Consolidation and Rights Issue Summary and Steps i Consolidation and Rights Issue Summary and Steps in Order
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SUMMARY OF TRANSACTIONS
Theprimary use of the proceeds of the rights offering is for Hydraulicfraccing at the Karl 101 to increase production to commercial levels, toprepare the well for production and to complete payments for thedrilling of the well. If the maximum CAD$15 million is raised, theCompany plans to install compression at Beaver River in Canada toincrease production and further investigate shale gas potential.
STEPS IN ORDER
1.
A Stock consolidation of 5-1 is planned as the first action which willset a price five times the trading price on the consolidation date andto reduce the amount of shares outstanding by a factor of five. Forexample: if the pre-consolidation price is
.04 per share on the
consolidationdate the new price will be
.20. If a shareholder owns 100,000 sharesbefore the consolidation then immediately following the consolidation,the number of shares owned will be 20,000. The consolidation does notaffect the valuation of the Company.
2. Issue a prospectus thatannounces the specific dates to raise a minimum of CAD$10 million to amaximum of CAD$15 million through a rights issue in August/September,2011. The Subscription Period will likely be from late July to lateAugust 2011 and new shares will be listed in September 2011. Other keydates mentioned are the 'Ex-rights date' and the 'Settlement Date'.
Shareholderswill be given the right to purchase 1.8176 shares at CAD
.09 for eachshare held on the 'Ex --Rights' date. Shareholders can also elect tosubscribe for 'additional rights', to take a pro rata allocation of anyrights not taken by other shareholders. Questerre has committed toprovide CAD$2 million to the Company at this price of CAD
.09.
Ifshareholders don't want to buy the new shares they can sell theirrights as they will be tradable (i.e. listed) both at the Oslo Exchangeand TSX Venture Exchange during the subscription period. The rights arefree to registered shareholders up to the ex-rights date, so when soldthis is a clear profit to shareholders.
A standby guarantee hasbeen established to ensure that CAD$8 million is available to make upany shortfall after shareholders exercise their rights and after theallocation of additional subscription rights. This is at the same priceof CAD$ 0.09. This is equivalent to a 'put option'
whereby guarantorsare obliged to invest up to CAD$8 million but they have no title toinvest if the subscription rights are subscribed for at amountstotalling the minimum amount of CAD$8 million. Also if all the rightsare exercised (either by shareholders through their rights
oradditional rights, or investors who buy the rights during thesubscription period) then the guarantors get no shares. If theguarantors do receive shares the consortium is mostly of large
institutions who it is anticipated will continue to support the Company thereafter.
3.The maximum rights issue of CAD$ 15 million will give the shareholdersthe right to subscribe for a total of 166,666,667 common shares on apost consolidation basis. The shares subscribed in the rights issue willbe registered added to existing outstanding shares and the number ofoutstanding shares after the right issue will be raised to 258,362,099.
4. Trade debt will be repaid and the fraccing program will commence almost immediately.
BOARD CONSIDERATIONS FAVOURING A RIGHTS ISSUE WITH A STANDBY GUARANTEE
.Prior to announcing this transaction, Transeuro was in a challengingfinancial position with negative working capital and cash to continueoperations for around 4 months. Arranging for a minimum of CAD$ 10million financing has therefore been of paramount importance to ensure
continuedoperations of the Company and to maintain the assets of the Company.The Company in its prior announcements has informed that new funding wasnecessary, particularly when the Karl 101 well proved to require moreaggressive drilling techniques such as hydraulic fraccing.
. TheBoard has worked under the assumption that securing funds frominstitutional investors would be positive for the Company and withoutimmediate funding the Company might risk the loss of some or all of itsUkraine assets, or bankruptcy. Management has discussed the Company'sfunding requirements with numerous investment banks in both Europe andNorth America and with possible farm in partners. Of the optionspresented by management the Board has considered that the best way torefinance is to establish a standby guarantee consortium prior toannouncing a rights issue, to ensure the critical minimum funding forthe company at this stage, to try and avoid destruction of shareholdervalue and to avoid selling assets at unacceptable valuations. In the
currentmarket conditions it seemed likely to the Board that an announcement ofa rights issue without a guarantee consortium could have had a negativeeffect on the Company's share price and essentially funding might notbe secured. The Board believes that by giving existing shareholderstradable subscription rights, shareholder protection and accretion havebeen maximised in a difficult situation.
. The Boardbelieves that new funding for the Company, backed by a consortium ofmostly institutional investors, is positive for the Company and itsshareholders. The Board therefore expects the rights to trade actively,at levels that offer existing shareholders some dilution protection forthose not wanting to take part in this rights issue. A standby guaranteealso secures the minimum funding in the event that market conditionsdeteriorate further during the
subscription period.
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info@transeuroenergy.com Message sent on Thu Jun 16, 2011 at 2:29:38 PM Pacific Time