparo filed by EWG against

the administrative cancellation of registrations before the Public Registry of Property.

In November 2019, NSC learned

that EWG had filed an amparo claim before the Third District Court in Tijuana against such encumbrances cancellation resolution,

and in December 2019, NSC responded to such claim, vigorously opposing it.

Thereafter, NSC submitted a motion to dismiss,

based on the resolution of the appeal remedy previously mentioned in subparagraph b) revoking the preliminary relief, previously

mentioned in item (ii).

d) Amparo filed by NSC against the resolution rejecting submission to arbitration.

On May 17, 2019, NSC filed an amparo claim against the April 12, 2019 ruling.

Such amparo claim was resolved on October 31, 2019, ordering the Tenth Civil Judge to issue a new resolution on the request to submit the claim to arbitration.

EWG filed an appeal remedy opposing such order for the issuance of a

new resolution, and NSC has filed pleadings to uphold the order for the issuance of a new resolution challenged by EWG.

In March 2020, such appeal remedy was resolved in favor of NSC, as the order to the Tenth Civil Judge for issuing a new resolution was confirmed.

While such order requires the Tenth Civil Judge to issue a new resolution on the matter of arbitration, this order does not necessarily imply that the Tenth Civil Judge shall rule to move to arbitration.

However, if the new resolution is unfavorable for NSC, NSC is prepared to vigorously oppose such resolution.

e) Administrative cancellation of registrations before the Public Registry of Property.

Despite the posting of the previously mentioned 1,000,000 Mexican pesos guarantee in February 26, 2019 to release the preliminary relief sought by EWG within the ordinary mercantile claim, the Tenth Civil Judge failed to make the resolution effective, which would thereby rescind the previously mentioned preliminary relief granted to EWG.

Consequently, on June 19, 2019 (i.e.

before obtaining a resolution revoking the preliminary relief as mentioned previously), NSC filed before the Public Registry of Property of Baja California a cancellation request for the provisional lien and the preventive annotation recorded against NSC’s property in the public real estate records.

On June 24, 2019, the Public Registry of Property of Baja California issued an encumbrances cancellation resolution, approving the release of the provisional lien and the preventive annotation recorded against NSC’s property in the public real estate records.

Such encumbrances cancellation resolution was registered before the Public Registry of Property of Playas de Rosarito on June 25, 2019.

On June 26, 2019, the Public Registry of Property of Playas de Rosarito issued a certificate of no liens with respect to the real estate owned by NSC.

f) Amparo filed by EWG against the administrative cancellation of registrations before the Public Registry of Property .

In November 2019, NSC learned that EWG had filed an amparo claim before the Third District Court in Tijuana against such encumbrances cancellation resolution, and in December 2019, NSC responded to such claim, vigorously opposing it.

Thereafter, NSC submitted a motion to dismiss, based on the resolution of the appeal remedy mentioned previously in subparagraph b) revoking the preliminary relief, previously mentioned in item (ii).

The Court resolved in favor of such motion to dismiss.

However, EWG may file an appeal remedy against such

On June 27, 2019, the Tenth Civil Judge acknowledged the posting, by EWG, of a bond policy as the counter guarantee allowed pursuant to the Tenth Civil Judge’s ruling on April 26, 2019.

However, EWG may file an appeal remedy against such resolution.

On June 27, 2019, the Tenth Civil Judge acknowledged the posting, by EWG, of a bond policy as the counter guarantee allowed pursuant to the Tenth Civil Judge’s ruling on April 26, 2019.

NSC plans to vigorously oppose the filing of such bond policy upon continuation of the proceedings, following the suspension granted as a result of the filing of the appeal remedy previously mentioned in subparagraph b).

1 unchanged sentence

In any event, AdR is only a named third party called to trial in this claim, and no claims have been made by EWG against AdR.

We cannot presently determine what impact the resolution of

this litigation may ultimately have on our ability to complete the Project .

We cannot presently determine what impact the resolution of this litigation may ultimately have on our consolidated financial condition, results of operations or cash flows.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Legal Proceedings